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Crypto Basics On the Last 5 Days and Inflation
Level 1 - NGMI
Welcome Avatar! Usually we don’t post on Friday but based on what has happened over the last week we have to cull the herd a bit. We’ve finished our overview on crypto basics but it doesn’t seem like the majority even understand the ground level. For that we’re going to walk through some of these items. Being honest, we probably added too many readers here last year. People ran it up with ETH over BTC last year (and then rebought big in the summer lows) now they are overly confident and don’t understand how order books work. So. We have to return to some real basics and get rid of people who are “traders” looking to get “rich” in “US Token” terms.
1 BTC = 1 BTC Explained
The entire point of having crypto is for two reasons: 1) you believe fiat will continue to increase money supply. Read that sentence 20 times if you have to. Interest rates don’t matter. The only thing that matters if you have to believe global supply of fiat will continue to go up. Not demand. Not interest rates. Just supply. This leads us to point; 2) if you are not holding the keys to your coins you have absolutely zero crypto assets. You’re already seeing crypto.com reverse transactions related to LUNA and if you have any third party provider holding your coins you have ZERO coins. This means: Fidelity, GBTC, Coinbase, Kraken, Crypto.com, Binance, Voyager, Celsisus… the list goes on forever.
If both of those points do not make sense we suggest reading the Bitcoin White paper and you should *not* be reading this blog if you don’t understand those two fundamental points.
1 BTC = 1 BTC Conclusion: This part still is a struggle for people. They look at the price in US Token terms and get upset when it’s up or down. This is another sentence you have to read many times. If you think “I shoulda bought more” when it was down at the bottom in March of 2020 it means you’re a trader. If you think “I shoulda sold” at any top be it $69K or $20K back in 2017 or $1K back in the middle 2000s, you are also a trader.
Traders do not understand what Bitcoin and crypto is. What you are waiting for is *other* countries and large institutions to adopt the asset. All of this stuff is either adopted or a zero. There is no “40% return and sell” there is no “oh no i am down 50%”. These have come and gone at least 100 times in the last 5 years alone.
In short, you should ONLY buy an amount you’re willing to NEVER sell for at least 10 years at minimum. Not short time horizons. Over the last 14 years this has been a better asset than the S&P 500 by a large margin since the S&P only mirrors debt increases and money supply at a 1:1 ratio.
While there are people in the jungle/community who will help you at bare minimum you have to understand the first 2 points otherwise we strongly suggest not reading this side of the internet. The questions will be low quality and dilute the value of the smart people who read us (only reason we’re even writing at this point).
Stable Coin Structural Risk
We wrote for 12 months that stable coins were a structural risk. 12 months. After this time period a stable coin UST broke down and at least $40B was lost. This of course causes prices of all assets to go down as you’re forced to sell (some of the $40B was backed by BTC)
Does this mean user growth for decentralized currencies are going down? NO.
Valuation and fundamentals are rarely related. For proof of this check out Amazon which tanked in the dot com bust and Bezos laughed as all his fundamentals (the company) were improving.
Pause and Zoom Out: If you are running a ponzi scheme and billions are forced to sell, does that mean “less people are using crypto?”. The answer of course is no. Tie it together. When the internet bubble crashed was Amazon losing customers (12-24 month frame)? Nope. Was Amazon gaining market share? Yes.
As usual people are emotional and the same people who were mad when BTC hit $25-26K just 2 days ago are now “rage posting” that it’s back to $30,500. They are announcing that they have no idea what they are looking for. All you should care about is user growth and rich people/companies/nations adopting it. The rest is entirely meaningless.
Final Note: Now look at the Crypto large cap coins. You know that there are several stable coins in the top 20. This means there are billions at risk. Billions. Anyone smart will convert all of their USDC/USDT/DAI/Other Stable Coin to 100% decentralized tokens like BTC or ETH. If they don’t it means they still don’t understand rule #2 from the beginning of this post: “using a third party for anything means you own nothing”.
Stable coins are 1,000x more dangerous than a bank account and 1,000,000x more dangerous than cash under your mattress. You can get bricked by regulation, a bad “transaction” and you have a much more complicated insurance mechanism.
