November update


In the month of November the fund increased 63%, compared to the blockchain market capitalization (blockchain index) which increased 74.5%.

Since the inception (Feb 2017) through Oct 2017 the fund has returned 2255% – the blockchain index increased 1387% over the same period. At the time of this writing the blockchain index is 329 billion USD.

A dream come true?

This month we saw the largest gross increase in the history of the market. To begin, I’ll reflect on last month’s sketch of what was to be expected.

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Sketch from October’s letter

I cautioned in October that it was not yet the time to sell due to Bitcoin’s surge towards 10k in anticipation of Bitcoin CME futures listings. I tried to prepare for the wave which would come as a result – I wrote:

I think we’ll have two waves to consider next:

Wave 1: Wave of buying leading into launch (what’s happening now);

Wave 2: The rush of new money when Bitcoin products hit the major stock markets.

Right now I think wave 1 makes sense towards 250b, but to prepare for a possible second wave of buying I need to imagine how to value the market in the near term if prices continue to climb.

Bitcoin basket: makes sense at 250b (alone)

Ethereum: makes sense at 50-100b (as the “platform” of the sector)

Everything else: makes sense 50-100b (~50 promising applications)

I also wanted to be mentally prepared for a wild upward swing, so I tried to rationalize what “made sense” if prices started to run – I wrote:

Bitcoin basket: makes sense at 250b (alone)

Ethereum: makes sense at 50-100b (as the “platform” of the sector)

Everything else: makes sense 50-100b (~50 promising applications)

My mind can stretch to ~400b for this market, beyond that is speculation beyond my wildest dreams.

And now let’s look at what happened in November:

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The dream of $10,000 Bitcoin came true and it drove the market wild. The media coverage was global and drove record search volume for buying Bitcoin. Here is the Google search volume for “buy bitcoin” compared to “buy gold” across the last 90 days.

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The activity crushed the systems again, everyone crashed or stuttered along to keep up with the activity.

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The bump in search activity seemed to mark another tipping point. You can see this as a sea-change in the global trade volume which rapidly doubled – I’ve noted it in red in this chart of 2017:

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This year we’ve grown from $500 million average daily trading volume to 10 billion average trading (20x).  On the peaks of November 12th and 30th we saw $25 billion change hands per day. Compare this to the NASDAQ which trades $75 billion daily meaning we’ve reached 33% the liquidity of NASDAQ. That makes the Cryptocurrency market impossible to ignore.

However this is a global market and so we must compare to other global markets. For example, the global fiat currency market trades over 5 trillion a day and so we are only 0.5% of that market. What happens if we break 1% of FX volume? The price of the market (roughly) tracks the trading volume so it’s time to think big, again.

A trillion dollar year?

I’m surprised I have to reflect on this for the second time this year but here was my 10 year goal written up in this fund’s January letter:

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From original thesis

This week I noticed my 10 year pipe dream became a conservative estimate by multiple parties in the national media. If I know anything about markets, it’s that they love the predictions of rich, bald white men. Suddenly it’s not a question of IF we will reach a trillion but how many trillions…

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The other thing I know about markets is they like to run ahead and touch analysts predictions way before they are justified. People will say to themselves “if it’s a trillion by 2020, why not buy it up now?”. Rapid upward price movements are easier when you have a growing pool of buyers entering a market, and it’s these new buyers I want to pause on and consider.

I believe we should think about all the people who entered the market in a bucket from late July through early November. They bought into the market around $170 billion on average, and have almost doubled their money today.Screen Shot 2017-12-02 at 3.46.51 PM.png

I saw evidence of the appetite of these buyers when early adopters (such as myself) took profits when the market ran way past 300 billion. I personally cashed in 15% of fund on the morning of Nov 29th to secure 6x ROI. I wanted to take the pressure off and I didn’t want to hold through the first sell-off. The sell-off happened about 6 hours later and the market dropped ~50 billion from ~330 billion to ~280 billion.

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I was honestly shocked that the market didn’t fall back to 220 billion. Instead we only corrected 15% which is quite small for this market (where 40% drawdowns are normal). My current theory is the “new early money” was propping up the market as I saw more buying pressure than I’m used to during the last pullback. From their perspective this was the first big “dip” they’ve experienced and saw it as a buying opportunity. I personally heard positive Bitcoin and Ethereum chatter in the waiting line for a driver license at Service Canada last week. Word is getting out – the network effect seems to be growing another layer deep to the friends of the friends of the early adopters.

Now we need to prepare for the network of buyers to (at least) double very soon. Google trends data and waiting line small talk don’t lie. While it’s hard for early adopters to imagine, we have to start thinking about the near future on the 1 trillion scale.

Next I’m trying to imagine new buyers entering this market above 300 billion after seeing Bitcoin stabilize above 10k USD. These folks are looking to “double or triple” their money as the market runs to 1 trillion (and Bitcoin runs to $25,000). On the downside I’m still prepared for 200 billion to get tested. Especially if we get a post Bitcoin futures sell-off. It seems pretty clear to me that we will run upwards into 18th of December when Bitcoin futures go live and we are officially in a “post IPO” Bitcoin world – a world where the Bitcoin price is on every financial ticker/newspaper on Earth alongside the price of gold.

Screen Shot 2017-12-02 at 3.42.01 PM.pngWhen considering these two moves (running to 500 billion vs. testing 200 billion) I like to following the old adage from Reminiscences of a Stock Operator: “the market tends to follow the movement of least resistance”, and right now the direction of least resistance is still upwards (due to rapidly increasing supply of new buyers).

Looking ahead:

I’m doing a slight reallocation to prepare for a continued bull market. I’m thinking about about the coins in three main buckets.

