The Rake Review: October 2022
The Rake Review: October 2022
Let’s do something a little different this month.
Here’s a short story a Rabbi once told (Thanks Rabbi Motti):
A poor man in Odessa heard about a distant land where the streets were paved with gold; the precious metal were as commonplace as the dust of the earth. Despairing of his financial future at home, unable to provide for his family, he decides to try his luck.
After an arduous journey, he berths at this exotic island. Lo and behold, the rumours are true! The streets are literally littered with gold. With a burst of adrenaline he begins to quickly pack his suitcases with the shiny precious metal, stuffing them to capacity. Now, he’s very tired. It’s been a long trip – and packing all that precious gold wasn’t easy either. With a newfound sense of bravado, our exhausted friend checks into the finest hotel in town – reserving the most luxurious room in the house.
After ensuring that his room and belongings are secure, he makes his way into the restaurant and orders a meal fit for a king. Satiated, he glances at the bill for his feast and offers the waiter an exquisite gold bar, saying, “Keep the change!”
With a look of contempt, the waiter asks, “What do you expect me to do with that rock?”
“It’s valuable gold,” our friend protests.
“These rocks have no value in our land,” retorts the waiter, “they are mere rubble. Because of our low supply of livestock, we place great value on chicken fat. That’s our treasured commodity.”
The man goes cold as he learns the law of supply and demand – the hard way. How is he going to pay for his extravagant meal? The hotel management promised that they would not charge him criminally, if he paid off his debt by washing dishes. A hard worker, he does so, and does so well. The hotel offers him a steady job, and he begins to acclimate to life on the island. Before long he manages to save some cold chicken fat for himself.
As time went on our entrepreneur prospered and became a wealthy man. He remembers the family he’d left behind in Odessa, and decides to return home in triumph – as a successful businessman.
Notified that he was coming home, his family is waiting at Odessa’s dock. As our friend’s yacht approaches the shore, the stench horrifies the waiting crowd.
“It smells like chicken fat,” they cry.
“Yes, that’s right,” our entrepreneur proudly acknowledges. “The yacht is filled with chicken fat. We are rich!”
“But where is the gold?” asks his confused wife, “the precious metal you went looking for?”
“What value is gold?” scoffs her husband. “They are as common as dust. Only chicken fat has value.”
The wise wife then understands. “You seem to have forgotten the purpose of your trip. You were supposed to collect gold – not chicken fat. Do you perhaps have one little gold coin, a souvenir from your years of hard labour in that strange land?”
The moral is this:
Scarcity: If everyone has it - it’s probably worth nothing.
Saleability: In a world that is as interconnected as ours it isn’t possible to collect free diamonds in one country and sell it in another where they are scarce. So, the only way to gain is to hold the most scarce currency over time.
Borderless: If our hero had access to Bitcoin, he could’ve sent money home without even getting on his yacht.
There will only ever be 21 Million Bitcoin so get yours before people realise its real value.
Predicting The Future
We write this review on Bitcoin Whitepaper day - a celebration of the anniversary of the Bitcoin whitepaper released on this very day in 2008. It was a significant milestone in world history but sure, we are a little biassed.
Bitcoin and the wider crypto market has had a little recovery. Bitcoin sits 5.4% up for the week and 17% off its bottom this cycle. ETH has fared even better this week with a 13.7% rise erasing its post-merge losses against Bitcoin. The action brings some hope of a new bull run in 2023 so let’s chat about this possibility.
For a crypto winter to end you generally need two main attributes.
1. A significant price crash
2. An extended time of hopelessness (Sideways movement).
As we sit here today, I think we have seen both. For those that called a $20K USD bottom and bought in in June 22, the last few months have been long and painful. They were likely right on the price but not the timing. Not enough time had passed to shake out the last of the “weak hands”. But now we have seen almost 6 months of boring sideways action and are set for what could be an epic recovery.
Isn’t there still a chance of a final capitulation event where Bitcoin tests $13,000 USD?
