Monthly Manager Commentary: February 2024

Multi-Strategy Fund Performance

February was one of the best months in Blockforce’s history as the Fund rose 34.5% in less than 30 days. Seems fitting given the end of February also marks our 5-year anniversary. Since launching in March 2019, our Fund is up a cumulative 720% net of fees and expenses.

Our algorithmic trading continues to perform well, provide stability to the Fund and minimize volatility but given the current supply and demand dynamics in the market, we continue to lean more aggressively on the Fundamental Growth portion. The Fund is currently weighted more heavily towards Fundamental Growth (60% compared to 40% allocation to our Algorithmic Trading portion) which has allowed the Fund to capture much of the momentum the crypto industry has seen since the start of the year yet still minimize some of the pull backs like we experienced in mid January. We continue to believe that now is the time in the cycle to be more aggressive but are committed to doing so in a disciplined way that stays within the parameters of our long term approach. 

	Multi-Strategy Fund	Bitcoin
February Gross Performance	34.5%	43.6%

Market Commentary

As we have been covering closely in our Node Ahead newsletter over the past two months, much of the recent increase in bitcoin’s price can be attributed to the bitcoin ETFs. Following the approval in January, we initially saw a sell off from GBTC which caused bitcoin’s price to drop by as much as 15% in January. However, as we noted in our last monthly manager commentary, by the end of the month, that outflow had started to subside.

At the start of February, the GBTC outflow continued to dwindle while inflows into the other ETFs began to accelerate. Most ETFs see their largest volumes when they first launch and then diminish over time. But as we argued back in January, most of the financial world was not expecting the bitcoin ETF to be approved and therefore were not prepared to allocate once it was. This is why we emphasized that the impact of the bitcoin ETF would play out over a much longer time horizon than just the first two weeks following the launch. As more and more financial professionals have begun getting approvals from their compliance departments and the ETFs are being added to more and more investment platforms, the net inflow of capital into the ETFs has accelerated.

At the start of the month, we began to see modest net inflows of $120m per day on average through the first couple weeks of February. By the end of the month, the ETFs were setting new highs for daily volumes and net inflows reached as high as $673 million per day. To put that into context, there were several days in which the bitcoin ETFs were buying 10x-12x more bitcoin than were being minted daily. That imbalance of supply and demand would not be shocking in the first few days of the ETF launch but it’s now two months after the ETF launch, so the demand imbalance is an incredibly bullish signal.

And all of this increase in demand is happening before the Halving in April, when the issuance of new supply will be cut in half. If these capital inflows hold through the Halving, then the bitcoin ETFs could be buying 20x or more the amount of new bitcoin issued on a daily basis. And that is before taking into consideration any retail buying of bitcoin.

This acceleration of buying pushed bitcoin to over $60k for the first time since November 2021. With bitcoin surging to within 10% of all time highs, it also had a spill over effect into the rest of the crypto ecosystem.

Fueled by the anticipation of the upcoming technical upgrade this spring and a possible Ethereum ETF down the line, ETH outperformed bitcoin in February. ETH had been lagging for most of last year but as we argued at the start of 2024, ETH was following the normal patterns of previous cycles and has a lot of tailwinds coming into this year. It’s still early but it’s possible that this is the start of Ethereum’s breakout. 

Other L1s have also continued to show strength.  Solona, a top performing L1 over the last year, continued its bull trend in February, pushing to new annual highs to close the month.

Uniswap, the largest decentralized exchange (DEX) by both market capitalization and volumes, was one of the best performing assets in all of crypto last month. The 86% rise in UNI was driven almost entirely by the Uniswap Foundation’s announcement that the protocol will finally turn on the fee switch. Uniswap annualizes over $500 billion in trading volumes and is predicted to generate upwards of $1 billion in revenue from fees over the next 12 months. Turning on the fee switch will direct some portion of those enormous fees to UNI holders.

Oracles continue to become some of the most foundational infrastructure across all crypto. The momentum from last year has carried over as Chainlink (28%) and Pyth (57%) both had strong months. Lastly, following Nvidia’s blow-out earnings, AI tokens also saw a huge increase in their collective market cap. Render (RNDR), one of the leading AI crypto protocols, saw its token price rise more than 63% in the month.

Despite the significant gains throughout the crypto ecosystem, the structural tailwinds remain largely intact. The demand for bitcoin via the ETF continues to grow while available supply to be purchased continues to shrink. Nearly all on-chain metrics are no longer in deep value zones but they also aren’t anywhere close to levels associated with previous tops. Activity and usage of numerous networks is rising but the google searches (an indication of retail interest) are still muted suggesting that we have yet to reach any level of retail frenzy. In other words, by every indication, we are still fairly early in this bull cycle.

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. 

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