  1. Bitcoin – The coin everyone is going crazy over right now.
  2. Coins new buyers will look to after getting exposed to Bitcoin (Ethereum/Litecoin)
  3. Coins early adopters will consolidate profits into (such as established ERC20 tokens such as Golem, Auger, Sia, OMG)

Right now I’m:

  • slightly underweight bucket #1
    • currently holding 50.25% Bitcoin against 56.5% market weight
  • overweight #2
    • currently holding 22.5% Ethereum against 13.5% market weight
    • currently holding 4.8% Litecoin against 1.6% market weight
  • mix of underweight/overweight #3
    • slightly overweight projects such as: DGD, BAT, ZEC, NEO, GNT, EDG, GNO, SC, ZRX, PAY

I also reduced my Bitcoin Cash position to 4.5% when it hit 1700 USD. I feel like the case for Bcash is harder to make with Bitcoin about to enter the spotlight on December 18th. I’m still holding a market weighting of Bitcoin Gold.

At a high level I noticed a biased developed in the fund towards North American coins and smart money should be heavier (or at least market weighted) into Asian coins – you can see these coins correlate into two distinct price patterns. This is something I will address in a future letter.

We look ahead with the following high level allocation:

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December is shaping up to be an exciting month (is there ever a dull one?) all eyes are on Dec 18th…


October update


In the month of October the fund increased 18.3%, compared to the blockchain market capitalization (blockchain index) which increased 24.5%. We lagged the market this month entirely due to an under allocation in Bitcoin.

Since the inception (Feb 2017) through Oct 2017 the fund has returned 1329% – the blockchain index increased 793% over the same period. At the time of this writing the blockchain index hit 200 billion USD.

High tides for Bitcoin

First I’d like to reflect on last month’s thinking:

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From September

This month that reasoning came true as it was announced Bitcoin will finally hit public markets via the CME offering of futures. This allows those in the traditional finance markets to wager on the future price of Bitcoin – without needing to own any. These futures will be the nuts out of which the first wave of Bitcoin ETF’s on the TSX and NASDAQ will be built.

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Following a race towards $10,000 Bitcoin:

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This leads to a overall market that may seem tempting to sell into:

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However there are two drivers of this growth I want to pause and think about:

  1. The fragmentation (forking) of the Bitcoin network
  2. Bitcoin leaping to traditional markets (from the 1% to the 99%)

A network of networks

Early cryptocurrency adopters have had to live through a strange birthing process by which coins are created out of “thin air”, resulting in dividends for original coin holders, and two groups of independent networks who genuinely hate each other. When this happened with Ethereum & Ethereum Classic I remember, as an investor, it felt like I was driving blind. I made the mistake of selling my Ethereum Classic as an emotional reaction to the uncertainty it caused in the markets. I watched my precious Ethereum fall in value from 12 to 6 dollars during the split.

What I learned from the process was more valuable: forks increase the total value of a network. Think of the original Bitcoin network as a network of networks (who don’t agree with each other on technological direction  and/or philosophy). These differences are another advantage if you let everyone go their own way. The most efficient way to monetize a network of competing ideas is to break it up and value each individually. That’s what public markets do and it leads to benefits (in aggregate) over time. Bitcoin in 2017 is looking something like this to the “average” investor:

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My thesis is that these networks are worth more if they separate and run their own coins. I first applied this lesson in August when planning for the last Bitcoin cash fork – here was the thinking then:

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Before the split Bitcoin alone was worth around 45b, and day after the split both the value of Bitcoin and Bitcoin Cash increased resulting in around 60b in value combined.

And just recently we had a smaller Bitcoin gold fork. At the time of this writing:

Bitcoin: $7200 USD

Bitcoin Cash: $635 USD

Bitcoin Gold: $130 USD (futures price)

Total value = $7945 USD

The next fork on Nov 16th will also result in another coin, which will now be part of a new currency basket to consider for investors: Bitcoin basket (Bitcoin Cash, Bitcoin Gold, Bitcoin 2X, Bitcoin). Holding all of these currencies guarantees you will be capturing the entire community. I believe the opportunity lies in not viewing Bitcoin alone, but rather as a basket when managing a portfolio in the year ahead.

The value of Bitcoin 2x based on current futures trading is around $2400 (this is due to the larger size of the network which is splitting off from Bitcoin). My prediction is this coin will likely trade for less than that once it hits the market (many “BTC only” believers will dump it, plus it’s importance is inflated right now), though I firmly believe the Bitcoin basket will grow post fork. So we need to prepare for where that could take us.

The total value of this Bitcoin basket will still “make sense” at 250b as that’s 5% of gold reserves and a key psychological level to test (and the one the media perpetuates). Psychological levels are the only thing we can grab onto when riding a tide with this much momentum.

But of course, this is all behind the scenes stuff only Bitcoin nerds would care about. The real opportunity is the leap to public markets.

Bitcoin’s dip in the deep end (public markets)

To make sense of the price of Bitcoin this year I think we need to consider the price history of Bitcoin before and after it hits the public markets.

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I think of right now as the pre-IPO days. And in these “old days”, buying Bitcoin was a long/scary process usually involving family or friends hand holding each other into the market. In the very near future, retail traders will ‘take a dip’ with 5% of their portfolio into Bitcoin with a single phone call or click. They have been hearing about it forever, and they won’t be able to resist the exposure.

I think we’ll have two waves to consider next:

Wave 1: Wave of buying leading into launch (what’s happening now);

Wave 2: The rush of new money when Bitcoin products hit the major stock markets.

Right now I think wave 1 makes sense towards 250b, but to prepare for a possible second wave of buying I need to imagine how to value the market in the near term if prices continue to climb.

