April’s performance numbers were down across the board for bitcoin and the wider crypto markets. The very end of March saw a run up to $47k, testing the upper bound of the range bitcoin has been trading within for all of 2022. Thus, we entered the month on the heels of an upswing and as we have described in detail over the past several newsletters, once again bounced back down off that upper resistance level. As a result, the Multi-Strategy fund was down 13.0% in April while bitcoin was down 17.2%. However, the fund did manage to reduce the volatility of the asset through our systematic and market neutral strategies.
|April Daily Volatility||1.7%||2.5%|
At the start of the month, we once again saw bitcoin test the short-term holder cost basis of $47k which has been providing an upper bound resistance level for bitcoin since the start of the year. And once again we saw increased sell pressure from short term holders which resulted in bitcoin’s price bouncing back down to $38,000 by month’s end, right in the middle of the range it’s been stuck in since the start of the year. As a result, bitcoin and the larger crypto markets continue to trade sideways during this accumulation phase which is shaping up as one of the largest in bitcoin’s history. The percent of total outstanding supply that hasn’t moved in over a year is now at all-time highs, the quantity of coins coming off exchanges daily and into cold storage is reaching historic levels and the total number of entities holding bitcoin is at record highs. In other words, bitcoin’s price may be trading sideways for the past few months but the HODLing behavior is accelerating.
As is typically the case, when bitcoin is down, so too is the rest of the crypto markets. Delays in Ethereum’s merge to proof of stake sent it down 20% for the month while many smaller cap tokens were down somewhere between 25% – 40% in April. Terra (LUNA), which had an enormous run to start the year, saw its first down month of 2022 as price dropped 24% in April. In fact, crypto was basically down across the board as DeFi (-35%), Layer 1 Smart Contract Platforms (-24%) and web3 tokens (-36%) all had a difficult month.
On Chain Analysis
We are seeing a disconnect between the price action of the crypto markets and the dynamics happening on-chain. On the surface, the crypto industry as a whole has traded similarly to other risk-on assets for the past couple of months which periodically happens during short windows of uncertainty. Historically, the increase in correlation to traditional assets has only ever lasted a few months before decoupling once again. The last time we saw this was March 2020 and four months later, the crypto industry had lost its correlation with stocks, bonds, etc… We believe there is a good chance the same thing will happen later this year.
Under the surface, there are a number of growing tailwinds. As mentioned previously, there is a supply squeeze building in bitcoin which could result in a large upward movement later this year. Ethereum is still on track to merge to proof-of-stake later this year which should increase its throughput and decrease the supply of Ether. Lending volumes and DeFi usage is breaking records. We are seeing a mass influx of traditional players into the space as evidenced by Fidelity adding bitcoin to its 401ks, Goldman Sachs providing bitcoin backed loans and Morgan Stanley releasing a report claiming Lightning Network makes bitcoin a better payment system then Visa and Mastercard. Countries are continuing to adopt as legal tender (Central African Republic) and cities are now mining bitcoin (Fort Worth, TX). It’s months like these that remaining long term focused and focusing on fundamentals, rather than price action, is crucial.
The Blockforce Team
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.
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