|Before we jump into this month’s newsletter, we wanted to highlight a recent piece we published outlining how we think about investing at Blockforce. |
Blockforce’s Investment Strategy
It was an eventful month for the crypto markets. After a strong October, bitcoin entered the month at $62k and proceeded to climb to new all-time highs of $68k before falling back down to the $54-60k range where it has been trading for the last couple of weeks. In our Node Ahead newsletter at the start of the month, we dug into the on-chain metrics and showed why we believed the $55 – $60k range was developing as a new support level for bitcoin’s price. One week after writing that, the market began to consolidate precisely where we anticipated it would and stayed in this range for the rest of November. These types of pullbacks really highlight why we believe in our diversified strategy. While bitcoin was down about 7.2% in November and most of the crypto markets were down more than that, the Multi-Strategy Fund was up 2.8%. Even with our reduced volatility and risk, we have 3x bitcoin’s performance for the year (296% YTD for the fund compared to 96.2% for bitcoin). We continue to stress the advantages of including investment strategies other than long only and months such as November is where that philosophy really pays off. Although most of the crypto market was down for the month, there were a few bright spots. Smart contract platform Binance Smart Chain (BNB) was up 23% on the month and distributed telecommunications network Helium (HNT) was up 35% on the month (both are Blockforce portfolio assets).
Research Based, Thematic Driven
At Blockforce, we are big believers that crypto will disrupt many financial services and industries. Crypto is currently disrupting money, lending and borrowing, data storage, gaming, telecommunication networks and more. Yet, there will always be tradeoffs between security, decentralization, speed, and other features of a blockchain.
For example, bitcoin is a great store of value because it’s the most secure, decentralized, and scarce cryptoasset and that’s exactly what developers should optimize for if bitcoin is going to store trillions of dollars’ worth of value and people’s life savings. However, Bitcoin’s throughput is one of the slowest of all blockchains, its scripting language is very basic thus developing new applications is limiting and the underlying technology has a very conservative approach to upgrades or adding new features. These are tradeoffs the community has consciously made. However, other applications may value speed over security or the ability to innovate over consistency. Because of this, we have never been subscribers to the “one chain to rule them all approach” otherwise known in the crypto markets as maximalism. Instead, we believe there are numerous categories where crypto is beginning to disrupt incumbents.
More importantly, there continues to be new categories that crypto is breaking into beyond financial services such as gaming and telecommunications (more on this below). Our goal is to gain exposure to many, if not all, of these thematic categories within the beta portfolio. So how do we identify these themes and categories? That’s where our research comes into play.
Everyday our team monitors a large number of cryptoassets and groups them into various categories to see which themes start to emerge over time. We monitor Twitter, Discord, Telegram, and various data service providers for anything new that might be beginning to gain momentum. By engaging with communities in this way we are able to get a general sense of the progress that is being made on a protocol or see if the developers and the admins are responsive. We investigate developer activity to try to identify outliers and trends (this was one reason we gained conviction on Solana earlier this year). These are all signs of network effects and the more we do this, over time it becomes much easier to not only identify emerging trends but understand the protocols that are most likely to succeed in those categories.
This has paid off big for us in the past. For example, during Ethereum’s rapid rise we noticed early on that GAS fees were rising, congestion was increasing, and throughput was beginning to suffer. However, we didn’t see any slowing of demand, it was only accelerating due to the rise of both DeFi and NFTs. That led us to make early investments in other smart contract platforms that were designed differently than Ethereum and offered different tradeoffs. Those two investments were Binance Smart Chain (BNB), up 3,659% since we first invested in February 2020 and Solana (SOL), up 455% since we first invested in June of this year. This is a quintessential example of how we make thematic decisions in the “beta portion” of the portfolio and why we have been able to outperform numerous other traditional quant funds.
Blockforce adds three new assets to the portfolio
The reason we wanted to outline our research process above is because this month, we have decided to add three new assets to the portfolio. All three assets are from different categories that we see beginning to emerge. Those assets are:
Helium (HNT) – Helium is a reliable, ubiquitous, global wireless network that is completely owned and operated by its users rather than a company.
FTX Token (FTT) – FTX is a leading derivatives and spot market exchange for trading cryptoassets and other selected commodities and products.
Polygon (MATIC) – Polygon is a scaling solution built on top of the Ethereum network designed to make transactions cheaper and quicker on the Ethereum blockchain.
We also want to try something new. We are making our research available to everyone on this newsletter to review for themselves. Below are links to the three new assets we recently added. Over time, we will be adding similar research on all the assets we hold in our portfolio. We hope this not only sheds some light into our decision-making process but is also educational for anyone not in the weeds in the crypto industry like we are.
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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