Dear Clients and Partners,
Right out of the gate, let me start by saying that June was one of the worst months for crypto in years; for BTC in particular it was the worst month in 11 years (the SP500 also had its worst half in 50 years). Not only have prices tanked with BTC -41% in June, -60% YTD, but, according to Glassnode’s research, so has “on-chain” activity, reflecting the deepest bear market period back in 2018/19, with many BTC (or general crypto) “market tourists” having left the market.
For the month of June, “deleveraging” and “contagion” were some of the key words being used to describe what rocked the industry. In short, the formerly-famed hedge fund, 3 Arrow Capital (3AC), went bust as its leveraged trades imploded and margin calls started. In turn, it forced other crypto institutions (e.g. Celcius, Voyager), who had given 3AC loans (at times unsecured) in an attempt to fund the yield they had promised to their depositing crypto customers, into bankruptcy. This story will serve as a future warning for many. For now: “If you don’t know where the yield is coming from, YOU are the yield”.
For June 2022, we were down by -23.05%. We continue to outperform the market YTD with +19.19% vs BTC and +27.64% vs BGCI at strongly reduced volatility levels. However, these large price declines haven’t left our aggressive long-only positions unscathed. This especially rang true for our high volatility investments in mid cap tokens or DeFi, which suffered strongly. Zooming in on DeFi, strong DeFi players which generated cash flows/dividends, having survived this contagion episode well (compared to their CeFi counterparts such as Celcius and Voyager), could once again be one of the first movers in the next run. The negative effects on our front-line investments were softened by our portfolio allocation approach to having defensive investments, offering the downside protection that was needed.
Given the recent market downturn, the cries of 2017/18 are emerging again: “crypto is dead!”. My personal response has been that while, yes, digital assets have (once again) taken a strong price beating, the market in and of itself is in a much better shape than it was back in 2017. These “clean-ups”, while hurtful at the moment, are part of a process that could prove helpful for the industry to come out stronger (at least those who make it). Therefore, “no, crypto isn’t dead” and we are eyeing this yet as a rare generational trade opportunity. However, by now you should have (if not already) discarded the “get rich quick” idea. There are no shortcuts.
I’ll leave you with this quote from William Green’s book Richer, Wiser, Happier: “In markets, as in life, so much hinges on our ability to survive the dips.”
Have a great day and feel free to let us know if you have any questions.
Marc, and your AltAlpha Digital Team