Bitcoin basket: makes sense at 250b (alone)

Ethereum: makes sense at 50-100b (as the “platform” of the sector)

Everything else: makes sense 50-100b (~50 promising applications)

My mind can stretch to ~400b for this market, beyond that is speculation beyond my wildest dreams. For that reason I will continue with the following plan in broad strokes:

  • Take no more profits until we approach 250b (move to 5% USDT)
  • Move to ~15% USDT above 250b
  • Aim for ~25% USDT if we break 300b

On the downside I can imagine us easily testing 170b during any near term dips, and I feel strongly that 120b could be the ultimate floor when we get a panic. While I haven’t put a dollar into this market since February, I’m definitely a buyer in a 120b market. I don’t think a 2 digit market is possible anymore – without a complete collapse in confidence across all countries.

Bitcoin dominance

Bitcoin has regained it’s dominance above 60% as it retook centre stage in the markets. Other coins have suffered as a result, most notably the Ethereum hype has settled as all eyes are focused on Bitcoin. In the near term I expect a capital flight back into Ethereum from Bitcoin which could push it up to ~50b (up from its 28b, at time of writing). Long term I think Ethereum is an attractive asset, I can’t imagine it overtaking Bitcoin’s dominance unless an ecosystem of applications built on it hits the mainstream. I will use 75% as a rough level at which Bitcoin might be seen as ‘overvalued’ relative to the market.

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Looking ahead

Going into the next month I have the following high level allocation:

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September update


In the month of September the fund decreased 8%, compared to the blockchain market capitalization (blockchain index) which decreased 8%.

Since the inception (Feb 2017) through August 2017 the fund has returned 1155% – the blockchain index increased 635% over the same period.

The regulation of Bitcoin

This month was another case study for the history books. In fact, this entire year feels like we are making history in slow motion. Because it followed so closely with last month‘s letter it’s worth reflecting on:

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Both of these events occurred: We pushed 180b and established a psychological floor just above 100b – I’ve marked these in purple below:

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The top and bottom of the market for August

On Sept 2nd the market was flying like never before, running from 150 to 180b driven by a jet stream of new projects along with positive television segments from financial press (a pattern that will continue to reenforce itself). Japan begins exchange regulation; traders from traditional finance begin bragging about how rich they got off Ethereum; a whole new genre of stories were being told…

During these runs I’ve noticed the population of investors who are still on the sidelines (or have cash ready to invest) throw down in fear of missing out. Meanwhile early investors set their sights on 250b the next logical place to go (where, in my opinion, the walls of this [short term] bubble start to thin.

Right before Bitcoin broke $5,000, while the champagne was still on ice, we had the news cycle that only a bear could dream up. The water cooler gossip was China (the hub of cryptocurrency speculation) was “shutting down” Bitcoin…

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This news was doubled up by a second wave of negative press due to the strange comments of Jamie Dimon. The most interesting aspect of his comments was how he spoke down about his daughter’s success investing in Bitcoin and called it “a fraud”. I took it as an example of a man who needs to listen to his Daughter’s generation. Nevertheless, the China fears alone caused the Bitcoin price to fall ~2000 USD in a flash (almost 40%) – the drop below $4,000 was mostly technical as margin traders were stopped out and liquidated.

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This event dragged on market (pulling it down 44% peak to peak) and proved that the entire sector is correlated to Bitcoin sentiment – if Bitcoin falls, we all fall down. Below is the market excluding Bitcoin which experienced a 50% drop on Sept 18th.

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Of course the real news was that China is going through a process of regulation, which begins with a slash and burn of the existing exchanges (which are making a fortune). To me this was a great learning opportunity for those who still need to be convinced that Bitcoin is a “global network”. That is, no government or single entity can stop Bitcoin because it’s (a) global, and (b) peer-to-peer. Like shutting down online piracy, it’s a game of whack-a-mole. Tell someone they can’t buy from person X and they will simply turn to person Y. We need only look at the chart of local Bitcoin trading volume to see what happens next. People start trading directly:

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The purple line is the moment this most recent shutdown began. Like the previous shutdown scare, this will increase the baseline trading happening on the streets. I’ll be interested to watch how this volume is sustained over the next months.

At the end of this drama we have a market which is about to press 150b, with a 100b floor in the rear view mirror.

Looking ahead

This month I learned that my previous estimate for a market drawdown was slightly optimistic at 35%, as I wrote in August:

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My thoughts from August’s letter.

This last panic resulted in a 44% swing, so the minor league volatility is still with us. Instead I’ll use 40% as a rough guide for the next downturn limits. I also see 100b as a floor we may test again.

The peak is clearly ahead of us. I do believe a price bubble is forming, that is, the existing rate of gains can’t be sustained across the next 2-3 years. The birth of a market is an exciting, yet messy process – and bubbles are a necessary part of it.

However, I don’t believe we are in the final leg of the bubble when all hell breaks loose, that is everyone jumps in, not just the ~0.1% of us who are currently exposed. Keep in mind that it is estimated that there are only ~300,000 people globally with at least $5,000 in a Bitcoin wallet. I think it’s safe to say at most 1 million people on earth are exposed to cryptocurrencies. There is no doubt in my mind that this will reach 10 million soon (due to the wave of funds that are currently launching).

In terms of where the market can go next, I believe that 250b is a meaningful target simply because (as I’ve mentioned before) Bitcoin alone can justify that valuation when it steals another 2 points from net gold holdings. The next big catalyst for Bitcoin price will be the coming availability of a Bitcoin ETF (I believe this is when the news cycle will be “will Bitcoin reach $10,000?”) – before this happens I can’t (yet) imagine a reason for this market to break 200 billion.

Current allocation

From a fundamental perspective things remain unchanged. Now that a more mainstream market is starting to emerge I’m leaning more closely towards an index weighting with a few exceptions. I also hold no USDT at the moment. When this market pushes 250 billion I plan to move at least 25% to USDT. I hold both Bitcoin and Bitcoin cash and will hold firmly through any future fork.

