Top 3 Crypto Lessons From 2022 — Called the Top but FTX, Voyager, oh my!

2022 was a major learning lesson for all in crypto.

My qualifications: LinkedIn — Crypto Analyst at a boutique research publishing firm, contract community analyst for VC-backed research firm Messari, and with CryptoEQ.

Most of all — I succesfully & publicly sold the top of the ’21 crypto cycle down to the exact day, and predicted a prolonged bear market for the entirety of 2022.

Proof from my Instagram stories below. Nov 9, 2021 was the tippy top of the market. I called it live, that day.

Anyway, let’s get into the lessons…

Lesson 1: Yield is a function of risk.

If the yield being offered is significantly higher than the risk free rate, then it’s crucial to understand what the risks are.

The source of said yield from many centralized crypto lenders, in 2022, was from opaque lending of assets based on trust and not on code as in DeFi.

Depositors in Celsius & Voyager wanted yield and a “safe,” convenient place to store their savings.

Unfortunately their savings were lent to counterparties that went bust.

This painted a case for on-chain lending.

This way depositors can see transparent loan books and lending standards honored by code instead of trust alone.

But now there are decent traditional alternatives to what were during 2021 yields only really seen in crypto: US treasuries.

If one can get ~4.5% in short duration treasuries now, why take on extra risks such as smart contract risk, custody risk,

and many other potentially unknown risk in DeFi for just a few more bps?

But what if entire political and financial regimes change one day?

What if one day treasuries aren’t risk free while DeFi code is still trust-less?

Maybe DeFi being mainstream was a bit ahead of its time so far…

Lesson 2: Global macro matters, crypto doesn’t exist in a vacuum.

Crypto in its history as an asset class thus far has not existed during such rapid quantitative tightening — or really much high(er than near 0) interest rates.

How does crypto react if inflation were to stay endemic ~5% and rates stay near 5% for a while?

Druckenmiller thinks this could be a flat decade for the stock market.

This is without considering other factors such as a CBDC, crypto regulations, and other changes in economic or political regimes.

Crypto may very well have to figure out its role in a new monetary order this decade.

This is speculation for the broader asset class as a whole.

It may not correlate to factors like expanding use cases, developer activity, tech advancement, which will continue to happen and could make macro have less of an effect on crypto over time.

Lesson 3: Custody matters, and there’s no simple answer.

A record year of hacks — those who self custody are in an arms race with elite, state-backed hackers and non-linearly increasing computing threats.

But custodial solutions are improving — hopefully faster.

Also a record year for exchange and lender insolvencies. Can’t win.

If you want to be your own bank — which crypto allows one to do — you have to be prepared to take on the responsibility of doing so.

More on custody here — this advice is WILDLY different than what anyone else says to do.