@g1ft3d
MAJR Alpha
In this special edition of MAJR News, we’ve recapped the highlights from 2021. It was a big year for crypto. There were a number of important events that laid the foundation for what’s to come in 2022.
2021 Recap
Digital asset adoption increased across the board reaching new audiences. There’s estimated to be ~220 million wallets globally. Old market narratives were strengthened while new narratives and web3 technologies emerged. Bitcoin is still king, while NFTs proved that tokens are more than just magic Internet money.
On net, 2021 was a bullish year for crypto, but the $2.34 trillion market is only a small part of the overall macro puzzle.
The pandemic is still here forcing different geo-political vectors to play out - monetary and fiscal policy, global trade and economic disruptions, social unrest, propaganda and narrative control and the further erosion of trust in centralized institutions (government, business, media).
Bitcoin seems to be the only consistent element functioning amid the chaos. The emergence of digital assets and web3 technology offers society a lifeboat and an opportunity to grow in these uncertain times.
BITCOIN
Bitcoin continues to prove itself and showcase why it’s so important, especially for the current moment.
The number one take away was bitcoin’s resilience to environmental changes and its ability to continue operating according to protocol - stacking 10MB blocks every ~10 minutes regardless of the FUD, threats or price.
Highlights:
$1 trillion dollar asset class - New all-time highs breaking $69k in November.
Institutional adoption peaked - Bitcoin is no longer tulips, but a digital store of value and part of modern portfolio construction for public companies, pension funds, sovereign wealth funds, etc.
Defeated China’s bitcoin mining ban - Recovered from a 50% crash in network hashrate causing miners to relocate to other countries. The US is now the leading country with +35% of the network hash power.
El Salvador makes bitcoin legal tender - Huge deal and the first domino to fall for nation state adoption. The next countries will most likely come in doubles or triples before kicking off the greatest race in human history. The race for real estate on Bitcoin’s blockchain.
CRYPTO
Outside of bitcoin, the digital asset ecosystem exploded with innovation and moved beyond whitepapers to working products, new uses cases and new users.
Web3 took its first steps on Ethereum before sprinting to emerging chains that now pose a threat to Ethereum’s dominance promising faster, cheaper transaction times and a better user experience.
Highlights:
$2 trillion dollar asset class - ETH broke new all-time highs touching $4,900, while the rest of the space bubbled to new heights.
New alternative layer 1 smart contract blockchains - Ethereum still has the early lead, but these new ecosystems come with promising technology, massive treasuries / capital backing and solid teams racing to acquire developers and users.
NFTs and the rise of digital creators - NFTs simplified the abstract realities of digital scarcity, public and private key cryptography and finance into more concrete use cases for the average user - digital art and collectibles. Think of NFTs and tokens as the early webpages - static, just text and images. It was not long before webpages became SaaS, social media, gaming, finance and video applications. The same thing will happen with NFTs and token applications.
The Metaverse is a big deal - Virtual and augmented reality has been thing for a long time, but never quite a reality. However, blockchain was the missing piece, the value layer that stitched everything together for mainstream adoption. The Q4 Facebook rebrand to Meta and their $10B metaverse investment was just the accelerant for what’s to come in 2022 for blockchain enabled metaverse applications.
MACRO
The macro environment is a mess. When we zoom out, we see multiple tectonic plates converging at the same time creating a geo-political scramble for trust and control.
The long-term debt cycle ultimately ends with 0% interest rates and real negative yields. While, the cost of capital is zero for the ones closest to the faucet (Cantillon Effect), it flips the rest of the world upside down where economic calculations can’t be made and everyone is desperately searching for yield.
Highlights:
Covid pandemic - Modern medicine produced extremely effective vaccines that combat the harsh realties of a novel influenza virus. However, 30% of Americans remain unvaccinated, while the virus is being untreated in many areas of the world which leaves viral pockets left to mutate into new damaging variants - Delta (India) & Omicron (South Africa).
Inflation isn’t transitory and never was - Nearly 30% of all the money in the US (M2) was created since the pandemic, ~$6 trillion. This doesn’t account for the amount of international debt and credit creation and the monetary expansion of fiat units in the Eurodollar System. In November 2021, the US CPI was 6.8% and this is the number that authorities are quoting, so you know the real number is probably much higher, hence the aggressive pivot by central banks.
The future of work will be different - A record amount of workers quit their jobs in 2021 (1 in 4 people) and for many reasons - Covid safety and new policy mandates, more flexibility - the desire to work from home, and digital entrepreneurship. It’s never been easier to start a business from home and there’s a new generation of workers that are embracing digital technologies. When you factor in the crypto gains captured by younger generations - the future working class, the economic and employment situation looks much different than before crypto and the pandemic.
Crypto goes political - Trust is the growth market and our political institutions have lost their trust with constituents, so what are political leaders doing? They’re co-opting new ideas in an attempt to rebuild their trust with the public. Bitcoin, digital assets and things like stablecoins are finding their way into the national narrative and political discourse between republicans, democrats and politicians all over the world. Right now it looks like the GOP is aligning with bitcoin and crypto, while the Dems are aligning with the banks and the money printer. It’s still early, but it will be interesting to see how the political vampires take sides.
What to expect in 2022
Nobody has a crystal ball, but the toothpaste is out of the tube and there’s no turning back. There’s too much inertia behind these massive economic trends.
More of the same, but with extreme volatility
Markets are due for a pullback and possibly a deep correction. There’s been a ton of credit creation and debt accumulation across private, corporate and government balance sheets.
Being an investor right now is similar to playing musical chairs. Everything is fine until the music stops and liquidity needs a home. A credit crunch can come from anywhere, but all roads lead to the Federal Reserve.
