View email in browser || Sign up for this newsletter now! || Read past issues

13 May 2022

In this issue

How to invest in a crypto bear market || The Top Five stories this week || "STABLECOINS," explained

Hello,Yes, it has been an excruciatingly painful couple of days.By mid-week, Bitcoin and Ethereum were down nearly 60% from their November highs of $68,000 and $4,800 respectively. Most Indian crypto portfolios, especially the ones built since the boom in 2021, are in the red—some by more than 50%.Terra LUNA crash has eviscerated the faith in algorithmic stablecoins (we have a simple explainer on Stablecoins in this issue, check it out below). Coinbase’s stock price plummeting has provided more ammunition to crypto-cynics to shoot out schadenfreude.The markets be like this…

And we feel like this…

All in all, pretty sad week. But we are turning this into a teaching moment for you, by stating what we’ve been saying for a while: be a well-researched, long-term investor in crypto. And we can help you with it. The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. Subscribe to the newsletter here, if you haven’t already.Housekeeping: If you got this email in your 'Promotions' tab, then shift it to the 'Primary' tab so this lands in your main inbox! Thank you.

THE BIG STORY

How to invest in a crypto bear market

Amidst the bloodbath that we are witnessing, many crypto investors are wondering how to proceed. Should we just hold and watch, invest more during the dip, or dump and run?We are in this for the long haul, and if you are too, then hear us out.  Let’s begin with understanding what is happening.

• Globally, we are in a risk-off environment as multiple countries increase bank interest rates post the pandemic while inflation data remains concerning.

• Investors are taking capital away from stocks, crypto, and other high-risk environments with US Dollar and gold proving to be safe havens for the short-term. 

Basically, there is a bloodbath everywhere — and crypto markets are suffering, too.What to expect in the near-future

• The decline in crypto markets is expected to continue for another 2-3 months.

• Any new monies into the ecosystem will likely be routed to Bitcoin until it shows real strength to pull the entire market along. Bitcoin’s share of crypto market cap is hovering around 44%, its highest level in 2022. Analysts estimate that BTC.D will likely hit 50% in the coming months. 

Bitcoin dominance chart in recent months

Right now, most crypto investors are fighting both market volatility and our own emotions. Portfolios are painfully in red with investors considering selling it off to ensure no further slide. Emotionally, many are in a denial state at present.The only solution to both is — time. Here’s why.For long-term investors, there is still considerable hope. When Bitcoin regains its past glory and creates new all-time highs in future, and if you hadn’t sold your positions by then, you will be in profit. In fact, many consider such periods as the best time to pump more capital into Bitcoin to average out their cost basis over time. Like Warren Buffet once said, “When there is blood on the streets, you buy.” 

But “buying the dip” isn’t quite as simple as it sounds. Question is, when and in what? Two phrases: stack cash, blue chip.  

• Stack cash – hold off on deploying your capital in crypto till you see market strength or a deep capitulation where prices of Bitcoin are even lower (Analysts estimate a $20,000-$25,000 bottom for Bitcoin this year).

• Focus on the blue chips – Bitcoin and Ethereum are likely to grow with time and exist for years from now. Try to consolidate your crypto positions into these two crypto assets – you can mitigate risks with respect to coins that go into oblivion. We saw this unfolding this week - LUNA was a top-10 cryptocurrency that lost 99% value in 3 days. Avoid investing in altcoins however ‘cheap’ they appear today. They will likely lose another 50% value in the next couple of months. 

If you are a short-term trader and you require capital immediately for other purposes, you will have to sell your portfolio at a loss. The best way to deal with this is to consider it an expensive lesson for the future. Short-term trades are loss making for 90% of traders because timing the market is tough. But here are two suggestions for you:

• Play the waiting game emotionally — if you are in the denial stage, give yourself time till you get into ‘acceptance’ of market realities and then act rationally. Don’t act in haste — stay away from looking at your portfolio for the next month or so while stacking cash.

• When markets get back to being healthy, please take out profits when possible — don’t shy away from taking profits frequently so that you benefit from market volatility. Ensure each of your investments have a target price. Once achieved, take out the profits.

And, the most important suggestion for short-term traders: switch to long-term investing and wealth creation mindset, if you can. These are times of high volatility across markets and asset classes, so playing it safe is being sensible.

  THE TOP FIVE 

Stories from this week you cannot miss

1. RCD Espanyol will become the first member of Spanish professional soccer league, La Liga, to accept bitcoin and other cryptocurrencies for tickets, merchandising and food and beverages.2. Sony Group Corporation has partnered with Theta Labs to launch 3D non-fungible token (NFT) assets crafted for the Sony Spatial Reality Display.3. In a first in Minnesota, Continental Diamond, a St. Louis-based jewelry store, has partnered with BitPay enabling its customers to use bitcoin as payment.4. Australia’s first three cryptocurrency exchange-traded funds (ETF) launched on the Cboe exchange on Thursday, bringing Bitcoin and Ethereum products to the stock market.5. NASA has partnered with Epic Games and posted a challenge for developers to help create a realistic Martian metaverse experience focused on extravehicular activities on the surface of Mars using Epic Games’ Unreal Engine 5.

  EXPLAIN, PLEASE 

Demystifying the world of cryptocurrency

This week, we explain STABLECOINS. Imagine you are a business which accepts payment in cryptocurrencies. You sell a product or a service and you get paid in crypto.One of these days, you complete a project for an incorrigible client, raise an invoice, get paid, and go to bed relieved you made some money that day and you don’t have to deal with that client anymore. Next morning, you wake up to find that the cryptocurrency has crashed.Not only do you have less money than when you got paid but also need to go back to that client, begging for more work. How can this be avoided? Stablecoins, at least that’s the idea. A Stablecoin is a cryptocurrency whose value is tied to that of another stable currency, commodity or financial instrument. It can be the US Dollar, or gold, or a bunch of other cryptocurrencies. The value of the Stablecoin depends on the stability of what it is tied to and if those assets are fairly stable, then we can trust that the value of the Stablecoin will also be stable.  There are three ways Stablecoins maintain this stability:

• By maintaining reserves of fiat currencies like the US Dollar, or assets like gold, silver or crude oil, as collaterals — these are called Fiat-Collateralized Stablecoins. This means, the custodians of the Stablecoin have enough of these assets to ensure their value remains stable. 

• By maintaining reserves of other cryptocurrencies in excess as collateral — they are over-collateralised. A Stablecoin worth X will hold, for example, Bitcoin or Ethereum worth 2X or 3X, so even a dip of 50-70% can be managed. These are called Crypto-Collateralized Stablecoins.

• The third type is called Algorithmic Stablecoin – like LUNA/Terra. They may or may not hold reserve assets, but their basic idea is to keep the value stable by controlling its supply through an algorithm. How do they work exactly? You will have to spend a bit more time and effort in understanding that, and you can do it here, and here.

That's it in this week’s issue folks. Remember, trade safe and play the long game. Hope your weekend is better than the week that just went by! See you next Friday.If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.