Iteration Three - Here We Come 2022

Here we are again. The first week of 2022 is over, and a lot has happened. It’s crazy how time sometimes flies and how the markets can turn red within seconds.

This week hasn’t been the best for crypto. The Fed released some statements that made many institutional investors sell their positions, leading to a widespread drop in prices.

Other than that, we have a few interesting news in the section below and need to wait for the things to come.

For now, I hope you enjoy reading this issue of Iteration Three. There should definitely be at least one thing in for each of you!

No matter how big or small you are on social media; you probably have recently noticed a ton of DMs in your inbox lately (especially on Instagram). Those DMs are nothing else than cold marketing attempts to drive your attention toward “new” and “innovative” NFT projects. But let’s be realistic here; most of them are just another collection of a few thousand NFTs with no real utility and probably already doomed to fail. They do all, however, try to get your money.

This brought me to think about how you can actually identify worthwhile projects, and I came up with two categories of NFTs.

Sole collections are super tricky. They provide nothing else than beautiful graphics, and they are the art of the NFT world and consist of images, short videos, or sound. You either buy them because you hope they go up in value, or you buy them because you like the aesthetics and looks.

Great collections with utility do not only look fantastic, but they also provide their holders with perks. They either give access to a closed community, discounts on purchases, a one-on-one, a dinner, etc. I think you get the idea. What makes them especially valuable is not only their perks but also who’s a member of that circle. Some collections out there put you on one Discord with Snoop Dog or other celebrities, for example. That’s indeed an opportunity for you to get closer to them, or maybe even propose them a business idea.

There are multiple ways to deal with this problem, and a lot of it depends on the reasons you are in.

If you are only in for the collectible, it’s relatively easy for you. It’s all about what a specific piece is worth it for you. You don’t speculate on rising prices in this case, and you only want to own the piece. This is when you pay what a piece is worth it for you personally. There is not much more to it.

If you look for the utility, you need to put in a little more research. In this case, the best thing to do is to follow NFT Twitter closely. Try to find the influencers in this area and also closely monitor the accounts of celebrities who have already shown their interest in the NFT space. When they begin to talk about a project, you should definitely become interested, as well. Look at what other enthusiasts say about a project. I usually open a Notion page where I collect everything I can find out about that project, and it helps me later decide whether it’s worth it for me to go in.

If you look for an investment, you have even more research to do. Gladly, everything from before still applies. You should have a Notion page for each project, and you should closely follow the space. Additionally, look for whales. Whales are investors who either regularly sell NFTs or even create collections themselves. If you see someone like them beginning to mint NFTs, you know they are up to something.

You don’t have to do everything yourself, of course. There are tools that track whales, collections, and everything else. Two of those are the following ones. You can use them to collect indicators (signals that tell you something is coming, or a collection is worth it).

You probably already know this chart. If it’s not Bitcoin, it’s another cryptocurrency you are invested in or follow closely. Nearly all charts for any cryptocurrency will probably look similar to this one.

There is, however, no need to sell off everything right now or get into panic mode. Let’s look at what exactly happened to trigger this dip at the beginning of 2022.

On Wednesday, January 5h the Fed released its meeting minutes from their December meeting. The contents of those notes were more than interesting for all institutional investors. What the Fed discussed was to begin to reduce their balance sheet slowly. And what this usually means is that interest rates start to rise before this.

Rising interest rates mean that money isn’t as cheap as before. You can’t get a loan from your bank as inexpensive anymore, and, especially important for large corporations, interest rates for bonds also begin to rise. If you are still lost, bear with me, we’ll quickly go over how many investments in the stock market work.

When money is cheap, and when you can also access that money easily, you have one decision to make. That decision is how you can use that cheap money to make more money. One of the most obvious options that come to mind is to invest in the markets. The math is relatively simple. You obtain $1,000,000 at an interest rate of 0.5%, for example. This means that overall, you’ll have to pay back $1,005,000. Looking at the markets last year, you’ll quickly see that most stocks performed way better than that. The S&P 500 finished the year close to the +30% area. Individual stocks did even better. Looking at crypto, you’ll see even larger yields. And now, you end up with many investors who put a lot of money in the markets. And this works for as long as the money is cheap. Prices rise, everyone is happy and wishes this could continue forever.

However, all institutional investors have a high interest in monitoring their risk regularly. This risk management is (pretty simplified) doing a lot of math to see how exposed you are to unforeseen circumstances like prices dropping. And no one likes going out of business and bankrupt due to you being too greedy (at least not after 2008, if some of you still remember). What many risk models now show is a climbing risk. At some point, loans need to be paid back, and interest needs to be paid. You then have to decide whether you want to take another loan or leave it as is. The problem becomes even more critical when dealing with options and futures. They all expire at some point but not necessarily at the same time that your payments are due. You need to quickly get liquidity in that case to hold your positions. If that money is more expensive, you risk losing money with your investment.

One problem with the statement of the Fed is that they didn’t talk about any dates. No one knows when interest rates begin to climb, which is a vast unknown variable. The markets reacted to those vague statements with a little too much panic. Investors started to close positions to reduce their risk. This also includes the crypto markets because they are, as you might already know, some of the most volatile markets out there. As you probably already guessed, many positions being closed means a lot of selling pressure. The latter does, of course, lead to falling prices. And this is exactly what we currently see.

