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Bear Market Advice 🐻 + In Conversation with Sam Bankman-Fried 🚀

Ether Capital Newsletter
Ether Capital Newsletter
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It’s been total chaos in cryptoland this week, but before we get to the bad, let’s start with the good.
🥁🥁🥁 …
EthCap Webinar With SBF! 🥳 🎙️
That’s right! Next Wednesday, Sam Bankman-Fried — billionaire founder and CEO of global cryptocurrency exchange FTX — will be joining us to talk about how he built one of the world’s largest crypto empires and what it will take to bridge the gap between TradFi and digital assets. 🚀
ICYMI, on Thursday an SEC filing disclosed that Bankman-Fried purchased an 8% stake in Robinhood 🏹. At the time of writing, shares of the American trading app are up 25% 📈. We’ll ask him about that, too!
We’d love for you to join and want to answer your questions. 💡
Make sure you register, or email your comments/questions to info@ethcap.co, and we’ll get to as many as possible during next week’s event.
You 💯 don’t want to miss this one.
Crypto Carnage: What Happened to Terra? 😱
The third largest stablecoin, TerraUSD (UST), lost its grip from the U.S. dollar, which ended up being a disastrous outcome for investors. 📉
TerraUSD (UST) price (7 day)
TerraUSD (UST) price (7 day)
The crisis unfolded when UST fell sharply ⏬ below the $1 mark over the weekend and then dropped again to below $0.30 on Wednesday. As a result, UST’s sister cryptocurrency, Luna, was absolutely crushed and fell 99%, wiping US$10 billion from its market cap in the span of 24 hours. 😮‍💨
What was recently one of the most valuable cryptocurrencies (in the top 10) is now basically… worthless. 💸
Luna price (7 day)
Luna price (7 day)
Terra’s meltdown sent shockwaves throughout the industry and got the attention of U.S. Treasury Secretary Janet Yellen who pointed to the death spiral 🌀 as a “real life demonstration of the risks” calling for proper regulation. 🏛️
Now that the whole 🌎 is watching, many in the space are doing a post-mortem on what caused UST’s decoupling in the first place. 🕵️
To get your head around what really happened, it’s helpful to understand the different types of stablecoins and how they function.
Reminder: A stablecoin is digital currency that pegs to a “stable” asset like fiat currency, gold, or sometimes other cryptocurrencies in an attempt to stabilize the price and reduce volatility. 💡
High-level, you can place stablecoins into three categories:
  1. Those which are backed by reserves (most commonly fiat currency, often USD). 💵
  2. Collateralized stablecoins (i.e., MakerDAO’s Dai) which are pegged to other cryptocurrencies and tokenized dollars. Users are able to borrow against the value of their deposits and receive newly created tokens in exchange. 🤝
  3. Algorithmic stablecoins, which are undercollateralized and aim to peg a token to a target price using on-chain algorithms that increase or decrease supply. 🖥️
The tldr is that UST is an algorithmic stablecoin and uses an arbitrage incentive to maintain its peg to the dollar.
Both UST and Luna are part of the Terra Protocol and work in tandem. You need to mint UST before you can buy it, which is where Luna comes in.
The idea is that at any given time, a trader can burn 🔥 $1 worth of Luna to reduce supply and mint one UST. The opposite also works where they can exchange one UST for $1 worth of Luna. 💱
It’s worth noting you can always redeem one UST for $1 worth of Luna, even if UST is worth less than $1. For example, if UST is trading at $0.99, investors can buy it and redeem it for $1 of Luna, pocketing $0.01. When UST is trading at $1.01, they can also do the inverse-trade $1 of Luna for one UST, and pocket $0.01. 🧐
For UST to keep up demand and have utility, Anchor Protocol — a lending platform built on Terra’s blockchain — offers a whopping 20% APY 💰 for those who deposit UST on its platform. Prior to UST dropping off a cliff over the weekend, Anchor held about 75% of UST’s circulating supply (14 billion UST). Today, it’s sitting at around 1.8 billion UST. 😬
Total amount of UST deposited in Anchor
Total amount of UST deposited in Anchor
What is especially concerning, is that prior to the UST/Luna disaster, Anchor was allegedly on track to deplete its own reserve within two months. 😳 🆘
Our take?
Algostables are quite the opposite of what stablecoins are supposed to be, which is… stable. They are precarious and exist in a constant state of vulnerability. While some investors might like the fact that they are pegged to assets outside the purview of regulators and governments, in reality they are complicated market incentives designed to fail. ⚠️
But this does not mean that all stablecoins are ticking time bombs. As the Canadian Web3 Council points out, stablecoins in general have attractive qualities and could be beneficial to Canadians and other investors.
Disclosure: Ether Capital is a founding member of the Canadian Web3 Council.
Disclosure: Ether Capital is a founding member of the Canadian Web3 Council.