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High level allocation

If you are interested in a more detailed breakdown of my holdings (including smaller holdings) please reach out directly – I’ve been enjoying conversations with readers of this blog. I’ve gotten to know retail crypto investors, crypto fund managers and VC’s alike.

August update


In the month of August the fund increased 77.0%, compared to the blockchain market capitalization (blockchain index) which increased 77.2%.

Since the inception (Feb 2017) through August 2017 the fund has returned 1247% – the blockchain index increased 659% over the same period.

One small step…

The months of July and August were critical moments for this market…and by any measure it was a historic swing. In the month of July the market had it’s first sustained selloff and the index dropped 50% from ~120 to ~60 billion dollars. As a percentage this was larger than the 2008 stock market crash. On July 16th the buying pressure returned, resulting in a technical bounce on high volume. We ended the month in a holding pattern…

Chart blockchain marketcap from Jan through July

The narrative in late July was the usual: is it all over? Some people in the media were saying just that at the time, especially those who insist that money must have commodity value (video coming soon on why Bitcoin has value). I felt this was a time to convert any USDT back into the market as it was our first step in the longer term bull run. It established a floor for the market in the mid 60’s.

After this bounce the market moved along the path of least resistance, which is a market where everybody is still looking up… 5 weeks later we witnessed a positive swing of almost 100 billion USD and the market currently sits at 159 billion USD:

Chart of blockchain marketcap from Jan through August. Red lines are key technical support levels (my notes)

Time for prime time

This buying run included both the early adopters (who had taken profit in May or June) as well as new buyers who were recently alerted to this market. There are signs everywhere that the kiddy pool just got more crowded. On Aug 22nd over 10 billion dollars changed hands in 24 hours setting a high water mark in daily volume. Exchanges were clogged with activity, some had to disable trading functions to keep up with demand. Over the month of August, some exchanges were adding tens of thousands of new accounts a week.

It’s useful to look at the traffic to which acts as the ‘quotes pages’ for this sector. It’s safe to assume 90% of cryptocurrency holders are using this page. More people are searching for this page than those who are search for “buy gold” – I find that significant as I know that gold bugs are going to be the first to jump ship as this market matures.

Watching the metrics is fascinating because it’s a global market. All measures must take that into account. People often use the traditional gold market to ballpark the cryptocurrency market in it’s established form, which means a (single digit) trillion dollar market.  Television analysts try to set a goal for this market by throwing out numbers like 5% of gold’s value for Bitcoin (Bitcoin alone is around 1% of total gold value at the moment). That’s likely how most investment advisors will be spinning the (not if but when) Bitcoin ETF on the NYSE. When that happens people will be looking for Bitcoin hitting 200 billion USD and its price could easily double in the short term.

It’s interesting to also see the mainstream media putting staff on the bitcoin beat resulting in prime time exposure as the norm. I don’t expect this to change.

Link to WSJ article


Current allocation

From a fundamental perspective things remain unchanged. Now that a more mainstream market is starting to emerge I’m learning more closely towards an index weighting (default allocation) with a few exceptions.

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High level view of fund allocation

We are currently underweight (negative bias) Bitcoin, holding 37.4% compared to market which holds 45%. We are currently overweight (positive bias) in the following coins:

  • Ethereum (ETH): current allocation 25.47% (market holds 20%)
    • Expecting a big fall season for Ethereum
  • Litecoin (LTC): current allocation 4% (market holds 2%)
    • Recently reduced from 6% during the rise to $60
  • DigixDAO (DGD): current allocation 1.8% (market holds 0.1%)
    • Look forward to launch of DGX token to drive awareness (gold pegged token)
  • Basic Attention Token (BAT): current allocation 1.8% (market holds 0.15%)
  • Monero (XMR): current allocation 1.6% (market holds 1.25%)
    • reduced position from 3.5% on Aug 26th
  • Stratis (STRAT): current allocation 1.5% (market holds 0.4%)
  • Golemn Network Token (GNT): current allocation 1.25% (market holds 0.15%)
  • Zcash (ZEC): current allocation 1.25% (market holds 0.35%)
  • Siacoin (SC): current allocation 1.0% (market holds 0.15%)
    • Sold the position in Storj and moved it into Siacoin

New positions

The following new coins were added to the fund which brings our portfolio to 41 coins.

Note on the Bitcoin Fork

The Bitcoin fork further strengthened Bitcoin (it’s becoming antifragile, getting stronger after each shock to its existence). Anytime Bitcoin is about to face a threat I always lean in as I believe it’s the most resilient network in this sector and will remain so. Holding through this fork means we received and equal amount of Bitcoin Cash (I think of it as a ‘dividend’ received for believing in Bitcoin). I will hold the Bitcoin Cash to play both sides of this argument in order to capture the entire Bitcoin community. This logic will be applied to any future fork on Bitcoin. I’ve seen so many people loose money in this sector when choosing sides – technologists are inherently biased and this is the main reason why they aren’t beating the market. The combined value of Bitcoin and Bitcoin Cash is currently 4939 USD.

Looking ahead

I know people in the crypto hedge fund world who are confident that this market will hit 200 billion USD before the year is out. I’m confident that this market has a floor somewhere around 110b USD in the short term and would like to see that established. From a purely technical standpoint it seems this market could run towards 190b USD in the short term before taking another breath. If the market pushes beyond 180b USD in the next month we will start moving a modest portion into USDT to secure profits. The goal is to be ready when traders test the psychological floor established when the previous high was broken in June at 110b USD.

I’m also eager to measure how far the market drops during the next major pullback (since it establishes technical stepping stones). I’m specifically looking for a reduction in market volatility and I’d be very surprised if we had another 50% drop, I suspect the next one may take us down only 35% or less as the market matures. I’ll use 30% as a rough guide for where to place limit orders on the downside.

There is no longer any question that the bull market upon which this fund was based is real, the only question is how high it can go.






