Blockforce Manager Commentary: October 2023

Multi-Strategy Fund Performance

October was the best month of the year thus far for both Blockforce (17%) and the crypto industry at large. The Fund’s Beta portion of the portfolio outperformed the market in October buoyed by Solana (75%) and Chainlink (48%). The newly instituted Quant Alpha systematic strategies performed well too (4%) but given the algorithms are only in the market for a fraction of the time, naturally tend to underperform bitcoin in big months as they are designed to produce smaller but more steady returns. This combination of Beta’s upside and Systematic’s consistency is what smoothes out returns and dampens volatility which is exactly what we saw in October.

Market Commentary

Bitcoin prices broke out to new yearly highs, breaking above several important technical and on-chain pricing levels and reaching $35k. Both the 200 day moving average and the short-term cost basis had been providing resistance levels around the $28-$30k range for most of the year. Several factors contributed to bitcoin’s large move and breakthrough of these key levels

As we covered in last month’s monthly commentary, bitcoin is continuing to see more and more coins being taken off exchanges and held by wallets with a history of not selling. Even after this move up in price, there was no discernible movement from this cohort indicating the group that holds nearly 80% of bitcoin’s supply has much higher price targets in mind. This accumulation over the past 18 months has led to one of the largest supply squeezes in bitcoin’s history and has just been waiting for a demand driver to drive prices higher.

Optimism started to build in August when Grayscale emerged victorious over the SEC which struck down the SEC longest running reason to deny any ETF. But the biggest spark came on October 16th when an erroneous tweet regarding the bitcoin ETF approval caused a 10% rally in less than an hour. The speed and size of that rally caught most people off-guard but shows not only that the BTC ETF approval is not priced in, but how little it takes to drive the price up given the current supply dynamics. Should the ETF be approved and billions of dollars flow into bitcoin over the course of 2024, bitcoin could potentially start to see pre-2022 price levels or higher.

Even more encouraging, bitcoin price stayed above those key technical and on-chain levels even though the tweet was proven to be false. This is likely because long term holders’ behavior hasn’t changed with the recent price run-up as their aggregate holdings continue to increase. What appears to have changed is the market sentiment from short term market participants who for the first time this year, a meaningful percentage find themselves above the break even price. Capital inflows into the crypto space were positive for four weeks in a row, including their largest week since mid-2022. This behavior highlights the robust market sentiment for an ETF and strongly suggests that its eventual approval may not yet be fully priced in by market participants. 

Finally, it’s worth noting that crypto’s move upwards this month came during a period when the S&P was down. We covered crypto’s falling correlation with other asset classes over the course of 2023 in a recent newsletter and this past month further highlighted that trend. Moreover, an uncertain macroeconomic backdrop with US 10-Year Treasury yields climbing over 5% and rising geopolitical tension have also arguably added to the narrative of BTC as a “safe-haven” asset. When asked, Blackrock’s CEO Larry Fink called it a “flight to quality” signaling how Wall Street and more investors are increasingly seeing bitcoin and crypto as an uncorrelated asset class and further contributing to the market shift. 

The Blockforce Team

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