I like to have the TV on while I write. The background noise helps my mind focus. And because I have YouTube TV, I can record almost anything I want and watch/listen to it later.
Earlier this week, I put Meet the Press on the TV as I started writing. It’s usually the perfect show to write to. Everyone drones on. And I don’t have to pay attention because it’s always the same prattle. I can focus on my writing and the show acts as white noise.
But on this show, I heard something that forced me to stop writing. Meet the Press host Chuck Todd was interviewing Senator Elizabeth Warren, and he ended the interview by saying that he wished he had another five minutes with her to talk crypto and FTX. Warren excitedly said she’d love to talk crypto with Chuck and promised to appear on the show soon for a crypto discussion.
Uh-oh.
Following the commercial break, White House Senior Advisor Anita Dunn opened her interview with this line: “Hey, Chuck, thank you for having me on. And I just have to say, I too would’ve yielded five minutes to Elizabeth Warren to hear her talk about crypto.”
Double uh-oh.
And this week, NBC News ran a special news show in prime time titled Hellscape: Inside the Meltdowns at Twitter and FTX.
I haven’t watched it yet. I’ve been too busy trying to assess the fallout from FTX’s collapse. If you want to read more about how the FTX collapse happened, please read what I wrote on Wednesday for our Early Investing members. And on Monday, I’ll publish a more extensive piece for First Stage Investor on the impact and legacy of FTX’s collapse. (Quick preview: The knives are out and people in power want change.) As a Crypto Asset Strategies member, you should also have access to First Stage Investor, so please make sure you check it out.
What I’m focusing on today is what altcoin investors should do.
First, I’m not sending out a new pick this month. I want to get a better grasp of which assets FTX, Alameda Research and FTX/Alameda founder Sam Bankman-Fried had on their books before investing more money into the market.
I will send out a pick next month. The crypto markets have proven time and again to be quite resilient. And when there’s a major collapse like this, significant buying opportunities emerge. There’s a chance to get into some good projects at bargain prices right now. The key is de-risking the investment by limiting exposure to the FTX/Alameda/SBF meltdown.
The Crypto Asset Strategies portfolio is holding up well given just how much and how quickly the markets collapsed. As I write, bitcoin, Cosmos, PancakeSwap and Chiliz are all in the green.
Litentry is down less than 8%. Ethereum Name Service and Ravencoin are down less than 15%. And in the midst of a significant decentralized finance crisis, Aave is down less than 30%.
This is why portfolio construction matters. Selecting a diverse basket of resilient projects and altcoins that can weather horrendous market conditions puts investors in a good place when the next bull market occurs.
There are a few coins in the portfolio that are down more than 30%. But the only coin I’m really worried about right now is Stargate Finance (STG), which is down about 68% since I recommended it near the top of its market. Alameda Research bought up most of STG’s initial allocation earlier this year.
If you want to sell now, that’s an option. But I’m not ready to issue a sell alert yet. LayerZero, which created STG, is backed by Andreessen Horowitz and Sequoia Capital. And it was backed by FTX Venture as well. But LayerZero did something really smart last week. It extricated itself from the FTX meltdown. Here’s what LayerZero said in a letter to investors:
We’ve worked around the clock for the past 72 hours to structure an agreement and have bought FTX/FTX Ventures/Alameda out of 100% of their equity position, token warrants, and any and all agreements between us.
Separately, we’ve also purchased the locked STG tokens from the community auction that Alameda had and will be putting up a proposal to transfer these to the Stargate Foundation pari pasu and let the community decide what to do with them.
We currently have about $107 million in direct cash balance, $27 million in on-chain funds (about 90% in stablecoins) for a total of $134 million. We do have an additional $11.5 [million] that was on FTX that was used operationally but for the sake of sanity we’ll treat this as $0 for the moment although presumably some amount on the dollar is likely recoverable.
The letter also notes that LayerZero has seven years of runway. STG is a pretty good project despite its exposure to Alameda. It looks like LayerZero can weather the storm. And because the long-term potential for STG is extremely good, I’m taking a “wait and see” approach with STG.
But I’ll also be monitoring it closely. This is a volatile situation. Right now, it appears that holding on to STG is the right play. But if that changes, I’ll let you know right away.
I fully expect the crypto markets to be fairly volatile (even for crypto) over the near term. Each new bit of news that emerges from the FTX collapse could trigger even more selling pressure. But I also believe that once this FTX-induced slide ends, we’ll be at or near the bottom of the market.
It’s not easy being a crypto investor. But it’s always interesting. And hopefully crypto will emerge even stronger from this crisis. That’s always been the case in the past. And I believe that’s the case now.