Crypto Outlook for Q2 2022

It's a PVP market innit

Crypto Outlook for Q2 2022

Macro

• Russia-Ukraine war has been the trending headlines over the past couple of weeks, this event triggered alot of portfolio changes for TradFi investors as well as gave the local bottom for the Crypto market. I believe the war will likely be a non-event soon.

• Fed hiking interest rate in an environment that has trending inflation but slowing growth will potentially lead us to the perfect storm later in the year. We go from inflation to stagflation as early as Q3 2022.

• What does this means for the world? -> a slow death which will be bad for majority of the population who are not prepared.

• If digital assets is to decouple from TradFi markets, now would be a good time for that.

• The world is in a mess right now, adding to that, there are huge amounts of unfunded pensions in various parts of the world, coupled with stagflation, its a recipe for disaster. Policy makers will need to consider how to navigate this. If shit hits the fan, will they 1) let the ship sink - allow a deep recession → everyone will be unhappy or 2) keep printing money - give people their money, inflate everything and let people bleed a slow death from gradual reduction of purchasing power.

• Perhaps a parallel world could be the noah’s ark?

  • Let the current world bleed a slow death → Enter the Metaverse → virtual/metaverse economy eventually overtake real world economy eventually.

General crypto market

• There continues to be large TradFi funds venturing into crypto space, these funds are investing in the infrastructure layer of the space, for eg, Temasek (Singapore’s Gov Linked Fund) invested in IMX.

• There are increasingly more funds focused on Gaming and Metaverse

• VC round valuations were high and it might be better for some funds to buy liquid tokens (those already listed) as some of them are close to or even below seed valuations

  • as a retail investor this is great news for me, as i have the chance to buy solid projects at cheap prices if i do the research

• Dispersed markets - some coins are in a bear market while others are in a bull market, the key is to identify this and trade accordingly

• Full retrace season - most coins pump only to dump later, hardly any coin that trends any direction over the last couple weeks

• Dino coins (EOS, WAVES, TRX) making a come back with news flow (we are launching EVM! Issa big week!) shows how much the market wants to pump anything they can, but full retrace season also shows how PVP the market is. 

• Clearly, the current market conditions are best for quants/scalpers than swing traders. Hopefully this changes in Q2 - will share thoughts how im navigating this. Will be watching the “sell in may” though.

• Expecting Q2 to be a better quarter, likely risk on for most sectors of the crypto market, believe market has been and will continue to allocate into: 

  • Gaming

  • Bluechip DeFi coins

Bitcoin

• BTC as collateral in TradFi is starting, this could be the start of monetising BTC into a bond like asset, after all there are about US$5T (Feb 2022) worth of negative yielding bonds in Europe alone. Market cap of BTC is still below US$1T (Mar 2022).

• Luna Foundation Guard (LFG) triggered current mini-bull run and likely to trend over the next 2-3 months. I think the current price action (pa) is causes by people front running of LFG buys

• There are also other market participants who are buying in anticipation of stagflation, buying the “hardest money”

• Interestingly, after Ray Dalio said he owns some BTC in 2021, most recently Bridgewaters mentioned they will be going into crypto and as you know they are not alone in this quest for crypto exposure, believe they will start with BTC allocations too. 

Ethereum

• Its all about the merge, while most market participants are bullish about this event, I am unsure how it really pens out, somehow, when the majority (herd) thinks something happens, it goes the other way.

• ETH remains one of ways institutional funds can get exposure to crypto due to deep liquidity

  • It’s a good asset to hold for market beta exposure over the long run, but if you wanna beat the market as a retail (talking to myself here), prolly best stay out of ETH.

• Most of ETH related activity could happen on L2s going forward

Eth L2 scaling 

• Starknet

  • Latest funding round puts Starkware at valuation of US$6B led by Sequoia with investors like Paradigm, 3AC and Alameda

  • There is a ton of developer activity on Starknet, vibrant community, consistent eco updates and feels like THE place to build/watch. 

  • Likely to be strong DeFi infrastructure, MakerDAO and other bluechip DeFi will be preparing to launch on Starknet

  • Gaming Eco will be strong as well with Loot Realms, the loot extension on Starknet is being build. There is Matchbox DAO, which aims to be a hub for game developers, designers,etc building on Starknet.

• Arbitrum

  • Wen Nitro, wen Airdrop (there are whispers of this being in 2022)

  • Interestingly the NFT market on Arb was resilient compared to all other chains

  • Magic ecosystem held up the NFT market on the chain, with a whole pipeline of solid games including Seed of Life, Battlefly and more, I think we will see new funds entering the eco.

  • Tetra roundtable coins like Dopex and Vesta amongst others will likely continue to keep sticky TVL on the chain

L1s (sol/luna/avax)

• Luna

  • After watching the ecosystem coins performance, ive just decided to stick to buying Luna and putting stables into anchor during risk off periods 

  • The end goal of UST is to be > USDT, Do Kwon and team are building a whole ecosystem to increase demand of UST never stops.

