Towards the end of 2021, I decided to take a vacation and booked a flight to Colorado with my friend when I met a certain special someone. Getting off the slopes, I walked by our hotel lobby when I first met her.
She was donning a turquoise Patagonia jacket with a navy blue beanie, and looked like she had a great day out on the slopes as well. I walked in front of the immaculately decorated Christmas tree in the lobby and locked eyes with her for the first time. We greeted each other, and spent the next hour sharing about our lives.
Last night we chatted on the phone deep into the night. It was close to 2 in the morning my time, and around midnight hers. We had spoken about everything under the sun - her favorite brand of ice cream, my fondness for art history, and perhaps plans of us watching Hamilton on Broadway some day.
I then mentioned about how I recently poured my entire networth into a single investment and borrowed every dollar against my credit lines to invest and was down 40% as of the prior week.
I walked her through what my expected case scenario would be, my excel model as to how much capital gains taxes I would have to pay, depending on whether the investing time horizon qualifies for short or long-term gains.
To that, she helpfully suggested, “I mean, if you’re down 40%, you don’t have to worry about taxes.”
Portfolio Review
This week, we are down 78% on a levered basis, and down 27% on a non-levered basis. Clearly, nobody should ever take market timing advice from me.
This performance was in stark contrast to last week when I was “only” down 42% on a levered basis, showing you just how volatile crypto can be.
Ethereum was the largest driver of the losses week-on-week as it makes up the majority of my portfolio and had been holding up strong in the last 9 weeks while the broader markets have been on a downtrend.
This week - Ethereum capitulated.
Ethereum ended the week at $3,155, down 14% from the prior week, while Bitcoin (only 3% of my portfolio) is down 9%. The additional leverage that I hold compounds those losses even further.
In terms of losses in absolute dollars, Ethereum now makes up 35% of all my losses, with Polkadot and Cardano neck-and-neck at 24% respectively, while Solana rounds out the top 4 bombs at 14%. This is to be expected as those four make up my top four positions by cost basis.
For a refresher of my rough portfolio weights, click here.
Spare Change?
“Buy when there's blood in the streets, even if the blood is your own”
- Baron Rothschild
As we begun 2022, I certainly was not expecting to buy more crypto as I thought I’ve invested every dollar I could find, and honestly I was just running out of cash at this moment.
But the staggering drop in sentiment this past week meant that I was once again wrecking my brains to find new ways to get some cash.
This week - I rummaged through pockets of my winter jackets and salvaged a couple bills here and there, and then subsequently found some random savings accounts that had tiny amounts remaining - like $5.50, or $12.50 and took them all out.
If this downdraft persists, I imagine I will be hosting a garage sell of my apartment on craigslist next week (hmu if you need some west elm / cb2 furniture!)
All in, I managed to deploy another 0.9% of additional capital into the markets this week, with 48% of that additional cash in Solana, 39% Ethereum, and 13% Bitcoin.
A Downtrend is a Downtrend is a Downtrend
The chart above shows weekly candles of Bitcoin’s price since 2020. Each bar, or “candle” as people like to call it, represent the range in which prices traded within the week for a specific asset.
As you can see, 2020 was largely a favorable year dominated by green candles which meant that prices were going up on the week, while 2021 had largely been a mix bag of green and red candles.
In fact, 2021 ended largely with red candles that bled into the new year.
What the mix of green and red candles masks however, is the momentum of the direction of prices.
Put it differently, weekly ups and downs masks the underlying trend.
The above Bitcoin chart is of the same time period and on the same weekly basis, but as you can see, there are more distinct phases of reds and greens.
These are called Heikin-Ashi candles, and while you can google for the exact formula of what it does (here), think about it as a moving average that allows us to capture where the market has been trending.
As you can see, while the prior chart had blips of green weekly candles in between, the Heikin-Ashi candles have been red for the last 9 weeks - signifying strong persistent momentum to the downside. When momentum is trending in a particular direction, it is very hard to stop.
On the flipside, while nobody can tell you when this downtrend will end, what we can observe on that chart is that when it turns green, the momentum can be unstoppable as well.
In general, given what we’ve been talking about in the past with regards to the exponential growth in adoption, and the burgeoning use cases for the underlying technology, my belief is that when the downtrend ends, the uptrend can be equally explosive.
I’m continuing to hold on to my existing positions as you can imagine, and we shall see if I will get any bids on my craigslist garage sale this week.
We’ll Meet Again… Some Sunny Day
Being the inquisitive one that she was, the girl I met in Colorado prodded hard as to what this “investment” was. After I highlighted my losses so far and then outlined how I’m leveraged to the hilt, she went from being shocked to aghast.
We all know how this space can be controversial sometimes, so I deflected any attempts to reveal that I was investing in crypto.
She’s clearly super smart, and by the line of her questioning, I know she already knows what this is.
We did agree, however, at the end of the night, that if we do meet each other again, I will let her in on the secret.
And when we do meet, perhaps I will read this letter to her.
Hello, again. :)