Alternative Investment Update – Mid-Year 2022

The mid-year point should be a kind of highway rest area. The summer typically brings lower volumes and a pause to whatever the year is all about. Sometimes it’s a quiet cross-roads, prompting reflection and strategic re-examination.

The midpoint of 2022 is more like a chaotic six-way intersection with no traffic lights and multiple blind spots. And these congested roads are filled with reckless, hapless or just scared shitless drivers.

If only this traffic jam of human paranoia and blind faith wish-vesting could be fully handed over to our machine friends. Surely a robo-advisor, index investing strategy or machine-learning based trading algo could do better.

Well, fully autonomous everything is far, far away. As the image above illustrates (no pun intended) the proliferation of AI and automation tools doesn’t yet offer push-button solutions to every task. The machines aren’t quite ready for prime time and the markets, after all, have a human heart.

For good or for bad the people, corporations and countries that fill these intersecting global economic and fiscal freeways are a mix of broken down jalopies on the side of the road and 18-wheelers with faulty brakes, weaving at high speed. A pile-up is inevitable, and may be imminent.

Asset & Market Performance Summary

Year-To-Date Market Performance

Of these investing resolutions I view two as having more direct impact on (or impact from) the alternatives investment segment.

Alternatives Goal for 2022

The items on my Investing Self-improvement List, detailed in my core portfolio update, remain the same. Of these investing resolutions I view two as having more direct impact on (or impact from) the alternatives investment segment.

3. Consolidate more capital into fewer investments
4. Reallocate proceeds from public markets to private and business ventures

From an alts standpoint, I have added the consolidation objective here. There are a few ways noted below that reflect that objective. As noted here and in the other update, I also continue to reallocate capital (continued work in progress).

After reading below you can also review my latest core investment update. You can also check out my other investment reports.

The drop in public market equities is clearly a factor in the overall weighting. Along the same lines, cash reserves have grown relative to deployed equity investments but have shrunk slightly relative to the overall portfolio.

The portfolio allocation graphic above reflects my total asset mix across all assets and account types. Real Estate, as a percent of mix, has grown on the back of the continued strength of the US properties space across the board.

The drop in public market equities is clearly a factor in the overall weighting. Along the same lines, cash reserves have grown relative to deployed equity investments but have shrunk slightly relative to the overall portfolio.

Alternative Assets and Private Investments

Most alternative investments have a characteristic of price opacity. This means that, on any given day, it is hard to know the true value of the asset. But by any measure, the first 6 months of 2022 have been very painful, for the crypto and private equity markets especially.

As alluded to above, real estate has been the lifeboat, but the overall alternatives portfolio got seriously kicked in the teeth. This also put some otherwise attractive assets on deep discount. And I love a good sale.

Cryptocurrency Investments

There is no way to sugar-coat it. As of mid-year the crypto market across the board was in the shitter, and my performance numbers reflect that. As of this writing there is already a powerful bear market bounce in progress, but the crypto winter is here.

…the gap between the weakest and strongest assets was stark. Obviously, my main focus is on the ETH ecosystem and the rapid drop offered some great buying opportunities.

My Crypto Update

As comforting as the crypto recovery was in the last reporting period, my crypto portfolio crash in 2022 YTD has been both excruciating and inevitable. My overall crypto portfolio performance high point for 22H1 saw a total return of +83.73% and unrealized return of +101.95%, around March end. My worst drawdown, as of June 18 was a -23.89% return. The dip later in the period was not just due to market conditions, but also position adds (buying into the market drop).

The systemic shocks of the LUNA/UST crash and other recent events pushed everything down. And the gap between the weakest and strongest assets was stark. Obviously, my main focus is on the ETH ecosystem and the rapid drop offered some great buying opportunities.

Cryptocurrency Position Changes

The year started with rough weather in the crypto market, as with others. I bought the January dip, adding to my Solana position at $133.50 and my small ENS position opened last year, at $27.50. I also initiated a position in GRT (TheGraph) at $0.54 and AXS (Axie Infinity) at $67.25. The latter is obviously a bandwagon buy but both of these are micro (tracker) positions.

The upcoming ETH merge and related protocol changes are going to be make or break for the project.

Later in January things got more brutal. I added to my ETH position (by far the largest part of my portfolio) at $2550 and $2360. The upcoming ETH merge and related protocol changes are going to be make or break for the project. As Q1 closed out and Q2 began the market found its footing but it would not last.

