The Scoop - eGirl Capital and Larry Cermak on the dynamics shaping the crypto bear market
Primer: In this episode of The Scoop, Frank Chaparro speaks with Hedgedhog of eGirl Capital and Larry Cermak about surviving the bear market, hacks in the crypto space, what Hedgedhog is currently doing, and their predictions for 2023.
Background
Hedgedhog
From eGirl Capital
Founder of Fisher8 Capital
Larry Cermak
VP of Research at The Block
Changes In Project Pitches In The Last Few Months
Shifted from “there is product-market fit, and we’ll launch a token in 3 months” to “spend the next 2 years building in the bear market”
Projects are starting to talk about their runway
Valuations have dropped
The amounts raised have not dropped as there are still funds looking to deploy
Seeing a lot of equity-only deals and infrastructure projects
Thoughts On The Meltdown
Have experienced the same thing in 2017/2018
A lot of companies raise on comparative valuations (e.g. funding the next “Axie Infinity”)
Might get one or two more cycles
As the industry matures, people can’t get the same super speculative bets
Advice For People In The Bear Market
It’s all about patience
It’s okay to do nothing
Don’t use leverage at all
Thoughts On Hacks
Are Teams Having Sleepless Nights Over Hacks?
There are a few teams in DeFi going back and checking their code
There are also teams that are asleep at the wheel
Are Some Of These Hacks Inside Jobs?
Some of them are inside jobs
Two examples:
Hacked for a small amount. Come out a few days later stating that the Treasury covers the hack and no one got harmed
Core team member paying themselves 500k for their work (e.g. Temple DAO). Not technically illegal but it’s a smart way to continue draining the treasury
A lot of teams expect the token price to go up. When it goes down, they make no money, get desperate, and will take advantage of DAO governance methods
If the massive treasury gets distributed to token holders, the team would make almost no money
Legitimate projects pay sustainable salaries
Predictions For 2023
Larry
Last year, he predicted that Layer 2s will shine
Have not seen the 10x moment that he expected. Increasing blockspace but not having the demand to fill it does not make any difference
Difficult to establish any new narratives after the merge and deployed L2s
Next year will be like 2019, where everyone quietly build
Hedgedhog
Seeing more CeDeFi, that requires KYC
It’s DeFi’s answer to undercollateralized borrowing
Change In Market Dynamics Post-3AC/LUNA Collapse
Lesser credit in the system, leading to lesser liquidity and volume
Basis trading is still doing well
Being directional traders, they have to stick to ETH and BTC
Lower beta from crypto to equities
What Is Hedgedhog Doing Now?
Trading can be applied to almost any asset
Trading more equities and FX now
Traders who are sitting there looking at crypto everyday is doing it wrong
The market has different phases. A lot of traders became NFT traders
Every VC firm outperformed them in 2021
For traders, it’s hard to hold on to those 1000x
Picking Analysts And Traders
Based it off their historical results
Large number of people made a lot of money in this cycle, but their drawdowns are insane. As a firm, you can’t take that or give them a smaller bankroll
Harder to judge the performance of analysts and give them more leeway
Opinions on Gaming and Derivatives
Crypto Gaming
Overrated: Games are not sure-fire bets and they have a hard time raising now. People underestimate the cost of making a good game
DeFi Derivatives
Overrated: Get approached all the time for market making/trading on those platforms. There’s zero reason why they ever would do so due to the lack of liquidity. However, these platforms are still getting funded
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