It's fair to say that I'm investing a lot of time studying the crypto markets, and moving more of my assets into the markets. I wrote an update for investors and thought it might be helpful for those already in crypto or for those thinking about entering the market for the first time. This was written in January 2021 so will probably be out of date very quickly!
Since we started the fund we’ve had to stand-by and endure a protracted bear market. As you will have noted from our previous updates, we spent a considerable period with an asset value below our entry position. During that period we chose to stay true to our initial investing ethos, remaining with our largest positions in projects we believed had the best chance of delivering long term gains. That conviction is now paying off. During the last month we sold out of a few positions that had stagnated and moved all of our assets into the 2nd largest crypto by market cap, Ethereum. With gains of close to 50% in the last 7 days alone, the market is now waking up to the tremendous possibilities offered by the Ethereum ecosystem. Overall, the crypto market is now heading for a 1 trillion USD valuation. A mark we expect to be reached in the coming weeks. It is our strong belief that we are just at the start of a strong bull cycle that may last for another 12 months or more. Of course, growth won’t come without volatility, so we intend to stick with our strategy, riding the short-term moves, and avoiding the temptation to trade in and out of too many different positions.
Overall growth in the market has been driven by the tidal wave of institutional money that was long expected but took some time to materialise. Bitcoin has been front and centre of the frenzy, with spectacular gains over the course of the last 3 months. Bitcoin didn’t just reach it’s 2017 high of around $19,500, it smashed through and is currently trading around the $34,000 level. Most observers speak of a liquidity crisis where demand outstrips supply. The global pandemic has been unquestionably good news for Bitcoin, with USD dilution from stimulus, and investors looking for alternatives to traditional dollar hedges. The time has very much come for Bitcoin to fill the gap and to truly take its place as an alternative, or perhaps a supplement, to gold. In recent months, many institutions, who may have formerly been negative on Bitcoin have spun a 360 and become some of the biggest bulls. Just yesterday, JP Morgan predicted a $146,000 target price. https://www.marketwatch.com/story/heres-how-bitcoin-could-soon-be-worth-146-000-says-jpmorgan-11609869356
It’s not just hedge funds like Greyscale Partners that are buying up all the Bitcoin they can lay their hands on. Public companies like MicroStrategy have led the charge to place Bitcoin on their balance sheets with more than $1b of BTC entering their balance sheet. See https://www.coindesk.com/microstrategy-buys-bitcoin-debt
While many casual observers, and the mainstream media, might view the recent market activity as a bubble, those closer to the action are quick to point out the differences between the current bull market and the 2017 rally. That was prompted by retail investors wanting to avoid FOMO [fear of missing out]. This rally is dominated by the institutions and other large-scale buyers that are much more likely to want to build bigger holdings for longer periods of time. That goes at least some way to explaining why the gains of the last few months are not being pared back. Indeed, as companies such as PayPal, and Square make Bitcoin a core part of their product offerings, it can be argued that demand outstripping supply may continue for quite some time to come.
While there is always the possibility of negative news flow in a market as nascent and thrilling as crypto the overwhelming sentiment is very positive. A key piece of news that triggered more buying pressure just yesterday is that the OCC [Office of the Comptroller of Currency] has now ruled that banks can conduct payments using stable coins. See https://www.coindesk.com/occ-banks-stablecoin-payments
This is very interesting news as it legitimises this form of crypto asset still further and should fuel the banking sector to try to bridge closer to the DeFi market. It’s largely the promise of DeFi [Decentraliased Finance] that makes us very excited for the future of Ethereum. ETH is by far the leading blockchain platform for DeFi. A sub-sector of the cryptocurrency market that now has more than $20b of locked value across lending, derivatives, savings and payments. The potential for on-chain finance is staggering, as DeFi starts to encroach on traditional markets worth 100s of trillions of USD. https://defipulse.com/
Overall, we’ve tried to capture just a small taste of why we are very excited for the rest of 2021. We truly believe we’re witnessing the early stages of real transformation as crypto moves ever deeper into investing, currency, savings, payments, and more.
We truly believe this is just the beginning and expect to be reporting more good news soon.