Both of us had lost money in 2018. Here is the backstory…
When the whole thing began to unravel around Celsius, there was a meme circulating the internet. The meme showed 3 types of polygons, and included a fourth (satire) polygon which is the Celsius logo called yourfundsaregon. In case you didn't get it; your-funds-are-gon(e).
Of course, the pun was intended as I shared it with my close contacts. And then my friend revealed (after laughing too) that he had funds in Celsius. I was pissed.
This is someone who got burnt with me back in 2018. I had learned my lesson. I thought he had too. When I asked him why he would leave funds in Celsius, he said he gets 7% interest. That was a facepalm moment.
A few months earlier…
I created an Instagram account for personal fun. And it didn't take long for some salesperson to slide into my DMs She was going to talk me into buying crypto. She has no idea I was an OG in the space.
Crypto was already in the bearish zone. But things haven't started falling apart. At first, I wanted to block and report the account immediately. But I gave her the benefit of doubt to say how she got to know me. Then, she cited the branding slogan of my Navy Seal friend. It felt warm, so I decided to hear her pitch out.
I pretended I was a novice at first. So, she told me I could buy bitcoins, hold them in my wallet and be earning interest on them. Very compelling pitch, right? But as a shrewd investor, I wanted to know what their business model was. How can I be earning interest on bitcoin that is in my wallet? She made it sound so novel.
Not sure what exactly she said that suggested it, but I got what they were doing. And I have been talking to my friends (which cared to listen to me) against it. They would be trading with my bitcoin and sharing a piece of the profit with me (aka interest).
In other words, the bitcoin will not be in my wallet. I would just be looking at fancy numbers on their app interface. The only time I get to know if the bitcoins are really mine is when I ask for a withdrawal. I would be loaning out my bitcoins to traders or trading algorithms. As someone who has been screwed thousands of dollars in crypto before, I am not falling for that nonsense.
I revealed to her that I was a crypto author. Showed her the link to my book. Then, let her know that I wasn't interested in their business model and showed her the flaw. She backed off for a while.
A few weeks later, she came back with a much more aggressive pitch. And I blocked her instantly. A few weeks later, the failure of Celsius began to surface on Twitter.
If there is anything I wish to communicate to anyone in the crypto space right now, this is it:
"Crypto" and "Loans" do not belong in the same sentence. "Bitcoin" and "Lending" do not belong in the same sentence.
"Crypto" and "Loans" do not belong in the same sentence
I know this is coming quite late, as a warning. Nevertheless, it is something that should form a rigid part of a proper crypto investing philosophy going forward.
The world of loans and lending is the world of central banking. Bitcoin is anti-central banking. Any attempt to make the crypto ecosystem like the central banking ecosystem will fail brutally. We have seen vivid examples in the last few months with projects like Terra Luna. But I can assure you that some people will try the concept again in a few years and give it some fancy branding and packaging.
In my crypto book, I explained that crypto and central banking will co-exist. Any attempts for each one to replace the other will spell problems. If central banks create a cryptocurrency, they will fail. Their failure will be so loud and embarrassing.
You can begin to see this with central bank digital currencies. It will fail. The countries that have implemented them have seen little to zero adoption. That's because crypto is anti-establishment. It is for options against the central banking economic system.
In the same way, taking central banking ideas into crypto will fail. It is an ideological and philosophical thing. You cannot be doing fractional reserve with crypto. You cannot be doing quantitative easing in crypto. It's like someone pouring sand into your food and saying it is good because sand contains oxygen atoms.
This is the reason many crypto projects are failing today. They want to replicate the ideas of a central banking system in crypto. Save yourself the time and headache, it will not work. Instead, focus your energies on things that could work. And there are tons of them.
I digress to crypto hedge funds...
Just because someone appears to have a lot of money than you doesn't mean they know better than you. Yes, I am not on CNBC or Bloomberg, but I can tell if someone up there is spewing BS. And you should be able to tell.
My book is about a year old now and I literally made fun of certain narratives that happen every bear cycle. And every time I hear news that is consistent with what I said would happen, I just facepalm myself.
Most crypto hedge funds don't know what they are doing. Remember, the crypto industry is just over a decade old. I can bet you didn't know what you wanted to do with your life at 13 years old.
Even the traditional stock market that has existed for centuries, there are still lots of dumb players. Just because someone has big money to play doesn't mean they know more than you. It only means they have better access to money.
A real hedge fund is supposed to have a strategy. Trading is not a hedge fund strategy. Even algorithms will betray you because you only have data for (about) 10 years. And this is not the central banking system where money can be printed.
Buying a lot of bitcoin is not a strategy. I recommend dollar cost averaging for individuals investing in bitcoin. But I don't recommend it for hedge funds and institutions. They need to have a different strategy because of the size of funds.
Now, it is revealed that some crypto hedge funds were just people loaning crypto to each other and looking for some arbitrage. That will end in tears. And it has for many already.
Yes, the hedge fund may have a bit of trading activities in its strategy. But if it is for more than 30% of the portfolio, that is a professional day trading firm. Not a hedge fund. There is no “hedge”.
The natural owner's tendency for bitcoin is to be stored. The natural owner's tendency for most other credible cryptocurrencies is to be used. This is the criteria you should use for a crypto hedge fund:
What is the economic philosophy of the hedge fund?
A crypto hedge fund that is not based on a sound "all-weather" economic philosophy is just a firm with a lot of money. You have to be a fundamentalist if you want to have a crypto hedge fund. You must have an economic worldview and it must be very sound (and account for every plausible market cycle).
Back to My Stories...
My friend's funds in Celsius are still gone. I am still against any kind of lending systems in crypto. And I know people will still do dumb things in crypto. So, we may have two more harsh bear markets.
If you want to know if we are in the bull cycle or not, read my book.
Oh, and if you want to start a crypto hedge fund, your focus shouldn't be on the coins.
Cheers!