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HEALTH, WEALTH, AND HAPPINESS

May 11, 2022

"Can the intelligent investor [achieve] better-than-average results? I think it is possible for some strong-minded investors to do this, by buying value rather than prospects or popularity."

- Benjamin Graham

New Workshop this Friday 5/13 at 12:00 pm ET: Learn how Bitcoin and the Lightning Network are making fast crypto payments possible in emerging economies.

In partnership with blockchain investor group Chain Reaction, we're pleased to welcome Hannah Rosenberg, Founder and Director of Velas Commerce, to discuss the different use cases for the Lightning network in the US versus developing countries.

Based in Puerto Rico, Hannah will touch on the thriving blockchain and cryptocurrency ecosystem there, as well as on Lightning Labs and their Taro protocol. Click here for the Zoom link.

Cryptocurrency TerraUSD Plunges as Investors Bail (Wall Street Journal): It's the biggest drama in crypto history -- and our loyal readers were safely forewarned weeks ago.

The TerraUSD stablecoin has turned into an unstablecoin, losing its peg to the dollar. First, the team spent $1.5 billion on an unsuccessful bailout, then reportedly tried to raise an additional $1 billion+ from investors.

Meanwhile, you'll remember that Terra (the stablecoin) is counterbalanced by Luna(the crypto token), which has also plummeted in value (see chart below). The Terra team will be reportedly minting a huge amount of fresh LUNA, in hopes investors will buy it, giving them fresh money to regain the peg.

Investor takeaway: Luna investors call themselves "Lunatics." Need we say more?

Here's the day-by-day drama of TerraUSD (the stablecoin):

Remember that with stablecoins, flatline = good, jerky line = bad.

Meanwhile, here's how the drama has affected LUNA (the crypto token):

Remember that with crypto tokens, green = good, red = bad.

Investor takeaways: We hope the TerraUSD meltdown will be a wake-up call for meaningful change.

Regulators must get off their backsides and start ensuring that stablecoins have real money backing them.

Crypto news outlets must no longer hype the 20% returns of TerraUSD, without clearly explaining the risks to their readers.

Crypto investors must start using their critical thinking skills. When a crypto interest rate seems too good to be true, it probably is.

Leading up to this week:

Here are some key events regarding Luna and UST leading up to this week:

1. Lunatics. Communities are cute but this might not have been the best name. Of all the tribal nicknames in crypto, this might honestly be the worst in my opinion. To be fair, I believe this has nothing to do with what occurred this week. Legendary crypto OG and investor Mike Novogratz even got the above tattoo and declared himself a "Lunatic." We're all wrong sometimes, but this one is particularly embarrassing. 

2. "Luna Foundation Guard further bolsters stablecoin reserve by raising $1.5 billion in bitcoin." If you were like most of the crypto community (like myself), you probably cheered this headline just six days ago from CNBC. In fact, this indicated that LFG had roughly $3.5 billion in bitcoin at the time, making it one of the top 10 holders in the world. 

In hindsight, this headline provoked two questions:

1. If UST is an algorithmic stablecoin backed by Terra, why does it also need to be backed by bitcoin if nothing is wrong?

2. If an organization that has a function to stabilize a stablecoin buys bitcoin, what are the odds it would see that bitcoin when it, you know, does its job?

3. Do Kwon launches attacks against other stablecoins

Seemingly confident about the success of his project, Do Kwon, Founder & CEO of Terraform Labs, which created Terra, made a series of tweets that haven't aged well. Shockingly, he hasn't deleted any of these:

1. He loves chaos.

2. He criticized USD Coin and centralized stablecoins (his least offensive tweet in my opinion).

3. Most outrageously he called for attacks on DAI, another algorithmic stable coin.

These tweets didn't age well.

Personally, I am not happy that people lost money or that the market crashed (so did my bags). But in my opinion, Kwon's arrogance and irresponsibility are intolerable. As an indirect custodian of tens of billions of dollars of other people's money, he has acted in a way that is unthinkably awful.

4. Bombshell 

To make matters even worse, a bombshell report from CoinDesk today indicates that Kwon was one of the undoxxed founders behind Basis Cash in 2020, another algorithmic stablecoin that failed.

Investor's Take

What's my take?

First in relation to the Terra Luna ecosystem, UST, etc.

Money, any kind of money, has at least one factor in common. Whether digital or paper, whether fiat, bitcoin, or algorithmic stablecoin, it must be backed by confidence, confidence that if you buy or accept some, you will be able to use it or sell it to someone later, and confidence that bad actors will not take down the system from the outside or inside.

The market has voted. The market is regulating itself. Terra Luna is not trusted. It's bad enough that Nexo tweeted that it had no exposure to the Terra ecosystem.

I, for one, don't see how it can possibly regain that trust. It is entirely possible that the price of Luna goes back, and even that the UST re-pegs. But I wouldn't bet on it.

How about crypto overall? This was a quick shock to markets. Short term, I don't know exactly what will happen. Will the LFG sell billions in bitcoin? It might. Long-term, I am even more bullish. Bitcoin is on sale, and there is no guarantee it will be on sale this low again.

I am tripling down here:

1. Bitcoin significantly outperformed all asset classes over the past decade.
2. I expect bitcoin to substantially outperform all asset classes over the next decade.
3. Dollar-cost average into bitcoin every month (don't borrow to buy bitcoin) and HODL. 

Sincerely, 

Alexandre Lores

Opportunity Analyst

Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It is created by Evamarie Augustine, Charles Bovaird, Mati Greenspan, John Hargrave, and Alexandre Lores.

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