June update

The fund began June with the following allocation (see last month‘s letter):

In the month of May the fund increased 31.5%, compared to the blockchain market capitalization (blockchain index) which increased 36%. This was the first month we didn’t beat the market; due to our allocation in USDT during the continued bull run.

Since the inception (Feb 2017) through July 1st 2017 the fund has returned 977.6% – the blockchain index increased 291% over the same period.

The road ahead…

In the month of May the market capitalization of the blockchain sector broke 100b which was outlined as the first goal in the fund thesis:

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Over the past few months the market has come to agree with this sentiment. For context, this means the sector is valued as much as McDonald’s or Boeing. While Microsoft/Amazon/Google are all five times more valuable. Although this feels premature from an investment perspective, it’s certainly not unrealistic. Never underestimate the markets ability to get ahead of your predictions. This leaves us with one final goal, as written in the thesis:

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To reach this kind of value at least one of two things to happen in the next decade:

  1. Digital currency (such as Bitcoin) needs to be adopted globally by several percent of the world’s population. This adoption includes indirect exposure to the currency via ETF’s, mutual/pension funds or through invisible application and payment layers (services with “cryptocurrency in the background”).
  2. Distributed applications become widely adopted by a sizeable percentage (10% or more) of internet users.

The reasoning for #1 is trivial, it follows from the fact that more value flowing through a finite set of coins per unit time will result in more value attributed to the individual coins. If people try to transact 1 trillion new dollars in Bitcoin the price must expand.

To clarify why #2 would take us beyond 1 trillion, it’s important to imagine this as a large ecosystem of distributed applications, which in aggregate will steal a large chunk of users from the existing centralized services (the market cap of the largest internet companies is worth several trillion today and could reach ~20 trillion). Perhaps even more important is the fact that blockchain will play a key role in enabling the coming “internet of things” – a world with a network of machine to machine interactions communicating via transactions on internet enabled (“smart”) devices. IBM is well aware of this,

Blockchain is beginning to play a major part in the Internet of Things by enhancing security, enabling inclusion of low-value devices to be increasingly viable and making managing a device easier for decades to come.

If both #1 and #2 occur we will have reason to look beyond 1 trillion dollars. For now we can simply look at them as independent areas of growth and hope for one winner.

Valuing a network

With prices soaring across the board it’s important to reflect on how to value the individual coins beyond a default indexing approach. Remember, if you hold a larger proportion of a coin than the market does (for example the market holds 25% Ethereum as of this writing) that means you think Ethereum will grow faster than the market. This is a much higher bar than simply asking whether a coin will go “up or down” in the future. It is also why Bitcoin has continued to fall as a percentage of market, even though the price has been increasing across the last few months.

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Link to chart

Instead of using individual metrics such as market capitalization we are developing a new metric called Network Value. At the highest level it’s important to think of a coin as a network. So the Network Value of a given coin takes into account several pieces of information unrelated to price – such as:

  • # network nodes (how big is the network)
  • # network transactions (how active is the network?)
  • average trade volume across 30d (how interested is the market?)

Along with many other factors we can use this data to better understand how to rank the “networks” we are investing in. This has resulted in several adjustments to our holdings, here are the two most notable changes:

Decrease holding in Ripple to 5%

Ripple has done very well for the fund since inception and was recently ~10% of the fund (which was in line with it’s 10% dominance of the market). However we’ve decided to under-allocate in Ripple by 50% in the short term due to a lack of adoption signals. The most important metric here is the amount of money that banks are transacting daily on the Ripple network. As of this writing the network is doing around 6 million a day in bank to bank transactions on average (compared to the 50 million a day on exchanges). This chart shows the difference between bank usage and speculation (trading of XRP). The blue is banking activity – that’s what we care about:

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link to chart

As soon as we see an uptick in this blue line we will increase our Ripple allocation back to default. Long term we are bullish on Ripple.

Increase Ethereum holding

By all measures except market capitalization Ethereum is the most valuable cryptocurrency in terms of the Network Value. Ethereum has over 25,000 network nodes compared to Bitcoin’s ~7,000, it does more transactions per day and has the largest and most active development community. For this reason it seems clear that Ethereum will soon become the #1 coin by market cap and could outpace the growth of the sector. For this reason we’ve increased our holding in Ethereum to ~30%.

Understanding the layers

We’ve taken on many new holdings in the last month which are informed by a layered understanding of this sector. While this sector began as a single “digital currency layer” it has grown to include many new niche and application layers. Here are a just a few we are excited about.

Micro transaction layer – Currencies which specialize in rapid settlement of smaller-value transactions (currently it’s a niche that’s being filled by coins such as Litecoin).

Stable coin layer – These are coins which are pegged to a real world asset and will play a key role in making this a functioning market long term. Soon we will have a suite of cryptocurrencies pegged to assets such as gold, land as well as currency baskets. For this reason we’ve increased our holding in DigixDAO (DGD), which is a proof of asset protocol for exchanging things like gold on a blockchain. That is, we are investing in the protocol via DGD based on the thesis that if these stable coins become popular, the value of the network supporting them will increase. It’s not an investment in physical gold. Another technology we are watching is Maker (MKR) which is a protocol behind stable tokens such as Dai and pegged to the IMF’s international currency basket.

Anonymous currency layer – Simply put, coins which are easier to hide the transactions of, such as Monero and Zcash.

Oracle layer – We’ve biased our holdings in the positive direction for prediction markets Augur (REP) and Gnosis (GNO). This is because prediction markets provide the link between blockchain and “real world data” by acting as an Oracle – as explained here.

The need for oracles arises due to this gap between the world of blockchain code and real world events. An oracle, in the context of blockchains and smart contracts, is an agent that finds and verifies real world occurrences and submits this information to a blockchain to be used by smart contracts. This agent can be software, hardware, or human.

