Summer of Calm

Summer of Calm

After many months of negative news and extremely negative market sentiment, we may finally be reaching a point where investors have a moment to breathe and digest all of the new changes. Recently, bond markets and commodity markets have fallen sharply from their intense highs, signaling a possible relief for inflation numbers. The Fed, the main player in the current investment drama, relies on lagging inflation data to make its decisions. There is a risk the Fed will be too slow to react to falling prices as there is a sizable timing mismatch between market data and the once every 30-day inflation print. By definition, the Fed is designed to put out current fires rather than anticipate new ones. We can’t expect them to use market data to anticipate inflation.

Travel and restaurants are booming and the Fed and others say there are many signs we are in a healthy economy. I would argue that people are willing to spend any amount of money, including savings or selling investments at a loss, to once again spend time together. Covid continues to loosen its grip as the NYTimes app removed its Covid tracker icon from the main page and vaccines are now available for babies as young as 6 months old. This is really the first summer since 2019 where just about everyone feels comfortable traveling.

A recession seems likely and it would certainly not surprise anyone. The bigger question today is, “will a recession meaningfully impacts earnings, which have been strong throughout this market selloff?” In the broader context, economic aftershocks like the ones we have been going through following the mass shutdown of the global economy will come and go and should be expected.

It’s high time for a calm summer.


AI is set up to take off in a big way

There are rumors that with the crypto crash many talented engineers will transition to working on AI projects. Applied AI tools like Dall-E 2, AlphaFold or conversational AI in sales tools have made massive improvements in just the past year. A flood of new applications and tools could be just around the corner as the pace of development is clearly accelerating.


Crypto – the only guarantee in life is change

The pace of change in crypto is extremely fast. 2021 was a year of record crypto trading fees for brokerages. Now in 2022, Binance is the first to announce $0 trading fees on bitcoin. You can bet that in this highly competitive space, others will follow suit.

3AC, a $10B crypto hedge fund and a mainstay in the crypto community was liquidated following a series of cascading prices and project failures. 3AC was levering up many yielding assets, including Terra Luna and an arbitrage play on GBTC that also fell apart. Apparently, they offered a treasury management high yield (approx 8%) savings account to the startups they invested in. Unfortunately, that treasury is also now insolvent.

Many crypto assets are down between 50-90% year to date. Thanks to our risk management approach, our new crypto fund started in November of last year is down less than 10% over the same period.

The total crypto market cap peaked in November at $2.9T and has since fallen to $900B. This washout is putting pressure on crypto to prove its value. The more interesting metric is that over that same period Circle’s USDC stablecoin grew from $35B to an all-time high of $55B in total assets. A project like this doubling adoption during a severe market crash is saying something interesting about the next phase of the crypto evolution story. We wrote about this in May that bringing real-world assets on-chain is possibly the next chapter.

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