3 minute read
MODERN FINANCE
MODERN FINANCE
The Dark Side of the Moon
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By Philip Dudley
The year 2022 in financial markets can only be described in one way. Simply, it was the “Dark Side of the Moon.”
Pink Floyd’s iconic 1973 album of the same name is a tale of two outcomes: one of living a life that goes unfulfilled and one of society with detrimental concepts that ultimately leads to madness. I don’t know about you, but I definitely feel unfulfilled with a sense of madness following the most difficult year for risk assets since the Global Financial Crisis in 2007-2008.
Let’s dig in a little. Here are a few 2022 returns for some household brand names: Tesla down 63 percent, Meta down 60 percent, Amazon down 42 percent, PayPal down 57 percent, among many others.
And what about bond investors?
Some believe it’s the worst bond market going back 250 years.
And the most speculative asset of them all, Bitcoin, must have been whistling past the graveyard. It was down “only” 54 percent, actually an impressive result considering that graveyard was littered with the bodies of Sam Bankman-Fried/ FTX/Alameda, Three Arrows Capital, Terra Luna, Genesis, BlockFi, Celsius, etc. The carnage in cryptocurrency has been epic.
When one speaks of Bitcoin it’s the blockchain, or distributed ledger, that has staying power and actually has its enthusiasts excited for a new beginning.
Overall, the year in review is full of optimism and despair, with each month seemingly taking one step forward with the next taking two steps back. In April, Fidelity allowed clients to invest in Bitcoin through their 401(k) accounts but May brought the collapse of TerraUSD and Luna. In September, Blackrock partnered with Coinbase to bring its institutional clients crypto assets and by November FTX filed for bankruptcy.
One of the fascinating realities that continues to emerge is that decentralized finance (DeFi) substantially outperformed centralized finance (CeFi) in 2022.
Basically, centralized entities underperformed or even evaporated because they were hacked, were greedy or slipped into a grey zone of illegal activity.
Looking forward to 2023, there should be many lessons learned. In my opinion, simple rules based software that utilizes smart contracts and on-chain transactions should and will be the prevailing blockchain-based protocol.
Of course, there’s always innovation, which displaces inferior thought processes and protocols. And so, we now shall wait and see which fork in the road DeFi developers take. Hopefully, it won’t be toward the dark side of the moon.
