Risk On, Risk Off • Letter 112

Hi, this is Colton from Hedgehog, the crypto portfolio manager that does all the boring work so you can focus on the fun stuff. You're the captain of the ship, and we're your first mate charting the stars and taking the wheel when you're ready to kick back in the hammock.

I'm a registered investment adviser representative (which to be clear, does not indicate any particular level of skill or training), and as a fiduciary entity, Hedgehog is mandated to prioritize the financial best interest of our customers.

Bet On It

Last week we talked about rebalancing, the smart way to handle a diversified investment portfolio that contains many different assets. Not coincidentally, automatic rebalancing is one of Hedgehog's core features. It keeps your portfolio’s overall configuration consistent even when individual assets are bouncing all over the place:

... rebalancing indirectly forces you to develop a disciplined approach towards investing, instead of making emotion-driven changes from moment to moment. Despite changing conditions in the financial world, you steer your investments in accordance with your financial goals.

This week I dive deeper into risk on the blog, continuing our exploration of investment fundamentals.

Risk is good, actually, and essential — but how much is the right amount? That depends on what you're trying to do. Here's how to think it through.

Friends for Sale

The latest social experiment to sweep through the crypto world is Friend.tech:

Operating on Coinbase's Base Layer 2 chain, friend.tech is a social app integrated with X (formerly Twitter) — allowing users to trade tokenized shares in one another's profiles. Shareholders gain exclusive access to content and private chat rooms. The app has recently gained a lot of momentum among Twitter users, also attracting new high-profile members over the weekend, such as startup incubator Y Combinator CEO Garry Tan and NBA player Grayson Allen.

Two of my Hedgehog colleagues have given Friend.tech a whirl. I asked for their thoughts on the experience so far. Jon was cautiously optimistic:

Honestly there is not a ton to it yet. You basically put a little ETH in your wallet and buy shares of your friends to interact in their chat rooms. Very unique setup and it is still in beta, but I am not too sure on it yet. The buy/selling your friends' shares is pretty fun though. That part is just cheeky enough for me!

Jacek is embracing the moment, ready to see how things unfold:

Friend.tech is definitely exciting. There's been a lot of bad news this year around crypto, and this is something new and viral that has everyone talking — I just really love that.

I used StealCam before Friend.tech (same founders), and the thing about StealCam was that it sorta turned into OnlyFans but on the blockchain. As far as I remember, StealCam was more of a Ponzi scheme though, because to unveil an image, you always had to pay 10% more than the person before you. I like that Friend.tech allows you to buy and sell shares; it's more of a marketplace than a straight-up Ponzi.

That being said, I'm thinking, "Why would I pay to invest in a profile just to talk to my friends?" One reason could be to eliminate spam, which Twitter has so much of, and maybe the fees on Friend.tech will discourage that. Another thing is that you are investing in a profile you think will grow — that's awesome, you can even invest in yourself!

I expect exclusive content from the profiles that I buy shares in, and I'm looking forward to some kind of closer interaction. However, I hope they don't integrate pictures into the app too soon, as that could attract inappropriate content. One thing I like about Friend.tech is that the community feels intimate, filled with crypto peeps you'd see at a conference. I've made a Friend.tech wallet tracker and got reposts from legends like Sanat (partner at Dragonfly) and Andrew Hong aka Ilemi (Dune wizard).

I have no idea how this will evolve once the hype dies down, but right now, I'm loving the game. There are more people buying shares than selling, but I'm curious how the Friend.tech bear market will look. It's a great experiment with Paradigm as backers, which I think is great. Give it a few weeks, once the hype dies down and we figure out the real use case, things will be clearer. For now, I'm just having fun playing this game and building my shareholder base, to which I'd like to bring unique value.

Now, we don’t endorse potentially securitizing your friends’ creative output without going through the proper channels, so do your own research (DYOR) before getting involved in fads like these and make sure you only spend as much as you’re ready to lose. If you're also giving Friend.tech a whirl, reply to this email and let me know what you think 👀

Bitcoin Swings

Over the past week-ish, Bitcoin's price dropped from around $29,000 to around $26,000 (at the time of writing), a 10% dip. Michael Silberberg, the head of investment relations at crypto hedge fund AltTab Capital, shared his thoughts on the news:

We've been seeing increased Bitcoin futures trading lately. While there has been more open interest on the short side, there has also been accumulation in both directions as the market moved sideways in thin liquidity. This means many traders were betting on Bitcoin's price movement.

Then when the price dropped below a critical level, it triggered a wave of long-position liquidations. Traders betting on a price increase were forced to sell at a loss to avoid full liquidation due to insufficient margin. This snowballed as continuous selling drove the price down further, causing more longs to liquidate. Despite this drop, we still saw new inflows over the past week as long-term investors, like ourselves, saw discounted prices as an opportunity to accumulate more Bitcoin.

Bitcoin bulls are always gonna say, "When in doubt, buy more Bitcoin!"

Are there any crypto or finance topics you've been wondering about? I'm always taking suggestions, so please pipe up if you're curious about something in particular.

Keep hedging,
— Colton