August update

Summary

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 www.coinmarketcap.com 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.

Screen Shot 2017-08-28 at 1.35.46 PM
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.

 

 

 

 

 

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