I also did something I rarely do and took some profits (and losses) in late Jan. The goal is to redeploy. I liquidated positions in AVAX at 75.81 (for a ~88.5% gain), in MANA at 39.1650 (for an ~88% gain) and ALGO at 15.03 (for a ~24% loss).

Sampling Staking

Around this same time I also initiated a position in ONT for the express purpose of generating staking rewards. At the time the projected yield was 18%.

Over the next couple months I also started staking some other existing holdings, in order to generate yield. Those were Cardano (ADA) for a ~5% yield, Solana (SOL) at a ~6% yield and Cosmos (ATOM) for a ~15% yield.

Risk Off In May and Go Away!

In early May the world finally went into risk-off mode. And crypto fell hard, right along with the equities markets (and the bond markets…but that is another story).

This is the reality, despite the wishes of crypto loyalists or certain members of the tradfi crowd.

Crypto is not negatively correlated and therefore not a counter-trend hedge to equities and traditional investments. This is the reality, despite the wishes of crypto loyalists or certain members of the tradfi crowd. But, as prices started diving in early May, I started getting filled on some long-standing reach orders.

On May 1st I added to my position in MATIC at $28.50. And then on May 11th LUNA happened (more on this below). But the LUNA crash pulled down BTC and ETH in a big way. I added to my ETH holdings at $2150 and on May 28 at $1430 and $1110. I also added to AR at $28.50 and FIL at $20.25.

Falls Resume in June

On Jun 12th the markets took the next leg down, with ETH finally losing the $1500 support level. This set up opportunities for on-sale buys. I had a number of limit orders placed at key levels well below the market. On June 18, in my primary portfolio I added more ETH at $925, which proved to be a well-placed limit.

Having reach orders in and making trades like this look great relative to where the markets are now. But GTCs (good-til-cancel orders) can also get you in trouble.

In May I also started initiating positions for a new, separate account/strategy, focused on the big five layer 1 projects (BTC, ETH, ADA, SOL and DOT). In that account I also managed solid buys of BTC as low as $17780 and ETH at $925 off that same June 18 bottom.

Having reach orders in and making trades like this look great relative to where the markets are now. But GTCs (good-til-cancel orders) can also get you in trouble.

Taking The L(s)

Here are the big losers. Mind you, these are the biggest percent losers from a price standpoint. These are all tiny fractions of my already small allocation to crypto and digital assets. Well.. some of these are the result of impulsive and under-researched ideas. But that ugly one at the top, that’s a different story.

Mayday! Mayday! UST is Going Down!

For me the LUNA and UST meltdown is a cautionary tale on the risk of resting orders. I had previously not held any LUNA. Throughout all the excitement, gee-whizzery and scandal around the project I watched from the sidelines (sometimes with a little envy). And many months ago I had chosen some levels waaaay below the then-current prices. Despite some major doubts about the project and its purveyors I figured I would happily jump in if it went low enough.

This is when those limit orders, sitting open for so many months, got filled. As LUNA fell off a cliff I bought it at 48.60 and again at 39.

Then on May 7th, following a disastrous week for risk assets globally, something very scary started happening to the (un)stable coin UST, and its associated coin LUNA. It was a Saturday, and with the typically lower volume of the weekend it broke down through major support levels at $77, and all the moving averages as well. By May 9 it went into free-fall, moving from a high of ~$65 to a low of $30. This is when those limit orders, sitting open for so many months, got filled. As LUNA fell off a cliff I bought it at 48.60 and again at 39.

I had previously noted the weakness in the market, but LUNA had been holding strong above that support. Until it wasn’t. By May 10 the market started seeing some support, with buyers coming in, which is when I tuned into the situation. But by late on the 11th the systemic issues won out. With UST fully unwinding, LUNA traded down to a low of $4.40 and collapsed further from there. The amount of money here was tiny.

I was careless to leave these unmonitored orders in, and once I realized I had a position I should have traded out asap. Even if an error trade is profitable (this one wasn’t) it’s still an error…

But I assign a high stupid score to this situation. I was careless to leave these unmonitored orders in, and once I realized I had a position I should have traded out asap. Even if an error trade is profitable (this one wasn’t) it’s still an error, and should be liquidated. Like slowing down for a car crash, I waited and watched (the small amount of remaining value dissolve to nothing).