Attention layer – Our online attention is valuable (people will pay to know what we do online). However, that value is currently hidden from us, because our data is collected by and sold to third parties (via Facebook/Google/Amazon). New technologies such as the Brave Browser aims to put us back in control of our online data, and pay us directly (instead of Google) if we choose to give it up our browsing patterns. Brave is behind the Basic Atttention Token (BAT) which we’ve included in our fund and biased strongly in the positive direction. We also hold the other technologies focused on this problem (such as Synereo).

There are many more to consider, such as the File Storage Layer, the Computation Layer, and the Logic Layer. But the point is, an understanding of these layers will help orient investors looking at a growing sea of new coins to invest in.

New holdings

We’ve taken new positions in coins such as Status (SNT), Antshares (ANT), Waves, Basic Attention Token (BAT) and Numeraire (NMR) – we’ll report more on these new holdings in future letters.

Looking Ahead

We remain bullish on the sector and do not believe that this run is over across the rest of the year.

Looking ahead we’ve adjusted our USDT (tether) allocation strategy accordingly. At present time we hold 0% USDT and will begin adding to “cash” once the market crosses 120b. If the market breaks 170b we will aim to hit 25% USDT.

We look to July with the following allocation:


Here is a list of our holdings:




May Update


The fund began May with the following allocation (see last month):

In the month of April the fund increased 98%, compared to the blockchain market capitalization (blockchain index) which increased 88%.

Since the inception (Feb 25th 2017) through April 27th 2017 the fund has returned 744% – the blockchain index increased 214% over the same period.

A tidal rise

This month we had further confirmation of the bull run identified in previous months. To recap, here is how last month’s letter concluded:

Screen Shot 2017-05-27 at 2.20.35 PM.pngDuring May 2017 the blockchain index experienced a massive wave, almost doubling in value (from ~35b to ~66b) and at one point hitting 94b at the peak on May 24th.

Screen Shot 2017-05-27 at 2.43.11 PM.png

The volume of trading on May 25th hit a new high at 6 billion USD across 24 hours, a volume increase of 300%. The previous high occurring in April at 1.5 billion USD.

In fact, the volume was so high that it crashed several exchanges during peak trading.

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What happened?

A confluence of favourable events propelled the fund in May. Driven mainly by Ripple (XRP), Ethereum (ETH) and Bitcoin (BTC).


In the first half of the month we had a massive wave of interest in Ripple driven by news of new bank adoption. This caused the price to increase 10x, from 4 cents to 40 cents.

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In last month’s letter we explored the value proposition of Ripple, stating:

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Because of this bullish view on Ripple the portfolio had a relatively high allocated at the start of the month. Last month it was identified as a Tier 1 holding and it represented 8% of fund value on May 1st.

Screen Shot 2017-05-27 at 3.11.06 PM

In response to this wave, Ripple was trimmed into Bitcoin (from May 8th to May 19th) to keep the allocation around 12% during the run. Once the run subsided, its allocation was reduced to 3.5% in preparation for a pullback. Here is how the fund looked on May 19th:

Screen Shot 2017-05-27 at 2.29.18 PM

As soon as this run cooled off, another one started up…


In the second half of this month the price of Ether ran from 80 to 190 USD.

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Ethereum, which was outlined in March’s letter, was a point of focus in the market due to this major announcement by the Ethereum Alliance:

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The aforementioned runs (Ripple & Ethereum) resulted in an Altcoin market surge of 30 billion USD:

Screen Shot 2017-05-27 at 3.20.59 PM.png


As this happened, smart money began securing their gains into Bitcoin which surged towards 200 mid-month, driving a new round of media coverage…


During the first half of the month, the Ripple wave caused smart money to dump into Bitcoin resulting in a surge towards 2000 USD. This surge became a self-fulfilling prophecy as the media picked up the story and fuelled all-time high Google search interest in ‘Bitcoin’ as a search term.

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This was the first time in history that we had multiple coins in the media (Ripple, Ethereum, and Bitcoin), and all road lead to Bitcoin when new buyers look at this sector. This resulted in a run from $1250 to $2750 USD per Bitcoin – with a new support forming around 2000 USD.

Screen Shot 2017-05-27 at 2.52.09 PM.png

By May 25th it was clear we were in “mania” territory as the market cap of the sector briefly crossed 90 billion. As we stated last month:

Screen Shot 2017-05-27 at 3.30.24 PM.png

As usual, the market likes to put the cart before the horse and this level was hit less than a month after suggesting it. When this happened (starting May 22nd) we pivoted the allocation strategy identified last month from growth to defensive.

The defensive strategy began by pulling all alt coins back to their default or naive allocation (naive allocation = market cap of coin/market cap of sector).

However several exceptions were made in light of the fact that certain coins are more “defensible” in a down market: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Ripple (XRP), Monero (XMR), Zcash (ZEC). These coins were given greater weights. Lastly, 20% of the fund went into Tether (USDT) to secure profits. Leading to the following allocation on May 27th:

Screen Shot 2017-05-27 at 2.25.41 PM.png

This allocation into Tether resulted in an interesting lesson this month regarding capital flows in this sector, resulting in a new opportunity.

The Tether trap

Tether (USDT) is designed as a stable coin, it’s always redeemable for 1 USD.

Screen Shot 2017-05-27 at 3.39.24 PM.png

One might assume the price of Tether would stay at 1 USD for this reason. We have been closely observing Tether for a few months and have realized it moves much more like the bond market. This month proved that thesis:

Screen Shot 2017-05-27 at 3.41.17 PM.png

First Tether began falling during the bull run (down to 92 cents USD) and as the run peaked it surged across the 1 dollar line, hitting 1.21 USD. Why?

