Dear Alternative Investment Enthusiasts,
Let’s start with the elephant in the room. As I’m sure you heard by now, 3 US banks have closed their doors or gone under government control within a short period of time: Silvergate Bank, Silicon Valley Bank, and Signature Bank.
While these banks had varying business models, all 3 were involved in the crypto space in some way. Silvergate and Signature Bank were both popular on-/off-ramp banks used by, for example, crypto exchanges to move money from the “fiat” world into the crypto world, and vice versa. In the case of Silicon Valley Bank, it was one of the banks used by the USDC stablecoin (by Circle). Uncertainty around these deposits with Silicon Valley Bank led to a de-pegging of the stablecoin over the weekend, from which it has since recovered.
What triggered this downfall? Simply put, a bank run. However, each bank had its own combination of issues involving business models, poor management decisions, duration mismatching of lending/deposits, and stronger than anticipated interest rate hikes, all of which came to surface through the bank run.
Within our portfolio, we have one fund which has a small single-digit % of their funds with Signature Bank used for their US clients. This is less than 1% across the portfolio, therefore not having any material effect. The US government has since stepped in to make sure the depositors stay whole.
Here in Switzerland we had our own challenges with Credit Suisse experiencing a volatile week, which required the Swiss National Bank to get involved and extend a USD 50 billion loan to the bank.
For the month of January and February, we are up 6.6% and an estimated 3.2%. We continue to have an annualized outperformance of 21.3% (vs BGCI) and 14.1% (vs BTC) at a strongly reduced annualized volatility of 29.9% vs 80.4% (for BGCI) and 67.1% (for BTC). The market (BCGI) was up 42.1% and 0.4%, with BTC 38.7% and 2%. During January we had an overweighed portfolio of “defensive” vs “offensive” positions, in light of the ongoing Genesis bankruptcy. Since then, we have been repositioning ourselves more into “midfield” and “offensive” investments, while also investing in new complementing strategies.
A quick side note for our US fund investors: you can find the annual PFIC tax information for 2022 required for tax purposes here.
On the application side of blockchain technology, Goldman Sachs underwrote a USD 100 million bond offering with Santander and Société Générale. Meanwhile in China, China Construction Bank issued USD 4.2 Billion in credit to 2 million customers so far. We are seeing regulatory headwinds for the industry in the US currently: for ex. Kraken staking services was shut down for US investors, and Paxos had to stop issuing the stablecoin BUSD (Binance’s stablecoin). While in Hong Kong, the government has reopened trading of certain "large-cap tokens" for retail investors, after banning it previously. The Asian market has been seizing the opportunity in trying to attract more firms in the space (again) and is shaping up to play a stronger role in this industry’s future. This is also why we are in the process of making an additional investment in a fund manager based out of Singapore and Hong Kong to make sure to not be left out by developments happening in the East. We will then have fund managers based out of the US, England, Holland, Monaco, Switzerland, Singapore and Hong Kong.
On that note, I’ll leave you with the adjusted proverb: “Go east, young man”.
Marc, and your AltAlpha Strategies Team