Weekly Thoughts #5 - All eyes are on Siete de Mayo. No this isn’t tequila day.



May 2, 2018

As we welcome the month of May, we find that the cryptocurrency market is beginning to show signs of picking up as well as some pronounced dispersion of returns. Volumes both on exchange and over the counter have been in excess of the months prior. The price of large cap names are up 5% in the past week while mid and small caps have rallied 15% and 19%, respectively. It’s been a good past few weeks for this market. That being said, the price of bitcoin still has some ways to go before scratching for the year. The month of May has historically been a decent month for this marketplace (as indicated by the average monthly return for the past few years).

Given the sheer number of catalysts on the horizon (Consensus being numero uno), we believe that history will repeat itself and that a month of expected positive performance will hold true. Here are some of our other thoughts this week:

We could start seeing the effects of the macro world spill over into the digital asset world. Higher rates and the looming threat of a trade war has seen institutional investors rotate firmly out of equities and into fixed income on a large scale this year (as witnessed by ETF and mutual fund flows in Q1). There’s an air of uncertainty in the macro universe and a debate we continually have within the fund is how cryptocurrencies would perform in this type of market cycle. Certainly, they would perform well in a market environment where inflation is higher than expected due to the fixed supply of most coins. But what if growth starts to slow? There’s just not enough history to know how investors will react and the data that exists so far is inconclusive. Ever since bitcoin was created, we’ve pretty much been in a single market environment where growth is good, inflation is below expectations, and monetary policy is accommodating. This could change over the next year though.

The road is slowly being paved for institutional money to come into the space. Lately, we have been meeting with a number of service providers to cryptocurrency asset managers. These meetings have been inspiring — cryptocurrencies are causing so many people to get into the space, many new companies are being started, and the underlying trend of cryptocurrencies turning mainstream is continuing. It’s also been a good reminder that everyone in the space is a startup in some sense — some of the demos we’ve seen have experienced small bugs and a lot of them are still in the MVP stage. This gives us a lot of confidence in the thesis that we are still on the onset of institutional capital flowing into the space. The infrastructure to support this capital, while still immature, is slowly being built.

All eyes are on Siete de Mayo. No this isn’t tequila day. This is the day that supposedly certain SEC and CFTC officials will be discussing whether or not ether is a security (maybe tequila is a good idea actually). Any conclusions drawn from this meeting has the potential to set certain precedents for this marketplace and have second and third derivative type of consequences for all players in the space — technologists, investors and service providers alike. So the million dollar question – is ether a security? There’s plenty of content and opinion pieces written on the topic. It feels like we all believe we know the answer but then again it also feels like our beliefs don’t really matter. All that matters is what the regulators believe at this point. Stay tuned.

Thanks for reading everyone. Questions or comments, just let us know.

Portfolio Management Team


Thejas Nalval  | Konstantin Antropov  | Kevin Lu


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