The reason is simple. First, remember that most of the trading action is happening on Poloniex which doesn’t offer fiat pairs.  That means when investors on Poloniex want to secure their gains their only option is to sell into Tether. The other choice is to try and send coins somewhere else (time delay + daily withdrawal limits) and sell into fiat (tax exposure). So in a panic, people do what they always do, sell in the fastest way possible… into Tether on Poloniex. This creates a wave of buy pressure which resulted in the 20% price premium on May 25th.

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Tether price on May 25

This is amplified by the fact that over 90% of the Tether trading volume is on Poloniex at the moment:

Screen Shot 2017-05-27 at 2.24.09 PM

Practically speaking, this means Bitcoin trades at a discount on Poloniex during moments of panic. At the end of the month we saw this dip in action. On May 27th Bitcoin fell to 1538 USDT on Poloniex compared to 1816 USD on Bitfinex. 

The lesson is simple: buy Tether when it’s cheap (below a dollar, usually during Bitcoin bull runs) and sell Tether back into Bitcoin during panics. Using May as an example, this allows you to buy 92 cent dollars and sell them for 1.20 – on top of the profit you make on the Bitcoin swing.

Looking ahead:

While we are clearly in a bull market, it’s important to remain cautiously optimistic on our road to 100 billion. The gains we’ve just experienced were due to a lot of new money chasing unsustainable price movements. We are now looking at the following fork in the road when it comes to the market capitalization of the sector:

Screen Shot 2017-05-27 at 4.04.58 PM.png

At the time of writing, the blockchain index is sitting at 67 billion USD with a possibility of a second bull run in the short term (which will be mostly speculative). If this happens the allocation in Tether will be gradually increased towards 33%.

On the downside we expect sector volume to experience a gradual cool off in the near term. When this happens the index could fall back into the mid 50 billion level (with high 40b floor). In preparation for this, there is a 20% allocation in Tether (to be used to buy up cheap Bitcoin and Ethereum in a panic).

And so we look ahead with the following defensive allocation:

Screen Shot 2017-05-27 at 2.25.41 PM.png

Ripple has returned to an 8% allocation, Ethereum 15% and Bitcoin 36%. All smaller coins are sitting at a naive allocation except for the defensible ones: Zcash (ZEC), Monero (XMR) and Litecoin (LTC)

The fund thesis that 2017 will be “the year of the Blockchain” has come true. In just a few months we have settled at neatly 8x gain. We proceed with caution… recognizing that there are higher highs ahead of us across the 3-5 years time scale, but many more opportunities for negative news cycles and community disputes to depress prices in the short/near-term.

April Update


The fund began April with the following division:

In the month of April the fund increased 83.6%, compared to the Blockchain Market Capitalization (index) which increased 56%.

Since the inception (Feb 25th 2017) through April 29th 2017 the fund has returned 326.5% – compare this to the blockchain index which increased 69% in the same period.

Bull Market

The Blockchain sector experienced a remarkable surge, increasing 14.7 billion in value to reach over 35 billion USD.

Screen Shot 2017-04-30 at 3.31.12 PM

It’s notable that this is more than a third of the way to the fund’s prediction that the market cap would grow to 100 billion. As I mentioned in the original thesis statement.

By 2020 my assumption is this global market for distributed applications (money, data & content) will exceed the market cap of a single moderately sized internet company (~100b). Which implies 5x growth across next 3 years.

 It’s my firm conviction that right now the market is simply “waking up” to this future.

Much of this growth in April was driven by Altcoins (everything except Bitcoin). The market capitalization of Altcoins experienced a record Surge in April: from 8 to 14 billion dollars.

Screen Shot 2017-04-30 at 3.31.29 PM

Where is the new value coming from?

A variety of fundamental factors played a role in this month’s increase, here are the most notable highlights.

Ripple (XRP)

The holding in Ripple experienced the highest gain in April, up 335%.

Screen Shot 2017-04-30 at 4.25.47 PM

Put simply Ripple is “Bitcoin for banks” – it’s designed to give banks the speed & efficiency of Bitcoin backed by a private network. It enables banks to send real-time international payments across networks in seconds instead of days. The payment network runs on a native coin (XRP) which trades across all currency pairs allowing rapid settlement. So as Ripple usage increases, as does the demand for XRP.

Screen Shot 2017-04-30 at 4.24.18 PM.png

The big news in April was the adoption by 10 more banks bringing the total to 75 banks using Ripple as of this month. The reason they use it is simple: it saves them millions. The homepage makes this very clear:

Screen Shot 2017-04-30 at 4.28.18 PM

So adoption of Ripple won’t involve any consumer facing component, it’s simply a backend solution to save Bank’s money and prevent fraud (which “could” lower prices for consumers).

It’s also important to note that Ripple is a private company based in the valley and one of the older players in this sector. They have been laying the groundwork for this vision for years. This is the very beginning of a new multi-billion dollar market and Ripple is poised to capture it. Currently it sits at a market cap of 1.9 billion and is third on the coin list

Screen Shot 2017-04-30 at 4.29.32 PM.png

 Litecoin (LTC)

Litecoin was the second highest gainer in the portfolio increasing 250% in the month of April. Litecoin is one of the oldest Altcoins, dating back to 2011. It was designed from day one to be the “Silver of Bitcoin” – no more, no less. It’s a simple alternative with slightly different features. It’s accepted by almost every exchange (soon to be added by Coinbase)

This “silver” narrative hasn’t traditionally excited investors – it sat around 0.5% the value of Bitcoin. However, there is currently a struggle in the Bitcoin community over how to update their code base to address scaling issues. One popular solution to address the scaling update is known as SegWit, which the Bitcoin network has yet to agree to adopt.

While this debate was going on in Bitcoin community, the Litecoin community rushed ahead and signaled to adopt SegWit. This critical update brought attention to Litecoin as the network demonstrated the ability to evolve without contentious hard forks. It also makes it a more attractive technology to experiment with. It’s also popular on exchanges because of it’s long history and acts as a safe haven during Bitcoin uncertainty. Practically speaking, it is also a “faster” coin than Bitcoin right now.