  • Gaming projects are coming to Terra eco

  • Defi/FX hopefully help to propel UST growth forward so that the burn can intensify. 

  • Likely to break ATH soon and trend upwards

• Avax

  • Subnets season → cheaper transactions and more scalability

  • Gaming: Defi Kingdoms ($Jewel) and Crabada ($Cra) will be launching their subnets relatively soon. Although there are some delays for Crabada’s swimmer network, it will be done eventually. Avax is becoming the top chain for gaming developers and im super excited to follow their journey.

  • DeFi: most of the defi coins on Avax have been rekt anywhere between 70-85% from their all time highs. I think this is a good spot to keep an eye on these coins with the imminent Avax season around the corner.

• Solana

  • Opensea launching on Solana may potentially kick off their NFT and Gaming season

  • Gaming: Aurory is probably the most awaited game that will be ready to play soon. Star atlas is also highly anticipated but might take some time. One game i am likely to keep a closer eye on is Meekolony which may have their TGE in Q2 2022.

DeFI (all chains)

• Badger ecosystem

  • Badger ($BADGER)

    • Badger DAO is a DAO that enables bitcoin to be used as collateral across DeFi applications. 

    • TLDR; it gives your BTC yields

    • Previous hack on badger had been sorted and i believe badger will be potentially provide a critical infrastructure for BTC holders to monetize their coins.

  • CitadelDao

    • Citadel is a treasury DAO aiming to be the largest community owned Bitcoin position in the world.

    • Citadel will grow to become the people’s Bitcoin whale with the intention of supporting the creation of Bitcoin-focused products not just in DeFi, but also Bitcoin core development which is drastically underfunded.

    • To ensure it can create sustainable yield on its Bitcoin positions it will hold not only Bitcoin, but also yield influence assets across DeFi (eg. Convex and BADGER).

• Tetra roundtable

  • Convex Finance ($CVX)

    • Everyone knows what dis is, basically CVX controls the voting power for majority of CRV, FXS and other tokens they partner. The CRV war have turned into a CVX war.

    • Curve v2 coming soon - will super charge the rewards for CVX holders.

    • Remains one of the key projects for a DeFi portfolio.

  • Dopex ($DPX)

    • rDPX new tokenomics.. gud coin

    • ve-DPX.. gud tech

  • Frax Finance ($FXS)

    • FPI airdrop soon

    • FraxSwap

    • As mentioned in my Q1 outlook, Frax is likely to be the top stablecoin, FPI is the CPI for crypto and Sam Kazemian is the gigachad that gives us hope of a brighter future in the metaverse.

    • Probably one of the few DeFi coins that you could hodl in your ledger and come back 5 years later, and it’s still chadding.

  • FeiRari ($TRIBE)

    • Matchmade in heaven, FeiRari moves fast and furious.

    • New xTRIBE allows users to direct emissions of FEI or FEI LP tokens on the Fuse lending platform. All rewards are auto compounded.

    • Probably the other DeFi coin that you could hodl and come back with a Ferrari after a decade. NFA.

  • Redacted Cartel ($BTRFLY)

    • The influencer of all DeFi Gov votes.

    • Hidden Hands (check their docs)

    • Might be a way for retails to buy a coin as an ETF, since redacted’s influence stretches far and wide.

    • I bought $BTRFLY at auction and sold around $3,000. Intend to add this back to my portfolio in the near future, maybe sooner than later.

• AVAX DeFi

  • BenQi

    • Liquid Staking - sAVAX

    • Anchor partnership

    • DeFi Kingdoms partnership

    • Still the go to AVAX native lending platform , gud coin.

  • TraderJoe

    • New tokenomics revamp enabling the protocol to be a launch pad too.

    • sJOE, rJOE and veJOE means buy pressure will be higher when the demand comes back

    • Team has continued to build while funds have been flowing out of DeFi over the past few months

    • Likely a good time to re-look. At the recent low, $JOE was close to VC funding round price, so as long as your believe VCs don’t invest for a mere 2x, there is much more room for price to grow.

  • GMX

    • If you don’t know about GMX, check out the awesome complete guide to GMX by Blocmates.

    • Its a perp protocol, and many people use it, bull or bear market, its still gud coin

    • $GLP printer go brrrrrrrr

• Other DeFi proj on watchlist

  • AAVE

    • Aave v3 cross chain, price have been rekt, and potentially see OG DeFi protocols make a come back after their massive revamp

  • A new decentralized forex protocol with a strong proven team of shippooorrrs, strong investors, solid roadmap, ve-tokenomics, soon GLP tokenomics, MKR vault type product, monetize real world assets, fiat on/off ramps partner sorted, team makes sure that they focus on protocol profits rather than pure TVL growth. Gud coin.

Web3 Gaming Summer

• Gaming sector thoughts

  • In Jan 2022, i decided to make a pivot to GameFi because i thought that the future of the Metaverse will require some solid games that people want to spend many hours playing. So i decided to dive deeper into the gaming space. I wrote more insights about this in my twitter threads so you can check out more about my views.

