Monthly Manager Commentary: August 2024

Multi-Strategy Fund Performance

Cryptoassets experienced a sharp decline of over 20% in the first week of August, driven by a weak jobs report, the rapid unwinding of the yen carry trade, and escalating geopolitical tensions. Market volatility was further exacerbated by significant sell-offs from Grayscale’s newly converted Ethereum ETF (ETHE). Two of the three largest positions in the Fund, ETH and SOL, suffered even greater losses than BTC, leading to the Fund’s underperformance for the month. Although the market began to recover in the latter half of August as institutional investors aggressively bought the dip, it was not enough to offset the steep losses incurred earlier. Despite this challenging month, such pullbacks are within historical norms, and numerous bullish catalysts remain as we approach the final months of the year.

Market Commentary

August began on a turbulent note, with bitcoin and the broader crypto markets experiencing their largest pullback of the year, dropping 26%. This decline was driven by several factors, most notably a weaker-than-expected jobs report that followed Fed Chair Jerome Powell’s remarks about a still-robust labor market. The contradictory data fueled recession fears, triggering panic selling in the stock market and dashing hopes for a soft landing. The panic quickly spread to Asia, leading to a rapid unwinding of the yen carry trade, as the Nikkei saw its sharpest daily drop since Black Monday in 1987. Compounding these issues were rising geopolitical tensions in the Middle East, sell-offs from Grayscale’s Ethereum ETF, and rumors of Jump Trading liquidating its crypto business. Consequently, the S&P 500 recorded its biggest single-day drop since September 2022, and the broad-based liquidity crunch dragged crypto markets down with it.

Despite the unsettling start, pullbacks of this magnitude are historically common within larger upward trends. During the 2016-2018 bull market, bitcoin experienced five pullbacks of 24% or greater after breaking the previous cycle’s all-time highs, yet still appreciated by 1,649% overall during that span. Similarly, in the 2020-2022 bull run, bitcoin faced five similar pullbacks on its way to a market top of $69,000, resulting in a 570% return.

Crucially, there was no indication from on-chain data or adoption metrics of any fundamental deterioration in bitcoin’s long-term outlook. We viewed this dip as a buying opportunity rather than a cause for concern—and it seems we were not alone.

As highlighted in our latest Node Ahead newsletter, retail investors largely panicked and sold off their holdings, while institutional investors capitalized on the lower prices to accumulate more bitcoin. On-chain data reveals that wallets holding between 100 and 1,000 BTC—a reliable proxy for institutional investors—substantially increased their holdings following the dip.

Additionally, the total supply held by addresses known for buying but never selling bitcoin accelerated their accumulation beginning on August 5th, marking the longest uptrend since July 2023. These addresses accumulated over $8 million in BTC in August alone, the highest monthly increase this year. Further evidence of institutional confidence is visible in the ETF market. Analysts at JPMorgan reported a significant retail sell-off on August 5th, with a $1 billion net outflow, while institutional investors showed strong buying activity, with net purchases totaling $14 billion—remarkably above the 12-month average.

This data underscores a critical point: the most experienced and well-capitalized market participants saw the dip not as a signal to exit but as an opportunity to strengthen their positions at a discount. Institutional investors, often more sophisticated and better equipped to navigate market volatility, not only refrained from panic selling but actively increased their bitcoin holdings. This divergence in behavior, along with increasing global liquidity and the growing buzz around upcoming presidential elections, are all potential bullish catalysts for the crypto market heading into Q4.

The Blockforce Team

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