Tether is, however, a rickety assemblage of sketchy operators and blind faith. It’s time will come; I just hope the rest of the market can withstand the stress.

And Then It Was Tether

Early on May 12th USDT broke below 0.96. I happened to be at my desk and watched this in real time. I didn’t have much, but decided to move all my USDT into USDC. This sudden and fleeting hiccup seemed to pass without further drama. Tether is, however, a rickety assemblage of sketchy operators and blind faith. It’s time will come; I just hope the rest of the market can withstand the stress.

Other Digital Assets

I don’t typically discuss my website portfolio because, for the most part, it does not currently yield much in the way of revenue (tho it does generate losses). However, I own a stake in a larger, 6-figure site as part of an investor pool. This large content site is seeing increased traffic and revenue, and starting to yield dividends. I’ll share more details in future updates.

My domain portfolio (of ~50 or so names) has grown slowly over many years. It’s mostly meant for business development versus investment.

My domain portfolio (of ~50 or so names) has grown slowly over many years. It’s mostly meant for business development versus investment. There are a few 4- and 5-letter domains but most are longer. These are a mixed bag of mostly 2-word and brandable .com domains with a few other sld variations. The portfolio skews towards business, finance and tech niche names, but there are a range of others.

The domain investing community writ large has seen its biggest ever bull run for the last few years. It was already in motion but, as with other assets, 2020 lit a fire under the market. But, since the start of the year, printed trades and estimated values (notoriously imprecise measures) have softened versus the all-time highs of the previous ~18 months.

Certain niche areas (brandables for the startup sector, crypto-related, etc) are seeing the most notable drop-off. But in my portfolio the 4- and 5-letter domains have actually gone up since the start of the year. This is possibly a flight to quality but likely temporary. The coming macro storm will impact all markets, and drive prices lower before we see fresh highs again.

Real Estate Holdings, Prices Slowing

As noted in the last update, the property market is showing signs of strain. But the market remains strong relative to others.

The hot rental market combined with the low rates locked in ‘20 and ‘21 leave the real estate position looking better than any other part of the portfolio.

My Redfin estimated values saw all-time highs in 2022 but, as of midyear, that strength appears to be behind us. I’m not too worried, given these are densely populated urban centers in coastal cities (East and West). My total estimated value is down ~6% versus the start of the year, but my total net equity is up 2%. The hot rental market combined with the low rates locked in ‘20 and ‘21 leave the real estate position looking better than any other part of the portfolio.

So, property values continue to look toppy. But with rates spiking as they have in the second quarter that is bound to change.

Rental Income Update

As reported in the last update the rental unit reno work was completed and we had gotten renters in less than a month. Within 6 months we lost those tenants to lifestyle change.

But with the rental market in this particular northeastern urban center on absolute fire, we immediately got new tenants in to replace them. Not a single month of rent was lost, with a 7% increase to boot. Current rental property rental yield is ~68%.

Private Investments

Not much to report on this front but I’m seeing and hearing the same as most with regard to private investment. I am an active, if small investor and also a builder and entrepreneur. So, I’ve been on both sides.

Put simply, there are a lot more sellers than buyers. So, it’s rough around.

Basically, private shares are taking a beating, along with public markets. Forge, a private share marketplace that gives investors the ability to buy and sell pre-IPO shares in companies, had some pretty striking data to share in its June research report. Put simply, there are a lot more sellers than buyers. So, it’s rough around.

Business Experiments & Time Investments

This is an investment area I have not previously covered here but here we are. By next update I will have launched a browser-based app called SERP Sonar, which I have been working on since January.

This is a side project that grew out of my digital business development efforts. The app is used to collect and perform analysis on search engine results page data. It is meant to be used by digital marketers focused on either organic or paid channels. And, despite the whimsical use of the AI-created image above, this tool is in no way utilizing AI or machine learning. In markets, marketing and many other areas of life, the best outcomes require the messy and unpredictable intuition and instinct of (tech-enabled) people.

The goal is to be out of beta and fully live by the start of Q4, and generating revenue from SERP Sonar before the end of the year. Watch this space.

 

So, there you are. My latest and far-from-greatest alternative investment update. The markets (and the world) are brutal, and full of risk. But opportunity abounds if you keep your chin up and your eyes focused on the road ahead. Good luck with your investing!