The most recent Fed pivot away from loose monetary policy to tapering much faster than previously outlined shows two things. The first is a fearful central bank acting on emotions and the second is an opportunity to look like a hero.
Macro melt-down before markets melt-up
Inflation spooked the market and the Fed, which caused an emotional response and an abrupt shift in monetary policy. Nothing has happened yet, but if we see an aggressive change to tighter monetary policy, and even a slight increase in rates, this could be the overreaction which takes down an over-levered market. However, the market correction creates an opportunity for monetary and fiscal authorities to look like heroes again by propping up markets with more stimulus. Central banks need to come off 0% interest rates, so they have room to take them down again without going negative. Short-term market pain in exchange for public backing for more QE. Inflation worries drift away, and we get back to debasing fiat currency and markets continue to melt-up. This could happen tomorrow, but it will most likely come after the taper and we get forward guidance for imminent rate hikes - my estimate is Q2 / mid-summer correction.
When assets melt-up, it feels like you’re making money, but it matters what your assets are denominated in - devalued dollars or sound money. It’s all about buying power.
Bitcoin breaks $150k and the 4-year cycle
When markets do finally turnover, bitcoin’s fate will be no different than any other asset class. They all go down, but bitcoin will get bought up fast and furious. Since the market structure and narrative has changed, dips present massive opportunities for market participants, especially the institutional players who’ve spent the last 12 months preparing to deploy capital. With that said, bitcoin may have broken out of its 4-year cycle given that it’s too important to too many people, and therefore it doesn’t stay in a bear market for 2 years. From now on, it’s up only. Bitcoin will rip to start the year breaking new six figure highs before crashing hard with the rest of the market. This will be the last big dip before we set the course for hyper-bitcoinization.
Investment Strategy #1 - 100% BTC - Bitcoin only. The easiest and best risk reward trade without all the work.
Ethereum migrates to proof-of-stake and breaks $10k
This is tentatively scheduled to happen in early next year, possibly February. Right now, there’s ~$33B in ETH locked up on the beacon chain and it’s unable to be unlocked until the migration is complete. Crypto markets have had a tendency to run up in price before the event happens and then crash shortly after. We believe its no different with ETH 2.0. The price of ETH will most likely run up early next year into the migration and then dump as more supply comes online post migration. This change could either happen smoothly or be very difficult for the market to burden as a new protocol with $500 billion in market cap demands top security and operation efficiency to work. If all goes to plan and Ethereum fixes its structural issues, then the sky is the limit for Ethereum’s price. ETH range for next year is $10k-$30k ETH.
Investment Strategy #2 - 75/25 - BTC/ETH - A healthy combination of crypto’s market cap leaders.
Alternative layer 1s - A mega trend with clear winners
Crypto adoption is very early with no clear winners for the long run, but in the short term, the winners are hiding in plain sight. There are only a handful of big projects with the capital, the technology and the developers building on these blockchains. These alternative layer 1s have an opening against Ethereum as more users are turning to the space and adoption becomes a game of wining use cases with the best user experiences. Speed kills and the following projects are all fast with lots of upside potential.
Investment Strategy #3 - 50/50 - BTC/L1s - The safest altcoin allocation for alpha weighted by market cap.
Solana (SOL) - The biggest and fastest blockchain that poses immediate risk to Ethereum. New consensus algorithm, Proof of History.
Avalanche (AVAX) - Had a huge 2021 and is poised for higher prices as banks look to adopt its technology.
Terra (LUNA) - Is now the second largest blockchain by total value locked (TVL) in it’s protocol. Top algorithmic stablecoin in UST.
Polkadot (DOT) - Just officially launched their parachains and the first applications are now live.
Other - These other projects have momentum with VC backing and working technology, however less adoption and more risk - Polygon (MATIC), Algorand (ALGO), Near (NEAR), Cosmos (ATOM), Fantom (FTM) and Elrond (EGLD).
Investment Strategy #4 - 50/25/25 - BTC/L1/L1E - A more complicated barbell strategy by finding alpha in the altcoin projects building in the alternative layer 1 ecosystems.
The Metaverse - play-to-earn (P2E) gaming
The metaverse has gotten a lot of attention recently, mainly due to rise of NFTs and mainstream adoption that came with owning unique digital items. This has laid the groundwork for celebrities and established brands to make their entrance into crypto. There are a few metaverse leaders in the market and they’re all relatively low market cap projects compared to their centralized counterparts like Meta (Facebook) and other publicly traded companies saying they’re “all in on the metaverse.”
Investment Strategy #5 - 50/50 - BTC/Meta - Replace the performance side of the barbell with your metaverse picks. This comes with higher risk as more platforms and metaverse gaming worlds are popping up everyday. Investing in the virtual property (NFTs - digital land) is even riskier given that liquidity can be an issue, especially in a downturn. Some of the tops projects are below.
Decentraland (MANA), The Sandbox (SAND), Axie Infinity (AXS), Somnium Space Cube (CUBE), Yield Guild Games (YGG), Star Atlas (ATLAS)
Other trends for 2022
Institutions will move into DeFi and stablecoins
The year of DAOs and NFT platforms
Privacy coins
Smart contracts on Bitcoin
Thank you
I want to thank all of our subscribers and readers for an amazing year. I hope this newsletter has been helpful on your crypto journey.
Please share the newsletter with your friends and family who may be interested in learning about the space.
— Matt Verklin, Founder & CEO, MAJR
Bitcoin and crypto adoption is here to stay. Don’t let your friends and family miss the opportunity of a lifetime.
For more breaking news and updates, follow us on Twitter @majr_btc
This is not financial advice. Please do your own research. Investing in bitcoin and cryptocurrency comes with risk. The information presented in this newsletter is for information and entertainment purposes only.