Crypto Takes a Tumble
Hi all. This week some astounding crypto movements stole the headlines, while there have also been some major developments in the Russia – Ukraine war. There have also been some crazy hedge fund losses which may cheer up anyone who has been struggling with their investments recently. Hope you enjoy it!
A Terra-ble week
This week has been a wild one for cryptocurrency investors as a fall in price of the ‘stable-coin’ Terra shook the markets. Stable coins get their name as their value is supposed to be ‘pegged’ to the value of a major world currency, hence making it stable compared to other cryptocurrencies. For instance, TerraUSD is pegged to the US Dollar (1 TerraUSD = $1). But in a major turn of events this week Terra’s peg to the USD was lost, which caused its value to tumble (1 TerraUSD = 19c at time of writing).
The plunge in UST appears to have been sparked by an investor dumping large holdings of the stable coin, knocking the price stability mechanism off balance. The price stability of Terra is dependent on arbitrage (buying and selling to gain risk-free profits caused by price discrepancies between two assets). This triggered a huge selloff in the sister token ‘Luna’, whose value has dropped effectively 100% this week from its all-time high of $119 (see below).
The Terra situation has had a knock-on effect on the rest of the crypto space, with bitcoin falling 11.7% this week alone and Ethereum by 21%. These events are adding more fuel to the fire of crypto regulation, or more specifically the lack of it. Read Peter’s in-depth view of bitcoin and other cryptocurrencies here.
Luna/USD, Source: Coinbase
Nordic Newbies
The Finnish President has announced this week that the country could soon join the NATO alliance. Support for the move has grown vastly since the war in Ukraine began almost three months ago now. This would extend the NATO border to Russia by over 800 miles. The move makes sense for Finland because if Russia can invade Ukraine (a neutral neighboring country) without much opposition, what is to stop them from going for Finland?
A cross-party report in Swedish parliament today has also given the opinion that Sweden joining NATO would lower the chance of an attack by Russia, making it very likely the country will send a joint application with Finland next week. The Kremlin has stated that if either country joins there will be “serious military and political consequences”. Worrying times.
The Tiger has been poached
One of the world’s largest hedge funds, Tiger Global, has made losses of over $17bn since the beginning of 2022. The fund is known for investing largely in growth/tech companies, so there is no mystery as to how these mammoth losses have occurred, with the tech-heavy NASDAQ exchange now down 25% since January 1st.
The fund’s performance was majorly impacted by the Federal Reserve’s move last week to hike interest rates by 0.5%, which dampened interest in high-growth businesses. Tiger isn’t alone, however, as Japanese conglomerate Softbank has recently posted losses of $27bn for the latest financial year from their Venture Capital arm ‘Vision Fund’, which is also heavily tech-oriented.
This shows that even the most experienced professionals can suffer major setbacks and that it is never good to be overexposed to one industry. This is clearly not the case for The Spark’s Portfolio, which is posting gains so far in 2022, during a bear market.
Russia puts its foot on the Gas
The state-owned Russian gas supplier Gazprom has announced that it will stop supplies of gas into Europe through the Yamal pipeline due to sanctions on European gas companies from the Kremlin. This move highlights Putin’s motive of using energy as an economical weapon on Europe, with Gas prices soaring following the announcement.
Recent energy price surges are forcing governments across Europe to look at alternative sources of energy. Take a look at Euan’s article which looks at Nel ASA, a fast-growing hydrogen company that should benefit from this shift by governments globally.
I hope you enjoyed this weeks article!
See you next week,
Patrick
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.