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Q2 Market Update

In this update we are going to look to cover the following:

1. What happened in Q2 (Because it’s one for the history books)

2. Current Legacy Market Landscape

3. Current Crypto Landscape

4. What to expect in H2 – Our projections

High level overview of what happened in Q2 (Across ALL markets)

We continue to see the Federal Reserve and other global central banks playing a game of catch up with inflation with the federal reserve set to raise interest rates again this month. So far we have seen over 17Tn wiped from bonds, crypto and equity markets and this has resulted in one of the worst H1’s on record.

For anyone who isn’t aware the way the federal reserve and other central banks tame inflation of this particular nature is through demand destruction. You tighten financial conditions so much so that liquidity is pulled from the system, speculation is reduced, people lose jobs, they lose homes and ultimately this reduces spending and in turn… Inflation. Simply put anyway.

Here’s a great chart highlighting just how destructive this tightening has been… Just brutal.

This major tightening effect not only wreaked havoc across the stock market but it also put areas of the crypto markets under extreme pressure. Here’s a list of just how many ‘’blow ups’’ we witnessed IN Q2 ALONE!

• Luna collapse – $80Bn – Over 48 hours

• Luna dump of BTC - $3Bn in 48 hours

• Tesla dumped - $1bn of BTC

• Blockfi dumped - $900M

• Celsius went bust - $1.5bn

• Voyager went bust - $1.5bn

• 3AC went bust - $3Bn

• Blockfi had to be bailed out

• Miners sold off a large number of holdings to stay afloat – Over $500M throughout June

I’m sure there’s more that I missed off but Q2 was truly one for the history books. All of the above blow ups have their nuances and collapsed for various reasons but all of them have one thing in common… They blew up because of tightening financial conditions.

What effect did this have on Crypto – Specifically BTC and ETH? Our prized assets? They got dumped… Not out of choice necessarily but in order for many of the above to stay alive they needed to sell assets and the most liquid markets to do that in are BTC and ETH. Even after this forced selling many still couldn’t weather the storm and subsequently went under.

What did this look like on the BTC chart? Disgusting.

And for ETH – Even more disgusting

Current Legacy Market Landscape

Most stock indexes have experienced drawdowns of 20 – 25% since the start of the year and just like crypto we have seen the effects of tightening monetary policy take hold in a number of places.

The Consumer

The consumer accounts for 70% of GDP so let’s focus in on them…

What effect have we seen on the consumer so far? The below chart is the US ‘’Personal savings rate’’ – This gives us an idea of the strength of the consumer. How much savings do they have? What position are they in to weather the storm?

The answer – Not a good one. With the personal savings rate down at the lowest levels we have seen in around 10 years we can confidently say the consumer isn’t in great shape here. Coupled with this the consumer is tapping credit facilities at a record pace.

While all this is happening we can also see from the jobs data that full time and part time positions have fallen hard while the number of Americans taking up 2nd Jobs has risen…. So again, further confluence that the consumer isn’t in great shape despite what the establishment keeps pushing.

This whole demand destruction effect has led to a flight to US Dollars with the dollar up around 15% this year alone. In simple terms when there’s a reduction of liquidity in the markets + a flight for safety there’s a smaller pool for USD available so the demand for the dollar rises exponentially and this has other negative implications that we will go into further in this report.

Bonds are already screaming some alarm bells – Credit spreads have widened heavily in the CCC zone (High risk credit) – Now approaching covid crash levels… Red shaded areas are recessions

Manufacturing – Totally decimated with expected new orders hitting 2008 levels… wow.

So in summary the legacy market has gone through one of the largest pulls of demand and liquidity in history. Watching this play out over the last few months has truly been an experience I’ll never forget. Truly.

Current Crypto Market Landscape

The whole first half of this report has been very doom and gloom but there is an upshot to all of this and that’s the opportunity that currently presents itself – Particularly within crypto. Given the state of the legacy markets and the mass number of blow ups and forced selling we have seen in crypto this creates a great long term opportunity. Yeah we make great money in a bull market but the real money is made in times like these… When assets are at distressed levels and the general investor isn’t paying attention.

From what I can see the end is near… Legacy markets are at breaking point and crypto has seen forced selling like it never has done before so the downside from here is limited. For the record I think equity markets stand a high chance of creating new lows but for BTC and ETH I’m confident the bottom is in.

BTC chart – History tells us the 200 weekly moving average (Orange line) has been the best buying opportunity – And that’s where we are… right now! I know from experience that each time we have touched this level everyone has been screaming ‘’bitcoin / crypto is dead’’ and if you look at the mainstream media that’s exactly what we’re getting.

And what is ‘’smart money’’ doing right now? People with over $200 Million in BTC

They are starting to accumulate at quite a rapid rate. The discounted prices due to forced selling has tempted smart money into the market and holders of 10k BTC or more are on the climb.

