Panic! At The Crypto
Great Ones, imagine…
As I’m pacing the floors in my corridor and I can’t help but to hear, no, I can’t help but to hear an exchanging of words.
“What a beautiful crypto! What a beautiful crypto,” says a reporter to a trader. “And, yes, but what a shame. What a shame the poor crypto is no more.”
I chime in with a: “Haven’t you people ever heard of … not sensationalizing every little thing that happens on Wall Street!”
That’s … I’m pretty sure that’s not how that song goes, Mr. Great Stuff.
I just can’t help it. There’s absolutely no common sense left in this market. Panic at the crypto. Panic at the major exchanges. Panic everywhere! It’s just panic, panic, panic!
Use your words, Mr. Great Stuff. Calm down and use your words.
I know, it’s much better to face these kinds of things with a sense of poise and rationality.
As you are all well aware, cryptocurrencies are getting blasted right now.
Bitcoin is down more than 30% this year.
Ethereum is off about 40%.
Dogecoin has plummeted more than 50%.
You are also well aware of the culprit behind these declines … I hope. Despite all the headway bitcoin has made toward making cryptocurrency a staple investment in the market, many investors still see cryptos as risky.
Banks, corporations, billionaires, hedge funds … heck, even countries are investing in bitcoin. It’s a lot safer than you think.
Unfortunately, there are a lot of unsafe cryptos out there. They’re largely unregulated — by design — as cryptos are decentralized. This means that anyone and their mother can release a cryptocurrency.
But even supposedly “well thought out” cryptos aren’t necessarily safe. Take today’s focus crypto: TerraUSD (UST).
Finally, we’re getting to the point!
UST is an algorithmic “stablecoin” that is designed to be pegged to the valuation of the U.S. dollar.
In theory, one UST should always be worth $1. It achieves this by allowing you to exchange UST for another cryptocurrency, Luna (LUNA), which you can then sell for U.S. dollars.
Basically, as long as LUNA is worth something, UST should always be worth $1. That’s a pretty big and insane assumption. Just listen to Bloomberg columnist Matt Levine explain UST:
On first principles this is insane. It relies on [Luna] always being worth something. If [Luna] trades at $0.01, you can print 10 million of them and buy 100,000 [Terra] and push the price up. But if [Luna] trades at $0.00, you can print infinity quadrillion of them and you’re still not gonna be able to push up the price of [Terra]. If [Luna] is worthless, it cannot be used to support the price of [Terra].
And because you just made it up, there is no particular reason for [Luna] to be worth anything, so there is no particular reason for [Terra] to be worth a dollar. If I made up [Luna] and [Terra] on my computer and said to you “I will give you the number 10 billion in this Excel spreadsheet if you give me 1 million U.S. dollars,” you would say no, and if I raised my offer to 400 quadrillion you would not change your mind.
So, what happens when UST plummets in value? They trade more LUNA to make up for that value. But if LUNA falls as well … it’s game over, man, which is where we find ourselves today. UST is down more than 45% today alone, while LUNA is off a massive 92%!
What’s more, part of LUNA’s decline is due to the fact that Terra had to mint more LUNA crypto coins to keep up with UST’s exchange demand. And when you make more of something, the value declines due to the increase in supply … thus exacerbating LUNA’s plunge and, by proxy, UST’s decline.
Great Ones, do y’all remember way back in January 2021 when I explained why cryptocurrencies had value? (Or, why anything has value, really.)
Things have value because people decide they have value. This is true of gold, diamonds, coins and even the mighty U.S. dollar.
If people suddenly decide that an asset isn’t worth its valuation anymore, then it isn’t, and they sell.
The only difference between a fiat currency like the U.S. dollar and bitcoin is that the U.S. government backs the U.S. dollar.
So, even if the rest of the world thinks the dollar is worthless, the U.S. government will still honor it as a valid means of exchange of goods and services in the U.S.
That’s an extreme case, but you get the point.
So crypto is worthless. Got it.
No, that’s not the point at all. Some crypto could be worthless. Some crypto is not worth your investment dollars. But, right now, despite all of this crypto implosion, even UST is currently worth about 50 cents.
What I’m trying to say is that the time where you could just invest in the latest and most-hyped cryptocurrency is done. It’s over. The crypto fad bubble is bursting, and only the cream of the crop will be left.
For example, bitcoin isn’t going anywhere. There are too many billionaires, hedge funds and governments banking on bitcoin for it to disappear now. Too many people stand to lose too much money.
While bitcoin may not be backed by a major world central bank yet, it is kinda “backed” by billionaire investors … and, in some instances, that is better than the Fed officially backing bitcoin.
But, aside from the obvious, how do you know which cryptocurrencies to invest in? There are so freaking many right now. How do you tell the good cryptos from the bad?
I know, I need a guide, right? But do I really want to invest in crypto though?
Oh, trust me! When this is all over and the panic at the crypto is done … you’re going to wish you had invested in the survivors. The gains are gonna be massive once this panic is over.
How massive, you ask? Ian King has been telling his readers — and really, anyone who will listen — about this Next Gen Coin the financial elite say could be 20X bigger than bitcoin.
That’s because, as this presentation explains, this coin has the ability to “power the rails of global finance” … a $100 trillion industry.
