Dear Alternative Investment Enthusiasts,
The crypto market ended the month of August negative despite the recent victories the digital asset industry had in U.S. courts against the SEC. Mr. Gensler was again grilled in front of Congress and there are numerous ongoing court cases, which I’ll omit to avoid this becoming a “SEC update newsletter”. In other important news, next to the BTC Futures ETFs, ETH Futures ETFs have launched this week. However, spot ETFs are still being held in the dark, while some applications have already been denied, and yet more institutions are filing for approval. Current speculation is that Q1 2024 will be the latest date to which the SEC can push the spot ETF applications back. Cynics are saying that the SEC is trying to provide traditional finance actors with enough time for them to get operational in order to partake in the crypto market.
We are seeing increased activity such as JP Morgan developing a blockchain-based token for cross border payments and settlements. UBS is also using Ethereum for a pilot project where they are tokenizing a money market fund to test various activities, such as subscriptions and redemptions. Visa will use the stablecoin USDC and the Solana blockchain for settlement capabilities, allowing merchants to settle with USDC instead of fiat to improve speed of cross border payments. The CEO of Franklin Templeton sees digital assets as “the greatest disruption” in finance, seeing tokenization as a huge disruptor, as they also apply for a BTC spot ETF. In short, the number of traditional finance institutions jockeying for position is constantly increasing.
For the month of August, we were down 9.06%. We have a total return outperformance of 14.16% (vs BGCI) and 2.33% (vs BTC) at a strongly reduced annualized volatility of 27.00% vs 69.72% (for BGCI) and 61.55% (for BTC). For August, BTC was down 10.93%, with Bloomberg Crypto Galaxy Index (BCGI) being down 13.72%. During August, DeFi had a tough time illustrated by the Bloomberg Galaxy DeFi index being down -25.30%. This performance put pressure on our offensive positions, which had to be counter-balanced by our midfield and defensive positions. Some funds used this price dip to accumulate more of their target tokens. We still see huge potential for DeFi as an application of blockchain technology, which currently is a dominating field. One can see this in the continuous adaption of traditional finance actors and our own daily (often frustrating) experience within the sector, which is ripe for disruption.
However, this isn’t the only area of interest where we are invested, considering our allocations to alternative Layer 1s, Layer 2 scaling solutions, Oracle, and other projects focusing on infrastructure improvements. From a thematic standpoint, for example, entertainment and gaming are fields we are interested and invested in. However, they are still small and in their early days.
The market is still trading within a range and at this point, virtually all the so-called “crypto tourists” have been washed out and capitulated. For those still in the game and with this being their first cycle: congratulations! Very often when people see those who have made their wealth through investing, whether equities or crypto, the notion is “that was easy, I would have done the same if I would have known about Bitcoin (or XYZ) back in the day”. Commonly people forget that with the peaks can also come the valleys…that’s simply how investing goes.
This period will likely end up serving as your own reference point for such future conversations. Looking into 2024, there are many crucial events on the horizon that will play a role in how our conversation plays out, such as the anticipated launch of the first spot ETFs for the US, the impending Bitcoin halving, and the 2024 US Presidential elections, to name just a few.
Marc Seidel, and your AltAlpha Strategies Team