I could honestly pull up a whole host of metrics / charts outlining that at current levels BTC is a bargain and setting up generational buying opportunities, but I also wanted to focus a little on ETH because we have the ‘’Merge’’ in September.

For those that don’t know the merge will change ETH from proof of work to proof of stake - With this ETH will also become deflationary AND you will be able to earn an estimated 9 – 15% Yield. This will truly turn ETH into the ‘’Bond of the internet’’ – Many people are still building on ETH and that’s not slowing down and in future the more and more people transact in ETH the more deflationary it becomes.

I’ll go on the record and say ETH will surpass BTC in market cap over the next few years, the use cases are just too great to ignore.

What to expect in H2 – Our projections

I think we still have some headwinds to deal with across global markets but the good news is we are closer to the end than many think. The Legacy markets are starting to flash some pretty big warning signs that demand has truly been decimated and if they carry on tightening to much more then things will start to blow up in areas like the bond market and unemployment… The moment that happens you can guarantee a pivot.

We still need to deal with the earnings coming out of stocks next week and we have another FOMC meeting at the same time – I think over the course of H2 we make new lows on the equity market indexes due to this not being priced in and we could also get evidence that inflation is ‘’stickier’’ than anticipated and again… this will likely cause new lows.

BUT I feel crypto is a purer market and more forward looking – We topped in crypto before legacy markets and we also put in a potential bottom ahead of them as well. I’m now expecting we actually don’t create new lows on BTC and ETH BUT we do on the legacy market side.

My main rational for this thought is just down to the fact we have already had cataclysmic forced selling events in crypto – That’s not likely to happen again as most if not all of the vulnerable players have already been taken out of the game. I think the bottom in stocks comes in Q3/Q4 – I don’t expect this to extend into next year, the markets already to fragile and there’s not a chance it lasts another 6 months

My plan… Buy as much ETH and BTC as humanly possible. Aside from that history tells us the 10,000%+ gains come from identifying the best projects in the bear market, when conditions are quiet and none is paying attention… or cant afford to. I feel we are in an unreal position to take advantage of this downturn with the talent that we have as a team. Constantly reviewing projects, interviewing them on the Youtube, hosting AMA’s, trading day in-day out, hosting spaces sessions and talking to some of the greatest minds in the industry.

Personally yes, this downturn has been tough but the future prospects shadow that outlook.

Around the World

TSLA sells 75% of BTC holdings

Tesla has sold 75% of their previously acquired Bitcoin holdings in Q2 of 2022. $936M was sold to improve the car manufacturer's cash position after profits declined by 32% in Q2. CEO, Elon Musk cited ‘uncertainty of covid lockdowns in China’ as a factor but also stated that Tesla “are certainly open to increasing our bitcoin holdings in the future”

Ethereum set date for ‘The Merge’

Ethereum developers have tentatively set a date for the much anticipated ‘Merge’, with network upgrade scheduled to take place on September 19, 2022. As the biggest upgrade in the network's history and possibly one of the most significant events ever in the space - Ethereum will move from a Proof of Work to a Proof of Stake consensus model.

Aave decentralised stablecoin

DeFi giant Aave recently announced their plans to develop their own decentralised stablecoin for the ecosystem. The stablecoin GHO, will be dollar backed and overcollateralised with yield producing crypto assets. After the drama around the algorithmic stablecoin UST, much of the community have displayed a healthy degree of skepticism but it will be interesting to see if the Aave team can pull it off!

Poker player loses $1m to LUNA then wins WSOP for $10m

Espen Uhlen Jørstad is a Norwegian poker player and part time crypto degen. Espen lost the bulk of his networth ($1 million) in the LUNA ecosystem collapse back in early May. Following the loss, Epsen won a $1k satellite tournament for a ticket to the World Series of Poker Main Event ($10k ticket). Winning the whole tournament itself with a top prize of $10million. Incredible story of losing it all, remaining positive, and then taking down the biggest pay day of his life all within a few months.

The first zkEVM!

Polygon has announced that the protocol will incorporate zk rollups, and will remain EMV-Compatible. On the same day, zkSync announced they would also be ready to release their zkEVM onto mainnet within 100 days. EVM compatibility & zk rollups are widely considered the holy grail of Ethereum scaling - allowing for cheap and fast transactions whilst enabling Ethereum Dapps/Developers/Projects to easily copy their code onto the Layer 2 networks! The race is on… Polygon or zkSync?

Dubai plan to create 40,000 metaverse jobs

The official government of Dubai has laid out plans to create 40,000 virtual jobs within the Metaverse sector. The objectives also include having 5x the number of blockchain companies in the next 5 years, adding $4billion to the Dubai economy and ultimately to become #1 in the region for metaverse development.

UK to regulate stablecoins as a form of payment

The UK has introduced a bill to regulate stablecoins as a form of payment to bring the technology more in line with traditional financial services. The Financial Market Infrastructure Sandboxes will also be established to allow firms to test new technologies and practices in isolated environments. A move towards recognising blockchain technology as an emerging instrument in finance.

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