Sinking Alts
Disclaimer: Your capital is at risk. This is not investment advice.
ByteFolio 62;
The portfolio drifts downwards in BTC terms, but the absence of any exposure to altcoins means we’ve side-stepped last week’s carnage. These sharp declines were triggered by the SEC’s decisions to prosecute Coinbase and Binance, which resulted in a reduction in system liquidity. When liquidity is compromised, small caps are the first to suffer.
All financial systems rely on liquidity. When market participants withdraw, whether enforced or voluntary, it has an impact. The old joke about Emerging Markets was that they were so-called because “they were impossible to emerge from in an emergency”.
Decentralised Finance presents itself as an adjunct to the current financial system. But it needs participation to thrive. At the moment, the US regulator is making life difficult for bonafide investors to allocate into this new universe, and you can see the results in some of the charts below, which show how transaction activity has flatlined.
This won’t last forever. As the technology becomes more widely understood, adoption will increase. One of the beauties of smart contracts is that they don’t fail in a liquidity-constrained environment, for example. Secondly, at the point where investors understand where they stand in relation to regulation, they will return. At that point, the liquidity drain will go into reverse.
The ByteFolio process prevents us from catching falling knives, but our guess is that there will be some selective buyers out there who will one day be very happy to have taken the other side in a forced selling environment.
No changes again to the portfolio. We are liquid and defensive, perfectly positioned for when the tide turns.
