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It’s the 1st of December.
We are approaching the end of the year.
2022 has been an extremely difficult year for the crypto industry and for millions of the participants inside of it.
We wanted to make a post specifically for the people who are hurting.
The S&P is down about 15% YTD, erasing all its gains since April 2021.
Bitcoin is down 62% and Ethereum is down 64% since the beginning of the year.
Global inflation is expected to reach close to 9% by the end of the year.
People may not say it, but they are hurting.
If you got through this year relatively unscathed financially and got ahead in your career, congratulations. You are part of the elite minority.
For everyone else, this post is for you.
Pinpointing Mistakes
First off, just because we’re writing this post does not mean we consider ourselves some higher power. We all make mistakes.
Anyone who tells you they’ve gotten anywhere worth going without major, excruciating mistakes is lying, delusional, or highly privileged (your mistakes are not mistakes *Do Kwon voice*).
Mistakes happen. But if you’re good at assessing and managing risk, mistakes don’t wipe you out completely. You can dust yourself off and keep going.
If you are in a bad position this year, it’s likely due to mismanaged risk.
Lets look at one of the major blow ups of the year, FTX.
Person A: Active FTX user, has $100K portfolio comprised of 1/3 crypto, 1/3 stocks, 1/3 cash in a bank account.
Person B: Active FTX user, has $1 million portfolio comprised of 90% crypto, 10% cash ready to buy the dip.
Person A understands that in crypto (and in life), you don’t know what you don’t know. Simply being involved in crypto has elevated risk. It’s still worth being involved to Person A because the opportunity is huge, but there are many years to go for that opportunity to be fully realized and A wants to be ready to capitalize. He’s got cash flow through career/business that funds his investments.
Person B is a “bull market genius.” He 10x’d his portfolio in one year, left his job, and is thinking about starting his own fund one day.
Most of B’s returns came from 1 coin he found early. Crypto is it. And B is better than everyone else.
Both Person A and Person B get rekt on FTX and lose their entire crypto portfolios. Devastating for anyone.
Person B loses everything. Person A loses all his crypto. A huge loss for both, but Person A survives. Not only that, person A still has cash flow coming in to reinvest and buy the dip (but still finds it nauseating to do so after losing 30% of his NW). A buys, but doesn’t get rich in 2022 or even 2023.
In 2024 the global economy improves, A has increased his cash flow and continued to invest. He’s now in the top 1% of knowledgeable crypto individuals who survived, and has a burgeoning side hustle working for DAOs and crypto companies.
After a few years of grinding, and with a bit of luck in the market, A is finally “comfortably rich” but hasn’t had a liquidity event yet that shoots them into wealth status. No worries, A has built a ton of confidence in his skills over the years and is not in a hurry.
Person B, unable to accept the loss and the potentially once-in-a-lifetime bubble he succeeded in, decides to use his last 10% that was sitting in cash to make it all back. He spends 2023 trying to trade way back to that elusive $1 million portfolio.
When B was financially comfortable, he could let opportunities come and go. Now, B needs to hunt, and gets desperate. A year goes by with some wins and some losses, but there just aren’t as many irrational buyers to sell to. He also finds himself working much harder without results. By the end of the year Bitcoin goes up 20% and B’s portfolio increases by 25%. Not a bad performance, except B only made $25K for a year’s worth of effort while risking his entire net worth to do so. After living expenses, B lost money.
The Point
These are imaginary characters we’ve invented to illustrate the point, but we are confident these “archetypes” are out there.
The point is simple: don’t make the mistake of expecting past market conditions to return. Build yourself for the future.
To pinpoint your mistakes you need to take a very close look at 1) why did your success in bull markets exist 2) will those situations exist again and if so, when, and 3) if you’re wrong, are you sufficiently risk managing your career, investments, and life as a whole to still be successful at the end.
Calculated risk: crypto is a useful technology and I want to dedicate a significant portion of the coming years to the industry. I will spend 2 hours a day outside of my career to stay up to speed on products and the market, and perhaps get a side job as a freelancer to obtain an insider perspective.
Uncalculated risk: crypto is a useful technology and I will spend every waking minute finding the next 100x lottery ticket.
I messed up, what should I do?
If you’re something like Person B and are feeling “stuck” here are the problem areas to fix.
If you operate cash flow negative (spend more than you earn) you are in an emergency situation. You need to find a job (and ideally transition to a high paying career)
Use new money to grow your portfolio. Every single paycheck you should be adding to your portfolio. Cut your expenses, live cheap. Sell your Rolex. Sell your sneakers. Sell your cat and dog (kidding. Just sell the cat).
Work extremely hard. No one said it was going to be easy, anon. The time of easy money trading worthless assets is long gone. If you haven’t realized this by now you need to wake up and seriously assess your flawed perception of reality.
Double down on your long-term views. This is an excellent time to go even harder in sectors you think are important long-term. Why? Many assets are way cheaper, and weak competitors are giving up. Increasing your cash flow does not mean exiting. Quite the contrary, this is the prime time to buy, build, and grow. One example: FTX is now gone, which creates a massive crater in the place of one of the world’s largest crypto exchanges. You don’t think this is one of the all time greatest opportunity this industry has seen? Someone will grab it.
Don’t let stress slow you down. This is contrary to a lot of modern concepts. People think that success should come without stress. That they should have all the time for things that make them happy while also making heaps of money in challenging environments. If you’ve ever had a major setback, you know it’s extremely stressful digging out. You can sit around and take “mental health days” eating potato chips and watching TV to stop feeling bad in the near term while sacrificing your future. Or. You can realize that no one is coming to save you and floor it despite your feelings until you get what you want. Your call.
Stay/get in shape. Seriously. This will do more for your “mental health” than anything else. Our friend Ox’s substack is an incredible resource and our team follows his workout plans. Otherwise, just go for a walk daily. Then go for a run. Then run to the gym. Then go inside the gym and lift heavy stuff and put it back down. It’s that simple.
What is DeFi Ed doing?
Our team was fortunate in that we avoided all of the major collapses. Owl lost a negligible amount of money on Luna, but otherwise came out completely unscathed from any of BlockFi, Celsius, FTX, Voyager, etc. This should come as no surprise as we’ve informed readers to steer clear of centralized crypto entities since our very inception in 2021. Owl had set aside a substantial cash reserve due to leaving his job in 2022 and had some decent ETH trades (and one bad one!) so all things considered not a terrible year for the portfolio.
Iguana has been predominantly cash all year outside of a few trades since he sold the top in November 2021. And of course he did not lose much money on the FeFi (Fake DeFi) blowups either. (25 FTT staked in a frens’ FTX subaccount for fee-free swaps)
Sidenote: For paid subscribers, we posted a quick portfolio update at the bottom of the Maple Finance deep dive.
We’re following our own advice. We are pinpointing our own mistakes (mostly missed opportunities) and fixing them. We’re doubling down on what we believe in (please subscribe to DeFi Education’s new Youtube channel!) and working hard to get to the next level both professionally and personally.
We’re building better research processes, tracking more opportunities, and continuing to build out the DeFi Education paid Substack and the academy. As always, we’re playing the long game.
If you’d like to join our community of turbos become a paid subscriber for full access to our research.
Until next time, anon..
Academy: Want to learn how we think? We now have a full course on crypto that will get you up to speed (Click Here)
Security: Our official views on how to store Crypto correctly (Click Here)
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.
This needs to be mandatory reading.
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