While it remains to be seen if Terra’s collapse marks the end of algorithmic stablecoins altogether, it’s a painful lesson that highlights the need for a coordinated approach to reconfiguring how algorithmic stablecoins function. 🛠️
Bear Market Motto: HODL 📉
Crypto market cap YTD (Source: TradingView)
Crypto market cap YTD (Source: TradingView)
Terra aside, it has been a brutal week/year for cryptocurrencies.
Many attribute the recent selloff to inflation fears, but the reality is there’s never a clear answer for why markets do what they do. Perhaps after crypto’s stellar performance in 2021 we were overdue for some sort of correction.
We recognize that for many of you, this could be your first 🐻 market. If it is, gm and don’t panic. It’s probably frustrating that the VCs and celebrities who praised crypto last year are not losing sleep at night, but retail investors? They’re stressed. 😓
We’ve been through prolonged bear markets before and we will go through them again. They prove the industry’s resilience and allow you to appreciate record-breaking gains after suffering through inevitable lows.
Here are important things remember during these challenging times:
Bear market survival tips ⛑️
  1. Always understand the value proposition of what you’re investing in. If you believe in the fundamentals and that the project you back will be around in the next five, 10 or 15 years, then you need to ride out the storm. 🌪️
  2. Fortunately, bear markets poke holes in a lot of protocols or projects that don’t have longevity. Considering the space is so noisy, this is somewhat of a cleansing period to filter out fluff and things that aren’t built to last. 🗑️ ♻️
  3. Use this time to re-evaluate your portfolio and buy in at a good price. If you can stomach the volatility 🎢 and are a low time preference investor, think about allocating a small percentage of your portfolio to assets that have been around for awhile and properly stress-tested.
  4. Similar to traditional markets, don’t put in what you can’t afford to lose. If you’re not yet comfortable navigating the space in a crypto-native way, consider investing in structured products that are tax-efficient, fully regulated and give you direct exposure. 💡
Hang in there, #WAGMI. 🌈
For those who are new to cryptocurrency, we shared tips with the media last year about how to build a position in the space. Also why “crypto literacy” is crucial for those who are just getting started.
Upcoming ETHC Events 🗓️ ⏰
It’s shaping up to be a busy summer and we want to bring you along for the ride! 😎 🚗
May 19th at 4:20pm ET: We’re heading to Palm Beach, FL, to participate in Permissionless — one of the biggest DeFi events of the year. We’ll be talking about the institutional bull case for ETH (right up our alley). If you’re in the area, make sure you stop by to say hello. 👋 Tickets are available here.
May 26th at 2:10pm ET: Also just around the corner is the MoneyShow Canada Virtual Expo. Brian Mosoff, CEO of Ether Capital, and Som Seif, CEO of Purpose Investments and Executive Chairman of Ether Capital, will be participating in this year’s event. They will talk about cryptocurrency from a macro-perspective and how traditional investors can increase exposure to digital assets in a secure and regulated way. The best part? It’s free! Here’s the link to sign up. ✅ 📈
June 8th at 11:30am ET: We’re joining Bloomberg next month to talk about the challenges countries face when it comes to crypto regulation and what’s at stake if governments don’t act fast enough. ⏳ Go here to register for the free webinar, it’ll be a good one. 🙌
August 9th & 10th: We are also scheduled to speak at this year’s Blockchain Futurist Conference, Canada’s largest cryptocurrency and blockchain event, taking place in Toronto. Tickets are available here — more details to come! 🤗
Newsworthy Links & Highlights 🗞️
New Aussie Crypto ETF 🐨 🇦🇺
Earlier this week, Ether Capital supported the launch of the Cosmos-Purpose Bitcoin Access ETF (CBTC) in Australia. This was particularly special for us because CBTC is directly linked to the Purpose Bitcoin ETF (BTCC) — the world’s first spot Bitcoin ETF — that we helped launch last year.
Despite the persistent bear market, blockchain and crypto start-ups had a record-breaking quarter, according to CB Insights. Here’s a link to the latest report.
Bankless, a popular crypto podcast and newsletter, had its YouTube channel unexpectedly shutdown over the weekend, which meant 10,000+ hours of content instantly disappeared. The podcast’s co-founders Ryan Sean Adams and David Hoffman took to Twitter to express their dismay prompting many supporters to jump to their defence. The channel was eventually brought back online, and although YouTube’s CEO publicly apologized for the mishap, the experience left Adams and Hoffman with a bad feeling and likely searching for Web3 alternatives.
Have Questions About Crypto?
The industry is quickly evolving and there’s a lot of information to keep up with. That’s why we want to help! 🦸
Email us your questions and we’ll respond to as many as we can. While we can’t provide investment advice, we do want to steer you in the right direction so you can be informed.
Thank you for subscribing to our weekly newsletter! We’d love to hear from you, so please don’t hesitate to reach out. 😎 🚀
☝️ Correction: This newsletter is very cutting-edge, just like the crypto industry, and sometimes we make mistakes. Last week, when we talked about Ethereum’s progress as of Q1 2022, we erroneously placed USD in front of the Staked Ether stats. What we meant to say was that Staked ETH more than doubled YoY from 5.2 million ETH to 10.9 million ETH.
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