The chances are high that we will soon see much more green in the charts again. But for now, the markets will definitely slow down a little more until the Fed either gives more accurate statements or the first effects of their actions begin to show. I can’t and won’t give you financial advice, but I can tell you that I hold on to all my positions, and I am not too afraid to even stay in the red for a long while. However, you should think about this for yourself and make the best decision based on your own opinion. It’s neither a shame to hold nor to sell.

Binance has always been a unique company. They are one of the crypto exchanges that had the most problems with any state in the world. Now, Pakistan joins the ranks of countries launching investigations against Binance. In this case, the investigation is all about some fraudulent apps reported to have cost Pakistani people a lot of money. Those apps seem to all have followed the same scheme of asking people to register through Binance and then getting them into a Telegram group where an anonymous expert shared betting signals on the rise and fall of the Bitcoin price.

Although Binance does not seem to be directly related to those fraudulent apps, it’s yet another investigation against Bitcoin, after a few that also cost Binance access to SEPA in the European Union, for example.

99% of people on the internet probably know PayPal, at least in the western world. The company has become a leading payment processor for the modern online world. PayPal has also allowed users in specific regions to handle crypto through its ecosystem for quite some time now. New reports now suggest that PayPal is definitely working on releasing its own stablecoin.

A stablecoin makes perfect sense for PayPal. It already controls a large area of online payments, and stablecoins are backed by FIAT. Letting people pay with them while also controlling the way in and out of it is an excellent addition to PayPal’s service portfolio. It could also bring the space much further. Everyone profits if a service provider makes it as frictionless as possible to use crypto.

Vitalik Buterin recently wrote a lengthy reply on Reddit, stating why he doesn’t think that cross-chain applications are a good idea. In his opinion, there are too many security concerns regarding blockchain bridges right now. He further continued by stating that he thinks the future is “multi-chain” but not “cross-chain.”

The reply is very much worth it to be read. After that, everyone should build their own opinion on the matter. I personally think that the future is indeed cross-chain and that the issues Vitalik describes are solvable with more time and research.

According to Bloomberg analyst Mike McGlone, Bitcoin and Ethereum both have an incredible year ahead of them. He compares the drop of Bitcoin with its last drop to $3k. As he states, the graphics show that a 10x appreciation is possible as the last time.

Read the article if you want to know more. Bloomberg and its Terminal are usually sources that can be trusted. The picture they currently draw is a dream for anyone now even only holding a small amount of Bitcoin and Ethereum.

This interesting article on Cointelegraph tells a lot of the story of Bored Ape Yacht Club, how it changed the NFT industry forever, and how WallStreet now desperately tries to find a way to get into the sector. Many experts share their insights in this article, and I agree with most. NFTs have definitely become a valid investment vehicle that rewards its holders with monetary benefits and many other perks that make even a significant investment well worth it.

Public Key Cryptography is at the core of any blockchain. Yea, it’s deeply rooted in math, but it’s well worth knowing about to understand how genius the idea actually is. If you are a visual learner, this YouTube tutorial will definitely help you understand the topic better.

Hashing is another super important topic for blockchains. Every block contains hashes, and they are indeed what makes the links between blocks work and verifiable. If you are interested in learning more about blockchain, you should definitely watch this video. It is easy to follow, and after you’ve finished watching it, you’ll know much more about hashing than before.

Many of us probably already know what a blockchain is. But sometimes, we know a lot but can’t really communicate it reliably. In this case, this article on Investopedia is a great refresher that goes over everything that makes up a blockchain in such a way that you could explain it to everybody else afterward. And how knows, perhaps you learn one more thing, or even two?

Despite insanely high gas fees, Ethereum is still the number one smart chain out there. There is no other blockchain used as excessively as Ethereum for more or less innovative projects. It was the first of its kind, prior to many others that followed, and it still has a large influence on other projects, especially those that forked from Ethereum. 2.0 might solve many of its issues, and if not, Polygon is still a perfectly viable layer-2 solution. Knowing Ethereum doesn’t hurt, and this is what you definitely learn while reading this article.

Smart contracts make blockchains incredibly useful, and knowing how to create them sets you apart from many other developers in the industry. Demand for smart contract developers will probably rise far more in the future, and this is why you should at least learn a little about Solidity, the language of the Ethereum Virtual Machine.

OpenZeppelin provides one of the industry’s most valuable and widely-used Solidity libraries. Although the article is a little older, it is still very valid in all regards.

I started to take Instagram more seriously this year in an effort to branch out further and to reach more people. I will also soon begin to release reels on Instagram, with short educational videos to spread as much knowledge as possible. I put a lot of work into those and hope to reach as many people as possible.

If you like visual content, please consider visiting my Instagram profile.

We are once again at the end of this newsletter’s issue. I hope you enjoyed reading it, and that you took something worthwhile with you.

As usual, if you have any feedback, feel free to provide it. Even if you have any ideas, share them with me, I’ll do my best to find out how I can incorporate them into this newsletter.

Until then, stay safe, hodl, and go buidl some dApps!

Yours sincerely,

Oliver