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AA Digital: Performance Update Mar '23

Dear Alternative Investment Enthusiasts,

March will be a month many will (or should) remember for some time to come as it has once again served as a vivid example of how financial institutions, and the system per se, are prone to failure. Within a very short period, the change of tides in interest rates, and the U.S. inverted yield curve that came with it, triggered a surprisingly serious banking crisis. From the US to Switzerland, governments had to get involved to save failing banks and for now divert a potentially larger cascading of failures.

Under this light Bitcoin and Gold both had their shining moment in the sun as they appreciated under the narrative of non-bank solutions for storing wealth. During March Bitcoin rose by 22.7% and by Gold 8.5%. This month showed a dispersion within the digital asset market as dominant players such as Bitcoin and Ethereum rose, while others fell in value. This was illustrated by e.g., the Bloomberg Galaxy DeFi Index falling -8.56% and the S&P Cryptocurrency BDM ex-Mega Cap Index (which excludes BTC and ETH) falling -4.03%.

This month brought more heavy-handed enforcement from the SEC, with Gary Gensler also being grilled by Congress based on his actions, which have been viewed by some as overreach. Senator Warren has made building an “anti-crypto army” a leading goal of her agenda, while she supports a government backed CBDC. Other countries (e.g., Hong Kong, France) have been stepping in to fill the void created by the US to gain market share in the digital asset industry. At the same time, the narrative around de-dollarization is heating up with the DXY, which provides a relative value of the USD vs a basket of other currencies, falling around -1.9% during March.

For the month of March, we are up an estimated 2%. We continue to have an annualized outperformance of 15.59% (vs BGCI) and 5.43% (vs BTC) at a strongly reduced annualized volatility of 29.26% vs 79.01% (for BGCI) and 68.66% (for BTC). Having a diversified portfolio going beyond cryptocurrencies, we also registered a dispersion within our returns. This doesn’t change the long-term conviction we hold that this industry is about more than just BTC and ETH. When it comes to our portfolio management, in Q1 this year we trimmed down two positions, topped up two existing investments, and also added two new ones. These changes were on the one hand due to rebalancing, but on the other hand also driven by us reshuffling “our team” to increase our midfield and offensive positions. From a chart analysis perspective (which is always to be taken with a pinch of salt) we are seeing the market forming a bottom. This doesn’t mean that prices couldn't move down again retesting certain support levels, but we are seeing a basis being built for the next run. Operationally, we onboarded with Julius Baer as a new bank, expanded our network of service partners. This goes to show that not only our underlying investments are actively monitored and managed, but we also continue to scout, evaluate and finetune our portfolio and processes.

As a fitting sidenote at our group level, we have been creating more educational content around navigating and investing in a New Era, covering topics such as DLT, longevity, and investing in general with speakers such as our very own Marc P. Bernegger, Anastassios Frangulidis from Pictet, Bruno Ciscato from R3. Tune in here on Spotify and here on YouTube.

On the development side within the digital asset sector, you had ETH’s “Shanghai” upgrade, which allowed staked ETH to unlock and enter the market again. Uniswap, which is the most popular DEX (decentralized exchange) on Ethereum, had its best month this March in terms of volume with USD 71 billion since January 2022 and outpaced Coinbase by over 40%. Here in Switzerland, PostFinance, a government owned bank, will start to offer crypto investments (BTC and ETH to start) to its customers. While the recent price action has already put some in the next bull run euphoria, we try to take a more sober view of the developments. We are still early games when it comes to this industry being built, with potential developments many cannot even fathom for now. However, it will continue to be a bumpy road, where we will be hitting more than just one pothole on our way.

Marc Seidel, and your AltAlpha Strategies Team

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