DAIM Issue 16 - What's the Meta with You

November 2, 2022

November 2, 2022

1) Forecast 
2) What’s the Meta with You?
3) Apple NFT crackdown
4) Vultures
5) Closing


1) Forecast

As the year draws to an end we still find ourselves reading the macro tea leaves to determine where crypto is going. Inflation is still high and sticky and mega tech is taking its lumps. On the other end, unemployment is still low and the latest GDP reading showed unexpected growth. Investors are hoping that the fed pivot will come soon and rescue risk assets including Bitcoin. The positive news for the pivot is that after one more 75 bps hike the Fed funds rate will be near 4%. Many expect this level to be near the top, with smaller future hikes. However, while inflation is high and unemployment is low, the Fed has an excuse to move their target and keep hiking for the foreseeable future. With so much uncertainty we still think $15-$25k Bitcoin is likely going into next year.

2) What’s the Meta with You?

 

Q3 Earnings were just announced for Meta and they weren’t good. One of the main points of contention for investors and market participants was the precipitous decrease in free cash flow, owed in large part to their continued pursuit of the metaverse. Reality Labs, the business segment dedicated to VR and the metaverse, has lost $9B year-to-date yet Meta seems steadfast in their future goals. They’ve stated that they anticipate these losses to grow in 2023! An internal report from the company that suggests their Horizon Worlds game has only 200,000 active monthly users, less than half of what was anticipated. Meta has been struggling to grow their facebook user base (expected when 1/4 of humans already have an account) so seeing the tech leader stay committed to a potential high growth segment is promising despite current headwinds. As Meta continues to build out its platform, users will first be exposed to their centralized metaverse. Then they will be drawn to participating in decentralized versions of metaverses that give users more freedom. This progression means more people interacting with other dapps, which will allow the crypto ecosystem to grow and become more robust. Meta’s current commitment of resources could greatly help the crypto landscape down the road.

3) Apple NFT Crackdown

 

Apple, which has never passed up the opportunity to extract more money from its consumer base, recently expanded their guidelines regarding NFTs. Per Apple, it subjects in-app purchases to Apple’s App Store fees, which can run up to 30%. The full list of updates can be found here. Not only is 30% a seemingly punitive amount, Apple doesn’t accept crypto so that extra 30% would either come from the buyer or seller in the form of fiat, which goes against the very idea of cryptocurrencies. One way current apps can get around this is to not have transactions take place in-app. For example, STEPN, a move-to-earn app, moved its marketplace to a web browser to circumvent the rule. Apple’s overreach could test user loyalty and force them to consider more welcoming options. Android phones do not have such restrictions at the moment and with the introduction of Solana’s Android based Saga, we don’t anticipate a change soon.

4) Vultures

Be careful out there. Vultures are circling trying to pick-off Celsius and Voyager claimants for pennies on the dollar. Firms specializing in distressed situations are using the bankruptcies as an opportunity to take advantage of customers in need of liquidity. Their offers usually come in around 25% of what one has at stake and their promise of instant liquidity appeals to those who are desperate or really appreciate the time value of money. Our advice is to be careful and ignore the prospect of instant liquidity in the face of a process that could be drawn out for years. These companies will probably offer a cash equivalent for the crypto that you posted or held on the platform. But remember that crypto is down at least 50% from the time most deposits were made. Taking 25% of that locks you into an 88% dollar equivalent loss. While future payouts may only be 25% of the crypto you posted, the market could easily be 5-10x higher. Even though you lose units, you still make a decent return in dollar terms. Unless it is an extreme emergency we would advise waiting this one out.

5) Closing

This all may seem like negative news and its fitting for a bear market. We continue to feel we are closer to a bottom in prices and monitoring past major Bitcoin cycles shows we could have about 100 more days. More on this in our next letter, stay tuned!

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