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AA Digital: Performance Update June '23

Dear Alternative Investment Enthusiasts,

Already peeking into the month of July there has been a crucial event taking place, being the court case of Ripple (XRP) vs the SEC. XRP (a cryptocurrency) has been in court for years and was now in many instances relieved of the accusation of being a security, an accusation which had been raised by the SEC. Many see this as a watershed moment for the industry and clear sign of the court pushing back on SEC Chairman Gerry Gensler’s current “enforcement” approach with the SEC declaring virtually all tokens a security (and under his jurisdiction) regardless of context. A key take away was that the court sees, in relation to the Howey test, that the classification of a security depends on the context of the respective transaction. In addition, further bills are being proposed in congress to further create clarity around the regulation of the crypto industry in the US. These are positive signals, but there still is a way to go for the US. In other news, tech giant Google revised their app store guidelines to enable more digital asset integration. The surge of BTC spot ETF filings through renowned financial institutions, of whom many choose Coinbase as custodian, helped push Coinbase’s stock price higher. At the same time Coinbase is also under pressure from the SEC, who accuses them of running an unregistered securities exchange among other items. The recent XRP ruling is a welcomed tail wind for Coinbase.

For the month of June, we were up 5.63%. We have a total return outperformance of 14.83% (vs BGCI) and 0.94% (vs BTC) at a strongly reduced annualized volatility of 27.99% vs 72.78% (for BGCI) and 64.30% (for BTC). For June BTC was up 12%, with Bloomberg Crypto Galaxy Index (BCGI) being up 2.49% and the broader market S&P Cryptocurrency BDM ex-Mega Cap Index (SPCBXM), which excludes BTC and ETH, being down -8.68%. This broader market weakness also came after the SEC had accused tokens such as ADA, MATIC, or SOL of being securities, which led to trading platforms such as Robinhood to delist respective tokens. However, this happened prior to the XRP court case ruling vs the SEC, which resulted in a reversal as prices jumped back again following the stark drop during June. Based on our investment thesis we hold a diversified portfolio (not just BTC and ETH), which includes positions currently underperforming BTC and ETH. This divergence of BTC and the broader market can on the one hand be explained by current regulatory developments outlined above, but is also a scenario we saw unfold during the last bull run. During the early phases BTC began to gain steam, as investors flocked to the dominant asset with high liquidity (i.e. BTC), while the broader market still slumbered. As time progressed, BTC gains started to be divested into further projects, as overall confidence continued to build, which then ignited the “alt-coin” rally that produced large outsized returns vs BTC. Therefore, we are patiently waiting for the next phase when our “offense” position can come into play.

Marc Seidel, and your AltAlpha Strategies Team

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