War, Inflation, and the Others.

Yes, inflation again.

Hello Investors,

Stocks and crypto are back on February levels.

War is raging, and bond yields are rising.

Analysts warn of overbought stocks.

Gold hits new record highs.

And Jerome Powell is making it worse with comments on giving restrictive policy “more time to work”.

What to do in such a market?

War, Inflation, and the Others.

The situation is suboptimal, at least.

Analysts warn that if bond yields cross 5%, they could start a big sell-off pushing yields further to levels not seen since 2007.

War

Unless World War III starts, the economy is not crashing.

Even if war escalates, remember what Warren Buffett thinks of wars:

“If you tell me all of that's going to happen [war with Russia], I will still be buying the stock. You're going to invest your money in something over time. The one thing you can be quite sure of is if we went into some very major war, the value of money would go down - that's happened in virtually every war that I'm aware of. The last thing you'd want to do is hold money during a war.” (s)

Choosing strong fundamentals over speculation and hype is difficult, but makes a big difference in the long run.

Inflation

The recent rally was driven by expectations of rate cuts and new liquidity.

Inflation is a problem, and we will see “higher for longer”.

This might change late in the year ~September.

Some people still predict rates to go higher.

But on the other side,

Interest payments on US debt continue to hit record highs and the FED has to pivot;

Consumer spending exceeds expectations with a 0.7% increase in retail sales;

Money-market fund assets hit a new record high of +$6.11 trillion;

China's economy grew faster than expected in the first quarter;

ECB is already signaling rate cuts in June.

When the FED makes that decision, the money-market funds will become a fresh powder to fuel the rally for months.

Investing during "red days" is hard.

But it is also the time when high returns are achieved.

Long-term investors welcome corrections. They give us better buying opportunities.

Rather than focusing on the short-term price movements, I focus on what I believe to be true over the next 3-5 years.

Those trend lines are easier to identify than what will happen in the US (or world) economy over the next 3-6 months.

These times are good for recognizing which projects are fundamentally stronger, and which are more hype/narrative sensitive.

Take a look across one sector, and see how these projects reacted to the market correction.

Many remained strong on the 7d chart while some just wiped out even 30d or 90d gains.

I’m rotating part of my stocks into blockchain again,

leveraging the relatively big dip in crypto compared to value stocks.

Something goes toward ETH, the biggest focus on big infrastructure altcoins.

Roughly 30% will go towards smaller projects I’ve purchased in the last 2 months.

Which part of this newsletter you enjoy more?

  1. The first part with a longer market summary

  2. Or the news snippets with commentary (below)?

Why do I ask - this is a very long newsletter, and I’m considering splitting this into 2x/week news and 1x/week summary.

Thanks for your feedback!

Bitcoin outperforms ETH, again. (s, s)

  • This Sunday BTC hit a new high - the most expensive in ETH terms since summer 2021.

  • The CoinDesk Ethereum Trend Indicator has flipped negative, signaling a bearish shift.

  • Factors such as higher U.S. treasury yields, a stronger dollar, and geopolitical risks in the Middle East have weighed down on crypto markets, affecting altcoins more than BTC.

My Take:

This is common behavior - when the risk increases, investors search for safer assets.

It’s happening on the asset class level - rotating from stocks to bonds and gold,

but also on a micro level, rotating from growth stocks to defensive.

If you bought any of the more risky tokens in the last 2 months,

and you have a strategy and research behind your decisions,

now is a good time to buy with a discount.

Avalanche home equity loan tokenization protocol Homium raises $10M in Series A (s, s)

  • Homeowners agree to share part of their home's value increase (appreciation) to get a loan.

  • Investors funding the loan receive a tokenized asset tracking the price appreciation of loans issued on Homium.

  • Homium's goal is to make housing more affordable and offer a new investment option for large-scale investors.

  • The loans are currently available in Colorado, with expansion planned to other states.

My Take:

Tokenization and RWAs are the next big thing in this cycle - a real value thing, AI will probably outperform it anyway.

We already saw the pump when BlackRock decided to open a tokenized fund on Ethereum.

I expect much more action here and believe Ethereum and Avalanche will play a major role in tokenization and RWAs.

“We sold everything last night” ~ Markus Thielen, the founder of 10x Research (s, s, s)

  • Thielen warns that risky assets (mainly technology stocks and cryptocurrencies) are “ahead of a crucial tipping point”

  • He mentions unexpected and persistent inflation, only 3 rate cuts, and a rising bond yield as the reasons behind his decision and outlook.

My Take:

I agree that most of the current rally is driven by rate cuts expectations but, it is inevitable, it just got postponed.

The lesson for me is: Don’t try to predict the market. Anticipate different scenarios and adjust strategy as needed.

I was expecting a correction for too long and missed some good buying opportunities due to that. Now they finally come and I plan to use them.

Hong Kong regulators approve launch of spot bitcoin and ether ETFs (s, s, s)

  • On Monday HOng Kong regulators approved the launch of spot ETFs for both BTC and ETH.

  • ChinaAMC, Harvest Global and Bosera International are among those that have been given the green light to issue ETFs.

  • But analysts expect they won’t be available to Chinese (Mainland) investors.

My Take:

Hong Kong has a direct stock connect with Shanghai and Shenzhen, which allows Chinese investors to buy international assets.

These assets still need to be approved by Chinese regulators.

If approved, this would result in significant inflows from Chinese investors who are currently banned from crypto markets.

Chinese reaction to this approval will bring us an important idea about where the Mainland is heading in terms of crypto adoption.

What’s your big highlight of this week?

All the best,

Matt.

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