2022 Crypto Market Year-End Review
Cryptocurrency investors have had a bumpy roller coaster ride in 2022. Many people will remember this year as a disastrous year full of massive valuation drops and criminal activity. But was it only the year of infinite pain, or is there any bright side of those things that happen?
Dark side of 2022
Investing in crypto in 2022 was a walk into a minefield. There were almost zero VCs and sole investors that haven’t been exposed to any hacks, exploits or crashes in 2022. In case you want to understand how and why MHC avoided all of those, let me walk you over.
First - let’s have a look at 5 major collapses in the past year:
May: TerraUSD (UST)/Luna - Massive liquidation and collapse of an ecosystem, losing $60B of valuation and shaking out the whole global digital currency market. A South Korean court issued an arrest warrant for Do Kwon.
June: Three Arrows Capital - When Terra collapsed, the crypto hedge fund Three Arrows Capital (3AC), which had a peak market valuation of more than $560 million, suffered significantly and bankrupted.
July: Voyager Digital - Prominent cryptocurrency investment firm Voyager Digital filed for bankruptcy after crypto hedge fund 3AC defaulted on a $650 million loan.
July: Celsius - As a result of the above events, The value of the Celsius plummeted by 70% in only a few hours - followed by bankruptcy. Celsius had total liabilities of $6.6 billion and assets of $3.8 billion, resulting in a $1.2 billion hole in the company’s balance sheet.
November: FTX - Bahamas-based cryptocurrency exchange collapsed due to a lack of liquidity and mismanagement of user funds, followed by a large volume of withdrawals. FTX’s balance sheet was showing $9 billion in liabilities and just $900 million in assets that could be easily sold. Balance turns out to be negative $8 billion.
Yes, it was a rough year.
Let’s have a look at how MHC managed the situation during such events.
Terra/Luna - Our positions were closed 14 days prior to the collapse by strong recommendation from our head of analytics and confirmation by the team advisors and partners. There were strong rumors and signals those were ignored by most VC funds, as Terra/Luna was considered to be “too big to fail”. Lessons learned - there’s not such a thing in crypto. And as we promised, we saved our investor’s funds from this disaster.
3AC - Zero exposure
Voyager - Zero exposure
Celsius - Zero exposure
FTX - Same as in the Terra/Luna case, we’ve seen this one coming and warned about this possibility in our social media a couple of days prior. We considered opening a short position on FTX, but decided not to do so. Yes, we might get more profit, but we stayed out from this speculation away, focusing on other open positions.
As it is often said in the crypto community - If your portfolio survived less than 50% drawdown in 2022, you are successful, considering all events that happened.
We’re proud to say that the MHC portfolio hasn't suffered any drawdown during 2022. Our investor’s funds were protected successfully. Furthermore - resulting in single digits % gains.
How we achieved so, without shorting FTX and Luna?
We clearly predicted a new narrative that will benefit from those unfortunate events - Decentralized exchanges. We were very early in a couple of them (mainly GMX), which was reaching an all time high by the time this article was written. In case you want a proof or learn more about GMX, please reach out to the following article we published recently.
You might ask - Was this level of pain necessary to move forward?
Our answer is yes.
If you look at the events above, they have something in common. They were driven by centralized entities. This is against the crypto philosophy and those events were inevitable. This is why we love crypto - because we can trust smart contracts instead of people.
Were there any bright events in 2022?
Yes. In fact - In our opinion there was one of the biggest events that ever happened in the crypto industry. September 6th 2022 was the day that changed the crypto world forever. On this day, Ethereum finally entered stage 2 and started using proof of stake mechanism. This event reduced energy consumption by 99.5% but furthermore, increased ETH sustainability, security and for investors most importantly - significantly improved it’s tokenomics.
Is it going to be Ethereum to drive 2023 market recovery? Well, we have an investment model created around this narrative. Are you interested in the details? Do not hesitate to reach out!