In short, if you think less people will use crypto in the future you should sell everything and forget it. If you have anything *meaningful* in stables and don’t convert you are playing with fire.
Note meaningful is different for everyone, the line is “you should be willing to see it go literally to zero” like UST did. While you can argue USDC/DAI etc. are unlikely going to zero, the chances they brick your address is still there. It is a third party which defeats the entire point.
Inflation and Debt Mechanics
Official numbers for April came in at 8.3% and this is when the number should be *LOWER* last April inflation already started to kick in at 4%+. In Jan-March of 2021 the reported rate was only 1-2%.
In math terms, 2% then another 8% is ~10% inflation over 2 years. Now with 8.3% and 4.1% you’re looking at 12%. on an annualized basis inflation is getting worse.
Stop and Think: If we know inflation is getting worse it means the following: 1) low interest rates will be eaten away by inflation - this is why Blackrock borrowed billions to buy middle class homes - low single digits when inflation is 12% = free money for them and 2) it means that there is a near-term aggressive move to defend the dollar through rising interest rates.
Here is the problem, if you look at rates going up by 0.50% why should that change your decision? If you can get money at 3.5% or 3.0% it doesn’t make a difference for a *RICH* person.
So who does this really kill? The middle class. Expectation of rate hikes = mortgages go up = middle class pushed out. If your mortgage payment on a starter home goes up 25%, 50%, 75%… you’re priced out. You’re forced to rent and as long as Cap Rates are below their interest (3% or so), they never have to worry. (Fun note, they can also do the classic fake expense scam of writing off everything to make it seem like their rentals are cash flow neutral).
Conclusion: Asset prices go down as rates go up. This means the only people who are forced to sell are 1) levered up or 2) people in the middle who need to sell to pay for bills/products. Rich people are making an absolute killing since they don’t have to sell anything, they can buy more assets on the cheap and on top of that their debt is already locked in 50% below where the average person can get it.
Put This All Together
We can tie it all together. Amazon comments, supply of money etc.
Here is what you need to believe to be long technology and computer coin stuff:
Supply of money going up. Rates, demand doesn’t matter. Supply goes up a small percent will go into the new financial system.
You have to believe users will go up. One year doesn’t matter, ask about 10 years from now if people will use it more or less
Ask yourself how much rates can go up. Quick math = if rates somehow get to 5% (highly unlikely) around 1/3 of ALL USA GDP is just to interest rate payments. This would be like taking 33% of your Gross Salary (pre-tax!) and being forced to use that number to pay just credit card debt.
As new projects like LUNA pop up you should be *thrilled* if you don’t buy them they can send the entire market down for a while and you incur zero losses. This sounds horrible but it’s reality. The ponzis benefit people who do research (hopefully you!). To be clear, we do feel bad for people who lost it all.
Interest rates in crypto tell you if it’s a ponzi anything in the double digits should be seen as a ponzi without much research, yields would come down if there is minimal risk
Beginners Breakdown: 1) do you think supply of money is going up or down 5-10 years across the globe; 2) do you think more or less people will use tech/crypto anything you own; 3) do you think inflation will be above or below the debt rate you have and 4) if you’re trusting a third party with crypto - you’re better off just buying stocks instead with volatility to crypto instead.
We toned down the writing a lot, we were beyond furious to see that people were surprised to see a stable coin collapse. It was inevitable and on top of the the regulations will come which means you know more addresses will be bricked. These things are not debatable. The question is always the same, are you happy or sad when an asset goes down. If you’re sad this side of the internet isn’t for you… ESPECIALLY when it proves you were right in the first place (3rd party risk never works!)
Best of luck anon, we hope that we can clear out a few people who don’t get these basics and want to be traders. There is always Forex and TA classes at the local flee market.
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce. We may or may not be homeless and set for life. We’re an advisor for Synapse Protocol and on the JPEG team.
You’re Early: Remember that you’re early. If you need to zoom out, see our post here on Crypto versus the Tech bubble (which was only the US stock market).