Well, yes there is. The future isn’t set. The future is a set of possibilities. We put the possibility of a final capitulation event as under 20%. Even if it does happen you are likely buying a generationally low time. As long as you are buying with Stormrake and not with leverage you will not be closed out if a fall does happen and you will get all the rewards if Bitcoin hits all time highs again. I for one would be pretty happy buying now if the chart above eventuates despite being down for a brief period.
Market Update
Here is the fast five of what you need to know about the crypto market in October 2022:
- Bitcoin finally broke out of an incredibly tight range and gained 5.73% for the month and has eyes set on testing the $22,000 USD level.
- Ethereum has had a superb month having added 19.20% for the month as it looks to have shaken off the "post merge" sell off.
- The total crypto market cap grew by 7.05% having added $65 billion USD in October.
- The best performing coin for the month was DOGE having moved up in value approx. 93% for the month. Elon Musk completing his purchase of Twitter provided the speculative catalyst for the move higher.
- The worst performing token was ETHW as it proceeded to slump by 64% for the month of October. This is simply due to the forked token having a dead chain with close to no meaningful activity.
Video of the month
Commercial Director of Stormrake sits down with Ausbiz Tv to share some key strategies
In the news
- OPEC cuts oil production to drive up prices creating a potential rift between the once strong US - Saudi relationship.
- Elon Musk completes Twitter takeover worth over $44B USD
- Visa partners with FTX to provide the exchange with their own debit card
- Grayscale Investments files lawsuit against the U.S. Securities and Exchange Commission
- Aptos debuts its blockchain to a near $1 Billion USD valuation
- Sam Bankman-Fried, founder and CEO of FTX releases draft proposal of a controversial industry regulation standards
- Bitcoin begins to break its correlation with US tech stocks
- Australian government confirms Bitcoin and other digital assets will be subject to capital gains tax laws
- Liz Truss ends reign as Britain's shortest serving Prime Minister
Education
Education
Education
In this edition of the Rake Review, our education piece will focus on understanding what is layer 2 scaling and why is it so critically important to Ethereum's success.
Layer 2 is a term used to describe solutions that are created to help scale a blockchain by processing transactions away from the main chain, often described as layer 1, while still maintaining the same security measures and decentralisation as the base layer blockchain. Layer 2 solutions increase throughput (transaction speed) and reduce gas fees significantly.
Reducing gas fees (the cost of transacting on-chain) and increasing throughput is critically important to Ethereum, as it aims to be the world's alternative financial system. This comes downs to a simple game of economics, if you can send a wire internationally for $50 and a bit of online hassle, you would much rather that then having to pay over $200 USD in transaction costs on Ethereum to send money via a wallet transfer.
Layer 2 is a term used to describe solutions that are created to help scale a blockchain by processing transactions away from the main chain, often described as layer 1, while still maintaining the same security measures and decentralisation as the base layer blockchain. Layer 2 solutions increase throughput (transaction speed) and reduce gas fees significantly.
Reducing gas fees (the cost of transacting on-chain) and increasing throughput is critically important to Ethereum, as it aims to be the world's alternative financial system. This comes downs to a simple game of economics, if you can send a wire internationally for $50 and a bit of online hassle, you would much rather that then having to pay over $200 USD in transaction costs on Ethereum to send money via a wallet transfer.
Layer 2 solutions such as Optimism and Arbitrum, have over 10x cheaper transaction costs whilst simultaneously being able to offer near instant settlement of transactions. The benefits really comes to light when interacting with complex smart contracts that enable instant swapping of tokens, adding liquidity to trading pairs, minting and selling NFTS, the whole product becomes incredibly consumer friendly.
It's important to note that each individual solution has its own pros and cons to consider such as throughput, gas fees, security, scalability, and of course functionality. No single layer 2 solution currently fulfils all these needs.
We covered in greater detail one of these Layer 2 solutions, as there is a potential airdrop coming of its very own token. You can learn more about Arbitrum HERE.
Memes of the month
