TBW Free #6: Is now the right time to invest?

TBW Free #6: Is now the right time to invest?

Read all about it in The Big Whale's 6th free newsletter.

18 May 2022

Welcome to the free edition of The Big Whale. 👋

With this version, you have the essentials to learn how to swim in the ocean of Web3. If you ever want to go further, subscribe to the Thursday morning Premium edition.

In particular, it will give you access to all our exclusive content on the Argentinian ecosystem that we set out to explore for a fortnight. Here's a sneak preview of this first day of reporting with... the head of digital for the city of Buenos Aires.


This week's highlights 🧠

👉 The father of the Diem project gets into bitcoin

We left David Marcus in December just after his departure from Meta (ex-Facebook). At the time, the father of the social network's digital currency project was discreet about his future. All we knew was that he wanted to do something different. "I'm going to embark on new adventures", he simply wrote on Twitter, sparking fantasies about the future of Diem, which was abandoned a few weeks later. For several months, the Franco-Swiss-American (formerly head of PayPal) said little or nothing on the networks, apart from extolling the praises of Bitcoin, building up the suspense a little more until the last few days. On 12 May, David Marcus announced the creation of his start-up Lightspark. Backed by major US funds such as Andreessen Horowitz, its aim is to explore the potential of... Bitcoin and the Lightning Network, its secondary network that can execute thousands of transactions per second at very little cost. Exactly what the Diem project was originally intended to do.

👉 Portugal will soon no longer be a paradise for cryptos

There is something of a slight concern among the crypto community based in Portugal. After years of enjoying a more than advantageous tax system (0% capital gains tax for individuals), investors, including thousands of French, are going to have to reconsider their plans. The new Finance Minister, Mendonça Mendes, announced on 13 May that his government would henceforth consider cryptocurrencies as assets and no longer as digital currencies. He did not specify when these new provisions will come into force, or what the exact levels will be. It could be between 28% and 35%. Alongside the introduction of a capital gains tax, the government could also introduce VAT or a "stamp tax" on crypto transactions. A situation that would make Portugal a much less attractive country than some of its neighbours. Not least France, where the flat tax is.... 30%.

👉 Do Kwon's plan to save Terra

Do you have things bothering you? Tell yourself it could be worse and you could be in Do Kwon's shoes. The creator of blockchain Terra has seen $45 billion in capitalisation evaporate due to the collapse of stablecoin UST last week. The South Korean entrepreneur is now trying to salvage the situation, and on 16 May proposed starting from scratch with a Terra fork. In short, he wants to create a new blockchain and distribute the new tokens to those who held LUNA and UST (with a bonus for those who had them before the 7 May crash). The new project would retain the Terra name, while the old version would continue its life (or what's left of it) under the moniker 'Terra Classic'. Apart from the fact that it bears a strong resemblance to Ethereum (a hack led to a split between Ethereum and Ethereum Classic in 2016), the initiative is unlikely to meet with the approval of a community scalded by Do Kwon's procrastination. In fact, Do Kwon's wife received a visit from an aggrieved investor looking for her husband. He told police he had lost $2.3 million...


Shares: has capitulation taken place? 😨

As any seasoned investor will tell you, the best time to invest is always after a "capitulation". In military terms, capitulation means surrendering, leaving control of the battlefield to your opponent. In finance, capitulation occurs when investors abandon the market en masse and precipitately, selling their assets at any price to seek refuge elsewhere. Theoretically, a complete capitulation corresponds to the lowest point... So, in theory, it's an opportunity to make some bargains because the price can, in theory, only go back up (if the asset isn't dead of course).

Last week saw a big thrill with the collapse of UST, the third stablecoin on the market. The bitcoin price lost 26% in the space of a few hours until it hit $25,000, a level it hadn't reached since December 2020 (giving us a nice -64% since November's record high of $69,000). You only have to go to the social networks to see the damage....

The bitcoin price since the end of 2017:

At the same time, the number of NFT transactions is falling and US investment bank Morgan Stanley is predicting a depreciation in the value of virtual land acquired in metaverses. Sounds a lot like capitulation, doesn't it?

At least that's what Mathieu Jamar thinks. For this asset manager at Belgian crypto fund DCY, "there was clearly a capitulation on the markets last week, so it's entirely possible that we've marked a low for a while, but it's still hard to say whether this level will be the last capitulation." What, wait, there may be more than one capitulation?

Unfortunately yes: it took bitcoin a full year to recover between its late 2017 crash ($20,000) and its late 2018 low ($3,100). All this was punctuated by timid recoveries that rekindled hope, but were quickly dashed by dizzying relapses. "What's really painful is to have a market that's falling slowly," insists Mathieu Jamar. "We'd prefer it to take a good fall so that we can get going again quickly, but that's rarely the case in a bear market," he testifies.

Even though the crypto market has shown signs of capitulation, it remains largely correlated with US equities. And that market, for its part, is still far from having surrendered. "Cryptos could collapse even further if equities start to devalue", anticipates the asset manager. There are arguments in favour of this scenario: by raising its key interest rates, the US central bank is threatening to plunge the United States into recession. This is never good for risky assets, equities and cryptos in particular.

We will therefore have to be patient and watch out for a possible decorrelation of cryptos with equities. The prudent investor can nevertheless continue to invest by opting for a Dollar Cost Averaging (DCA) strategy. This method involves investing modest sums at regular intervals (every month, for example) instead of investing all your capital at once. A number of platforms have positioned themselves in this niche: the main ones are StackinSat and Bitstack for those who only want exposure to bitcoin.


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Important upcoming events 📅

👉  Every week. The Big Whale is broadcast every Monday and Thursday on BFM Business from 4.35pm. You can replay Gregory Raymond's appearance by clicking here, and also follow him live tomorrow (as that traitor Raphaël is in Argentina).

👉  Wednesday 1 June. Finance Innovation, one of France's leading support organisations for FinTech, InsurTech and financial sector players, is organising "Cryptoday" at Station F (Paris), a day dedicated to crypto-assets as well as topics revolving around them such as NFTs and tokenisation.


Tomorrow in The Big Whale Premium

These French players caught in the UST trap 💥

Presented as the "Lehman Brothers of crypto", the collapse of the UST stablecoin will have consequences for the entire ecosystem that are still difficult to measure. The first to be affected are certain players who used this stablecoin to offer very (too?) advantageous returns. At the forefront is Just Mining, the start-up run by Owen Simonin, France's leading influencer, which has limited its losses by compensating its customers. The Big Whale investigated the main players registered in France to find out how they tried to manage this unprecedented crisis.

This edition was prepared with ❤️ by Raphaël Bloch and Grégory Raymond The Big Whale is a free and independent media. Subscribe without obligation to our Premium edition (€9.90/month in 💳 or cryptos) to dive into the Web3 revolution. 🐳

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