Open Source Alpha — Week 23/52 of 2021

Coming up to halfway through 2021 we are kicking off the first of a weekly series on the state of the digital asset markets. This is not investment advice.

June 6–13, 2021 Weekly Update

The Bitcoin, Ethereum, and entire cryptocurrency markets have remained in a bearish downtrend since the markets turned sour in April and continued to go down in May.

The transition into a downtrend market has been quick and can be seen most easily for us through the change in the Fear and Greed Index. Over the last month, the index which is a broad indicator of the global investors' feelings on the crypto markets went down from a ‘Greed’ status to an ‘Extreme Fear’ status now in mid-June.

Is now the time to buy?

With a long-term view of investing, buying high-quality investments when others are in ‘extreme fear’ usually isn’t a bad idea 🤔💡.

Dollar-cost averaging or buying a little bit of a dip for an endorphin kick for taking action on your investments, but we don’t think the bottom of the market has been put in yet.

According to our technical analysis gurus and our now gut experience from a few of these cycles, it’s likely we’ll see another violent drop before the prices settle down and form a new base. This means there may be better buying opportunities ahead for the patient investors. We’re just hoping and planning for bargain buying opportunities ahead while also nibbling away with DCA strategies to increase our long-term exposure.

Now let’s jump into the most important assets in the cryptocurrency markets; Bitcoin and Ethereum.

Bitcoin Weekly Summary

Bitcoin was approved as legal tender in El Salvador and continues to grow in global adoption. With more and more attention on Ethereum and other cryptocurrencies that are innovating more quickly, Bitcoin still remains the largest (with 42% market dominance), most important, and most liquid digital asset available.

The Bitcoin as ‘Digital Gold’ is a strong narrative that has taken hold of more global investors as the number of individuals with Bitcoin in a wallet continues to grow AND hasn’t declined as much as it did in the last cycle (early 2018).

The outlook for Bitcoin ahead is still very bright. Price targets of $100k-$300K are expected for a lot of investors now, we just don’t think we will see anything above the most recent all-time high of $64,804.72.

We are hoping for a sub $30K Bitcoin to fill up on our bargain shopping buys but we don’t plan to ‘get cute’ and try to time the bottom. We’re waiting for more technical indicators like hash ribbons to indicate a buy signal before we adding more BTC or 🌽 as some folks call it.

Ethereum Weekly Summary

Ethereum continues to lead all cryptocurrencies with its number of active developers, decentralized apps, and collective ecosystem of global active users.

Now isn’t a bad time to stock up on Ethereum as the Ethereum community prepares for an upgrade with EIP1559 ahead and ETH2 on the horizon. With all of the activity happening on Ethereum, Ethereum is expected to flip Bitcoin’s market cap in this cycle.

We agree with JP Morgan for once in this statement below on Bitcoin and Etthereum.

Bitcoin is more of a crypto commodity than currency and competes with gold as a store of value. Meanwhile, ether is the backbone of the crypto-native economy and functions more as a medium of exchange. To the extent owning a share of this [ether’s] potential activity is more valuable, the theory goes, ether should outperform bitcoin over the long run — JPMorgan

We agree that Ethereum addresses a a larger Total Addressable Market (TAM) than BTC with Decentralized Finance (DeFi) as the primary use case and will be a trillion-dollar asset in the next 1–3 years. Ethereum is a $285B asset today which means we’re expecting at least a 350% increase ahead.

Just like Bitcoin, we’re hoping for a bargain buy of Ethereum around $2,000 in the next year. Ethereum is our favored asset in the investment portfolio and maintains the largest percentage of the investment fund.

Decentralized Finance (DeFi)

The top breakout success use case for cryptocurrencies thus far is arguably decentralized finance or DeFi. We are extremely excited about this sector of the market and see tremendous opportunity to participate in helping establish a new global order of financial services and tools for anyone with an internet connection and a crypto wallet.

DeFi is expected to have a larger market value as a collective group of projects than Ethereum’s market capitalization and we agree with this long-term view. A lot of investors expect a DeFi Summer 2 to happen later this year and we sure hope so but are not holding our breath expecting this to occur.

Dollar-cost averaging a DeFi index fund like the DPI is a great way to get exposure to this sector. It’s hard to know which projects will be the most successful, however, it’s pretty clear that the current leaders (UNI, AAVE, MKR, YFI, CURV +) will continue to be successful ahead.

Closing Thoughts

Building wealth takes time and taking your time to enter the crypto markets is an important factor considering your risk tolerance and time horizon. If you just buy now and forget about your Bitcoin, Ethereum, and DeFi tokens will you do better than trying to time the market? It’s debatable and often the case that overaction leads to less long-term profits than fewer actions with thoughtful execution.

We’re in this ecosystem for the long run as we see the evolution of a digitally lead world run by cryptocurrencies (open-source decentralized software programs) to be in its infancy with the comparison of being a young child in human age terms. Small, consistent actions can make a tremendous change on a long-term horizon and that’s our plan to keep saving more than we earn, buying more high-quality crypto assets, and evolving with the times as we build our retirement fund up as efficiently we can within our own means.

Attempting to demystify open source investing. This is not investment advice; educational content at best.