It’s value increased to approx. 1.5% the value of Bitcoin which is notable.

Screen Shot 2017-04-30 at 8.31.20 PM.png

Long term I see Litecoin capturing ~5% of Bitcoin’s value – for both practical (it’s faster and technically superior) and psychological (long history, like silver) reasons.


Ether increased in value 60% this month. In the past 3 months ether has increased from 10 to 80 US dollars. It is now worth over 7 billion. The network effect seems to be kicking in as friends of friends spread the word and people digest the idea that Ethereum is staged to power “the decentralized internet” or “the new internet” (as HBO writers put it).

Screen Shot 2017-04-30 at 8.55.50 PM.png

In simple terms, it’s an internet without centralized severs owned by a single actor (corruptible and prone to failure). Instead we have a large network of individual computers owned by different actors, coming to consensus via economic forces. More detail in previous letter.

Much of the attention on Ethereum right now is the latest applications being build on top of it…

Applications running on Ethereum

In the previous letter I mentioned the emerging applications which are built on top of Ethereum network resulting in new “application level tokens” (app coins). It’s important to note that app tokens are equivalent to owning a share of stock in the application itself. This is how you invest in a decentralized application – by owning the tokens that underiey an application, you get equity in the application.

Note: Because of the speculative nature of these technologies, they are treated as volatile stocks and limited to < 4% of the funds value.

Here is the summary of the most notable Ethereum app tokens we hold:

Golemn Network Token (GNT)

GNT increased 131% this month. Golem is designed to be the ‘world’s super computer’. Anyone with a computer can connect to this network and ‘rent’ their unused computing power for money. While anyone who needs super computing power can simply pay to use the Golemn network. This “super computing as a service” model will reduce the cost of super computing substantially as well as democratize access to it. Long term I have a bullish view of GNT.

Edgeless token (EDG)

EDG increased in value 144% this month. Edgeless is designed to be the first decentralized casino which will run on the Ethereum network. By holding these tokens you share in the casino’s profit. I hold a neutral view on EDG and so it remains a smaller holding in the fund. The gain is mainly due to participation in the initial coin offering.

Storj (storage) token (SJCX)

SJCX increased in value 117% this month. Storj is designed as a decentralized file storage network running on Ethereum. Along with Factom it’s one of our two file storage holdings. This technology allows anyone to rent computer space for money or buy secure storage from the cloud.


In the month of April Bitcoin increased in value approximately ~25%, reaching all time highs. Bitcoin is now worth over 22 billion.

Screen Shot 2017-04-30 at 4.08.53 PM.png

It’s my belief that the Bitcoin network alone will soon be valued at 50 billion (that would mean Bitcoin priced at $3000 USD today) even if it continues to only support the most basic functions as a reserve currency.

Sustainable growth?

The growth of our fund (326%) can be better understood when you realize we have two waves on top of each other (Bitcoin + Altcoins) and they are mutually beneficial. Almost all new investment flows in and out of this market through Bitcoin (since it acts as the reserve currency). New projects such as Ethereum attracts new investors to this sector, and creating new Bitcoin holders who might not have otherwise bought in.

Screen Shot 2017-04-30 at 3.58.30 PM.png

This helps explain the fund’s growth curve from Jan 1st through April 29th 2017:

Screen Shot 2017-04-30 at 4.17.03 PM.png

[Fund return Feb through April]

I believe we are experiencing a “gap up” where the tides shift sharply in a market due to new participants and positive realignment of consensus. Currently there is a wide knowledge gap to cross when investing in this sector – so adoption has been slow. However once people enter the sector they tend to become cheerleaders of this new economic and technological philosophy – it also happens to attract some of the brightest minds (and companies) in development today.

I’ve personally noticed this network effect is kicking in as friends of early adopters finally see this sector as the next great investment opportunity, rather than a ‘fringe currency’ for hackers and online drug trade.

Aside from multiple ETF proposals in the queue (for both Bitcoin and Ethereum) there are many blockchain investment funds being launched as of this very moment. Such as tass which just raised 8 million or Polychain which launched with 10 million a few months back. Over time we will see this network effect jump to the third and fourth level of ‘late adopters’ – and that growth is yet to come.

Looking ahead

In my view we are nowhere near “mania” territory until the total market capitalization is closer to 100 billion (currently at ~37 billion). When this happens it will be time to adjust the Bitcoin ratio to 50% or more. Until that happens the portfolio will be structured as follows:

  • ~30%  Bitcoin
  • ~20%  Ethereum
  • The other ~50% is divided up across the holdings based on certainty according to a simple rules-based tier structure. Each tier is limited to a certain percentage of the portfolio as follows:

Screen Shot 2017-05-01 at 12.55.29 AM

  • Tier 1: Established technologies, lower risk (limited to < 8% of total portfolio)
  • Tier 2: Popular & Emerging technologies, moderate risk (limited to <4%)
  • Tier 3: Emerging technologies, higher risk (limited to <3%)
  • Tier 4: Lower certainty emerging technologies, higher risk (targeted for 1%)
  • Tire 5: Long shots, higher risk (limited to <0.5%)

Based on this system we enter the month of May with the following breakdown:

Screen Shot 2017-04-29 at 11.01.32 PM

At the end of the past month I closed with this:

Whether the massive gains from this month hold in April or not will help identify whether this past month was truly a rising tide, or a speculative splash. My overall stance is Bullish though I expect some bumps in the weeks ahead during the Bitcoin wars that are brewing.

It’s clear that it was indeed a tidal shift. The question is where the market settles once the waves caused by this tidal shift attenuate. Because there is so much excitement in this sector (due to new projects being launched), the concept of settling down doesn’t seem likely in the near term.