No wonder Elon Musk made sure this coin was one of only three cryptos he owns…
And why billionaire hedge fund manager Ken Griffin said it’s “superior to bitcoin and will eventually replace it.”
Gaming company Roblox (NYSE: RBLX) reported revenue and earnings that show the platform’s problems are far from over … and I honestly couldn’t be happier about it.
Not about you losing money in RBLX, mind you. But then, if you were listening to me, you didn’t buy RBLX in the first place, so…
Anywho, net losses for the quarter grew to $160.2 million — not even in the same multiverse as the $68 million misstep the Street expected. And while daily active users grew 28% year over year, the gaming firm is still failing to monetize most of those people … probably because a lot of them are, you know, children.
So … what does Roblox’s revival plan entail? More sponsored ads to — you guessed it — the same youthful user base! ‘Cause if a bunch of teenagers weren’t spending money they don’t have before, a fresh blast of brand advertising is sure to do the trick.
Carvana (NYSE: CVNA) stock crashed into a ditch this morning on news the company’s laying off 12% of its staff as the used-car market contracts.
Buyers once flush with federal stimulus money have hit the highway in search of greener parking lots … or, at the very least, a rest stop from all this inflation.
Here’s Carvana CEO Ernie Garcia giving shareholders the layoff lowdown:
That’s surprisingly direct language for a corporate talking head. But it begs the question: If growth isn’t even enough to bring Carvana back from the crypt … what, um, is?
On the other end of the money-spending spectrum, luxury consignment shop The RealReal (Nasdaq: REAL) reported better-than-expected sales of $147 million this quarter on a loss of $0.47 per share (lower than analysts’ estimates).
The company says it continues to see “strong demand in [its] business despite recent geopolitical events,” which matches with the consumer spending habits we told you about yesterday.
Apparently, people still have a taste for expensive products but are becoming savvier about how and where they buy them … and a secondhand Gucci bag is still considered a statement piece, so I’m told.
Now if only Carvana could figure out The RealReal’s secret…
With crypto prices going crazy and people clinging to their coins for dear life, Coinbase’s (Nasdaq: COIN) trading volume dropped 44% this quarter … blowing a hole in my original theory that COIN can still profit when the market drops.
I clearly underestimated just how many people have learned to — correctly, I might add — wait out down periods until prices stop plummeting so they can buy coins on the cheap. Because while some people have already pushed the panic button, everyone else is hodling … and hodling big.
Now, did COIN deserve to decline after earnings? Yes. I’ll make no bones about it: A 44% drop in trading volume is concerning … and it’s something I’m keeping an eye on.
But the severe 30% slide we experienced today comes from baseless rumors that Coinbase is about to go bankrupt because of this one earnings miss … a claim that’s blatantly untrue. (Hey, common sense never stopped speculation, so here we are.)
I’ve said it once and I’ll say it again … and again … and again: I fully expect certain cryptos to rebound once this initial panic is over. And the minute people start slinging coins again — in any direction — Coinbase will collect its due.
That said, if you bought COIN when we recommended it back in January and you’re uncomfortable waiting for the stock to level out, do what you need to do to sleep at night. We’ll keep hodling COIN in the Great Stuff Picks Portfolio for now, though.
If you couldn’t tell by now, it’s crypto week here at Great Stuff! Whether you’re ready or not…
No one was ready for this week, dude.
Well, that’s not exactly true. You Great Ones are a different breed of investors, after all. And don’t even get me started about the crypto uber-fans out there. *cough* James S. *cough* (Hope you’re doing OK, buddy.)
Like I told you earlier (unless y’all just scrolled on by … I’m onto you) bitcoin isn’t going anywhere. After the panic at the crypto has panicked its last panic, you’ll wish you’d had bought into the cream of the crypto crop. Like, now.
But while many of your fellow Great Ones — and even the country of El Salvador — bought this week’s bitcoin dip with both hands, I know that bitcoin doesn’t scratch every kind of crypto itch.
Ummm … what?
There are about as many ways in on the crypto market as there are, well, cryptocurrencies themselves. Whether you’re investing in the soon-to-be survivors of the crypto sell-off … or the stablecoins that are anything but stable.
My question is: For those of you buying into crypto, what part of the crypto market are you into, exactly? Go on and let me know below:
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Poll not working right? Got another answer? Ready to rumble — and rant? Send us an email with your cryptocurrency thoughts. Your two cents of bitcoin, if you will.
Looking for last last week’s poll? I don’t blame you! We skipped a week and let the votes roll through. And boy, did they come through. Speaking of ways to get in on the brave new crypto world, we wanted to know if you’d put bitcoin in your 401(k).
Crypto? In my retirement funds? It’s more likely than you’d think, according to the Great Ones. About 50.9% of you said yes, you would hold crypto in your 401(k), while 47.4% of you hard passed.
Meanwhile, I feel for whichever one of you is bewildered, wondering where everyone’s getting those sweet, sweet 401(k)s from.
As always, if you’d like to sound off on the week’s hot topics, write to us for Friday Feedback! GreatStuffToday@BanyanHill.com is where you can reach us best. You can also keep up with the action here:
Until next time, stay Great!
Editor, Great Stuff