TerraUSD (UST) is described as a “stablecoin,” which means its price should be pegged to the U.S. Dollar.
But its algorithm lost the peg during recent volatility. And the UST token crashed by over 90%.
Terra (LUNA), a crypto related to UST, completely collapsed. It fell from $80 to $0 in a week.
If you want to understand what happened, The Wall Street Journal does a good job explaining it. You can read their article here.
My goal is to put this epic disaster in context.
So let’s start with some perspective…
The Truth About Investing
The past few months have been horrible for financial markets. Wall Street investors and crypto hodlers have felt pain.
If you have a portfolio, it’s likely worth less now than at the beginning of the year.
At writing, the Nasdaq Composite and the Russell 2000 are in bear market territory. The Dow Jones and the S&P 500 are in a correction. And yet no one is suggesting that it’s the end of stocks.
And yet the crypto market and bitcoin persist.
So let’s talk about the reality of stocks.
According to J.P. Morgan, “Around 40% of all stocks experienced catastrophic declines.”
And “the median stock underperformed the market with an excess lifetime return of -54%”
Read that line again … If you buy a stock, odds are that the position’s value will get cut in half.
The stock market is often portrayed as a safe place to invest. But most individual stocks will let you down.
According to J.P.’s report, the top 7% of stocks drive all market returns.
That means the S&P 500’s average return of 10% per year is driven by extreme winners like Amazon, Apple, Tesla, and Microsoft.
Data doesn’t lie. The reality is that most stocks will fail.
Even the large caps in the S&P 500 aren’t immune. According to the report, “since 1980, over 320 companies were deleted from the S&P 500 for business distress reasons.”
So this begs another question…
How Does Failure Fit With Investing?
To illustrate the critical role failure plays, I want to share a story with you…
In July 2014, Amazon entered the smartphone market by unveiling its “Fire Phone.”
The Verge promoted it with an article titled “The 10 coolest things about Amazon’s new Fire Phone.”
But the phones didn’t sell. Eventually, Amazon discontinued production and took a $170 million bath.
When the Washington Post asked then CEO Jeff Bezos about the failed smartphone, his response was brilliant…
“If you think that’s a big failure, we’re working on much bigger failures right now — and I am not kidding. And some of them are going to make the Fire Phone look like a tiny little blip.”
Bezos continued, “The great thing is when you take this approach, a small number of winners pay for dozens, hundreds of failures.”
In Q1 2022, Amazon Web Services (AWS) produced $6.5 billion in operating income.
The quarterly profits from AWS can offset dozens of failures like the Fire Phone.
Bezos’s willingness to fail made him one of the wealthiest men in the world.
Let’s leave this section with a quote from Winston Churchill.
“Success is stumbling from failure to failure with no loss of enthusiasm.”
Now back to crypto…
The Crypto Outlook
The first Bitcoin was mined on January 3rd, 2009. At writing, bitcoin is 13 years old.
The internet turned 13 years old in 1996.
Our relationship with the internet is far different today. It’s obvious when you look at the top websites of 1996.
No mention of Google, Facebook, or Amazon…
When new technology changes the world … adaption takes time. Some early projects are bound to fail.
That’s how technology works.
Bitcoin and cryptocurrencies are extremely new. We don’t know precisely how they will fit into our society or the financial markets yet.
Sharktank’s Kevin O’Leary describes bitcoin as “simply software.” He went on to say that if you’re willing to invest in Google or Microsoft, you should consider Ethereum or Polygon … “It’s all software,” he concluded.
Look, crypto is not going to disappear.
According to CNBC, the crypto industry poured “over $30 million into campaigns … since the start of the 2020 election cycle.”
The global crypto market cap exceeds $1 trillion. The bigger the market grows the more staying power it has.
Will some projects? Yes.
But that’s not a bad thing.
Crypto today is like the internet in the 90s. And there’s still a lot we don’t know.
The top five websites of 1996 are not the same today. Only one, Yahoo.com, still ranks in the top five.
The best bet for investors in the crypto space is … Get ready to lose.
I’ve placed a few strategic bets. I’m holding them until they go belly up or make me filthy rich.
Here’s a list of my positions…
My Crypto Portfolio
There are thousands of projects out there. I’m not here to convince you one particular project will succeed or make you rich.
I’m taking the same approach as O’Leary. He said, “I don’t know which of these … is going to win. That’s why I own them all.”
My goal with crypto investing is to let the winners pay for the losers.
Here’s a list of my current crypto holdings.
- Bitcoin (BTC)
- Ethereum (ETH)
- Dogecoin (DOGE)
- Verasity (VRA)
- Elrond (EGLD)
- Shiba Inu (SHIB)
- Woo Network (WOO)
- Celsius Network (CEL)
- Polkadot (DOT)
- Floki Inu (FLOKI)
If you had your life savings in LUNA, you’re in a bad spot now.
But if you put your entire life savings into any single investment, you’re setting yourself up for disaster.
Cryptocurrencies will be around for a very long time in some way, shape, or form.
They could deliver spectacular gains or total losses.
Get in or stay out at your own risk.
“Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.”
If you want to make money investing, get used to losing. It’s part of the process.