  • Jason Choi mentioned that GameFi feels like DeFi in 2020, which means we are about to enter a GameFi bull market and we are still very early.

  • Wangarian mentioned that the next 100x potential is within GameFi, i tend to believe him, in fact this has been what i’ve been discussing with my buddies.

• Gaming Guilds transformation

  • With recent drama about a guild that sold all of their pegaxy assets leaving scholars without jobs and recent $slp changes, guilds that just focus on scholarship model may not survive the long term. 

  • Hence guilds will need to relook what their main role is, i wrote a thread about 12 areas guilds can venture into and i believe some of the guilds may be moving into that direction. 

  • I believe that some guilds will be moving towards  a game hub or studio as their main model. Merit circle started this with partnerships/investment into selected games, and i believe GuildFi will also pivot to such a model, i’ve heard that they are evolving and there will be a future announcement to share their plans. 

• Games to watch

  • Games Ecosystem - Treasure DAO ($MAGIC)

  • MMORPG - Ragnarok / Treeverse / Meekolony / Ember sword 

  • RPG - Crypto Raiders ($RAIDER)

  • FPS - AFAR / Blast Royal

Metaverse 

• General outlook

  • BAYC’s coming metaverse land sale might trigger the next metaverse bull run

  • Currently, The Sandbox ($SAND) remains the most interesting project and is a front runner to become the most successful virtual world project

  • NFT Worlds ($WRLD) is definitely a project to keep an eye on, utilising minecraft designs, developers can easily build a virtual world, various NFT projects have been buying land and developing them into their own metaverse (ie. Floki Verse) - there seems to be alot of potential for NFT Worlds and will be writing future deep dive thread about it.

  • As Jason Choi pointed out, the winning Metaverse substrate project like The Sandbox will be the main winner for this space, kind of like the fat protocol thesis for L1s.

Q2 2022 Portfolio Allocations

General thoughts for next year – what I think happens to the market will naturally be expressed in my portfolio allocation, so here goes.

• What is the likely good of prolonged bear market?

  • Unlikely to have prolonged bear market because people i speak to working in TradFi instis keep telling me they are gearing up to allocate into crypto, buy pressure will come soon enough.

  • Market is maturing and market participants know that BTC/ETH/Crypto is here to stay, what we may have are just frequent corrections

  • If bear market does happen, am prepared to go into mostly stables and trade markets only. 

• What market segment that isnt being discussed now and will be more popular over the next few months / year? (this is a question i always ask myself) 

  • Personally think Metaverse will be the meta over the next few years, but not many people are talking about Metaverse fashion. Perhaps this would be an interesting space to watch. 

  • I do know Facebook (meta) supports Realy, and a independant web 3 fashion protocol called MONA is underlooked. 

• Should i be offensive or defensive?

  • Right now based on current market conditions, best to be defensive while still being able to ease into strong coins

• Based on the above question, how would i better manage my risk?

  • Prefer to be more liquid, while also holding on to good r/r plays

My Portfolio Construction

NFA.

(30%) Gaming 

• Crypto Raiders ($RAIDER)

  • Recently wrote my views about this gaming project in a thread, but the TLDR; raider team has a long term vision and are forgoing short term profitability for long term sustainability of their game.

  • It’s a game where even some game designers play (not just because they need to play to check design)

• Treasure DAO ($MAGIC)

  • One of the most vibrant communities out there

  • Treasure DAO is building a decentralized Nintendo, and their games are composable with one another, items from Game A can be used in Game B.

• Other Games

  • There are other games that i am currently getting Whitelist for and/or starting to purchase their game NFTs, will share at a later date when I gain more conviction.

(20%) Productive Assets

• BenQi ($QI)

  • For the reasons stated earlier in the article

• Convex Finance ($CVX)

  • In be4 Tetra roundtable and CitadelDao accumulates more CVX

• Badger DAO ($BADGER)

  • Have a initial position on this, may dollar cost average (DCA) into a larger bag later on.

(40%) Stables / Majors or L1s / Coin-Perps

• Due to the current market conditions - a dispersed market, i find it difficult to buy and hold, it is more of a traders market.

• My strategy has changed from holding productive assets to trading more, this could be scalps, swing traders, basically anything to keep my portfolio liquid but also taking advantage on market moves.

• This portion of the portfolio will be where i spend the most time with, going from stables to holding Avax/Luna or trading the market

(10%) Ember Bags

• Always have this allocation for very low cap projects that might need more than 6 months holding period, literally ape and forget kind of projects, currently part of this portfolio is the DeFX coin i mentioned earlier.

• Wont be revealing the coins here at the moment as they are small caps and untested.

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If you have made it to the end of this post, thank you for taking time to read my crypto investment diary. Always appreciate your views and feedback to help broaden my view of the market and investments.

Disclaimer: NFA