Blockforce Manager Commentary: June 2023

Blockforce Update

Since first launching our new machine learning trading system in a live environment in April, the development team at Blockforce has continued to focus its energy and efforts into research and continued improvements to the strategy. In June, we made numerous updates to the codebase in an effort to increase the robustness of the system. Our hope is that these further improvements lead to better and more consistent performance in the coming months.

Multi-Strategy Fund Performance

June saw a very unique dynamic within the crypto markets. Typically the asset class as a whole moves in relative lock-step with each other, it’s usually just a matter of to what degree. However, June saw a definitive split between bitcoin and the rest of the market largely due to the actions of the SEC. Neither Bitcoin and ETH were named in the SEC’s lawsuits against Coinbase and Binance which the market has taken to mean that both are commodities and run very little risk of having to be delisted by US exchanges. Bitcoin also saw numerous spot ETF applications filed, most notably by Blackrock. As a result, ETH stayed largely flat on the month while BTC ripped up buoyed by the ETF announcements. 

In contrast, the rest of the cryptoassets were largely down in June and the ones specifically named by the SEC were down the most. BNB finished the month -23% and SOL ended at -11%. This drop by the long tail of assets offset much of the gains the portfolio saw with its bitcoin position. As a result, the fund underperformed compared to bitcoin in the month of June.

Market Commentary

It was a volatile month for the crypto industry. June started out on a good note with the news of the new market structure draft bill that would provide much needed regulatory clarity for the industry. Then, the next week the SEC filed lawsuits against Binance and Coinbase as well as named a number of cryptoassets they deem to be unregistered securities. This sent most of the market, particularly those coins named in the lawsuits, down as much as 30%. The week after, Blackrock, the largest asset manager in the world, announced they had filed for a spot bitcoin ETF. Within days, Bitwise, Wisdom Tree, Invesco, Valkyrie and Fidelity all filed for a spot bitcoin ETF as well. In addition, a new Crypto exchange backed by Citadel Securities, Fidelity, and Schwab started operations. The influx of large, TradFi players sent bitcoin’s price to new highs on the year as investors looked to front-run the possibility of a large amount of capital flowing into the space should the ETFs be approved.

As we explained earlier, we saw a bi-furcation within the crypto industry this past month. Neither BTC or ETH were named in either of the SEC’s lawsuits. As a result, ETH remained mostly flat on the month while bitcoin led all cryptoassets in price appreciation. Meanwhile, many of the long tail assets, most notably BNB, are still down significantly following the SEC’s announcement.

However, we believe this is a short term phenomenon as the US market reacted to the news about the SEC. This isn’t the first time the SEC has named a specific token as a security. When Ripple was first sued for issuing unregistered securities in the form of XRP, all the U.S. based exchanges removed XRP from their available tokens on their platform because they did not want to run the risk of potentially being in violation of the SEC. That was three years ago. Today, XRP is still the sixth largest token by market cap (4th if you exclude stablecoins) despite not being available on U.S. exchanges. XRP is still widely popular and trades in relatively large volumes on offshore exchanges.

XRP serves as a great example for what to expect for any token that is deemed a security in the U.S. The worst case scenario is that cryptoassets deemed securities could become inaccessible to U.S. retail users as was the case with XRP (though it’s worth noting that Coinbase is not delisting any assets until the lawsuit is settled). Even if that should happen, the rest of the world will continue to buy, sell, and use these assets with offshore exchanges profiting. Crypto is an open, permissionless technology whose tokens trade peer-to-peer. Historically, regulatory agencies that have tried to curtail its use have never succeeded in preventing its adoption, but only succeeded in driving capital and talent to other jurisdictions at the expense of its own local economy.

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.