Dear Clients and Partners,
We continue to see choppy movement in the markets, on the global backdrop of uncertainty regarding a prolonged war in the Ukraine, interest rate hikes and an increased probability of global commodity shortages to name a few. In the digital assets space Bitcoin was able to close the month of March gaining 9.9% and ending above USD 45k, just to then fall again under USD 39k in mid April dropping around -15.5%. This was also displayed by the Bloomberg Galaxy Crypto Index closing March at a 13.9% gain, to then drop again close to -13.8% in April. The narrative of crypto (specifically BTC) being an uncorrelated inflation hedge continues to suffer in the short term as correlations to the traditional markets remain in tact. However, we prefer to look at this field through the long term lens as an opportunity to invest into a new digital era (or web 3.0), which will entail a bumpy ride and pitfalls to be on the lookout for.
The balancing of return and risks, a factor often overseen by investors lured onto thin ice by extraordinary return or “market neutral” promises, was a reason why we published an article on the hot topic of DeFi on Cointelegraph titled: “Decentralized finance: The best ways to participate and operate”. We break down the concept and ecosystem as well as strategies and risks involved for private and professional capital allocators. You can read the article here.
For March 2022, we were up by 4.52%. We again are waiting for some gains from March to be officially booked with our custodian, while other investments with daily NAV updates, already bore the losses from the down swings of April. As explained in the last letter this time frame mismatch/flow of information has been improved since last month but cannot be fully eradicated. Thanks to our portfolio construction based on “offensive”, “midfield”, and “defensive” positions, we exhibit strongly reduced volatility since inception of 4.77% vs BGCI with 16.36% and a respective downside protection by outperforming the BGCI by 11.55 pp. We continue to take a prudent approach to deploying capital through e.g. dollar cost averaging, while we also have our “midfield/defensive” managers actively monitoring the situation. This comes in the form of them having reduced their market exposure waiting for strong/sustainable buy signals or having rotated out of their altcoin positions into BTC and ETH, which usually provide more protection (and can be better hedged) during such market conditions.
While these general price swings may sustain (and more strong negative price movements are in the cards) for the near future, we continue to see strong signals of institutional adoption across the board. You have BlackRock, the world’s largest asset manager, taking part in the equity funding round for Circle, the backer of the USDC stablecoin. You have a growing list of billionaires disclosing they hold digital assets (and not too shabby) such as Mexican billionaire Salinas revealing at the Bitcoin 2022 conference to hold 60% in BTC and BTC linked equities. On the retail side we have the popular trading app Robinhood releasing a crypto wallet to 2 million users. And then you also have the metaverse expanding through e.g. SoftBank and Andreessen Horowitz co-leading a USD 150m raise for Improbable or Epic raising USD 2b from Lego and Sony investors for their effort of building a 3D version of the web.
Have a great day and feel free to let us know if you have any questions.
Marc S. on behalf of Frank, Dirk, and Marc B.