April started off on a high note with BTC reaching 30k but ultimately settling back around 27k which put the fund somewhat slightly negative. Altfund Liquid Strategy (Altfund LS) slightly underperformed BTC and BGCI, but fared slightly better than S&P BDM Ex-MegaCap returning.
We entered 2023 with a bullish stance based on historical and ongoing indicators, so we started shifting small percentages to our Alpha plays Fund A and Fund D. Fund C long-biased, relative value, and momentum trading have out-performed YTD while Fund A started to underperform. This diligence led us to shift small percentages towards Fund D and away from Fund A in recent months. We will continue to keep a close watch on Fund A over the next few months to make sure there isn’t any significant change in returns.
May was a down market for all of crypto, including Altfund LS but that doesn’t change our resolve. As we mentioned in the last newsletter, the current setup feels familiar to the previous four-year cycles in crypto, but also different due to higher levels of adoption and usage indicators. When assets are out of favor and people show disinterest, it’s the best time to allocate into an asset you believe in for the long term. Timing the market precisely is impossible, but entering during a downturn is always better than at the top. Our confidence in this asset class has only grown since the inception of the fund.
In case you missed Cathie Wood of ARK Investments recently reiterated her belief in BTC reaching 500k.
This is an excerpt from Blockforce Capital The Node Ahead 43
Analyzing the impact of bitcoin’s Halving:
There are three pillars to bitcoin’s monetary policy. The first is the fixed supply of 21 million BTC that gives bitcoin absolute scarcity. Second is the difficulty adjustment which ensures that a predetermined amount of bitcoin is released, on average, every 10 minutes regardless of how much computational power (aka Hash Rate) comes onto or off the network. This makes bitcoin’s supply issuance completely transparent, predictable, and inelastic (an increase of miners does not increase the output of more blocks). The third pillar is the predetermined amount of new bitcoin released with each block mined.
When bitcoin was first launched in January 2009, 50 new bitcoin were released with each subsequent block that was mined. However, Satoshi wrote into the code of the bitcoin protocol that every 210,000 blocks, which roughly equates to every 4 years, bitcoin’s supply issuance will be cut in half. This reduction in new bitcoin issued per block is known as “The Halving.” The first Halving event happened on November 28, 2012, as the number of new bitcoin released per block was reduced from 50 to 25. The second Halving occurred in July 2016, reducing the block reward to 12.5 and the third Halving event occurred in May 2020 which further reduced the supply issuance to 6.25 bitcoin per block.
As a result of the Halving, the supply of available Bitcoin decreases every four years which naturally puts upward pressure on the price of bitcoin. Imagine if half of all global oil production went offline overnight, the price of oil would surely rise. Same phenomenon with bitcoin. Historically, this supply shock has led to enormous appreciation in bitcoin’s price following the Halving events. Interestingly, the 365 days leading up to the Halving has also been a very profitable time to own bitcoin as the crypto markets have historically bottomed out by then and excitement leading up to the Halving starts gaining momentum. We only bring this up because as of publishing this article, bitcoin’s next Halving event is one year away.
A decrease in supply puts upward pressure on price. Rising prices catch the attention of media, friends, investors, and more which increases the demand for bitcoin, further driving up its price. New entrants not only invest in bitcoin but begin looking to other cryptoassets starting with ETH and then eventually to more long tail assets. As a result, the market gets overheated, often characterized by rapid price appreciation of long tail assets which historically has coincided with the top of the cycle. As prices get too far out in front of fundamental metrics, the bubble inevitably bursts, and we get a sharp pull back like we saw in 2022. However, each cycle breeds new believers in bitcoin (aka HODLers) which creates a higher floor than the previous cycle. Through this boom and bust, we naturally have an upward trend in price over the long term. The Halving that occurs every four years is a big driver of why the crypto industry has historically moved in four-year cycles.
Bitcoin’s next Halving event is on schedule to take place in May 2024. From a historical point of view, that would indicate that we are just at the start of the growth portion of bitcoin’s four-year cycle. In January we published a research piece highlighting why we believe the on-chain data suggested bitcoin’s price had bottomed in November 2022 at $15,800. The price of bitcoin at the time we published that article was around $17,000. Since then, bitcoin’s price has climbed 61%% to $26k as of writing this article and has outperformed most other cryptoassets just like early stages of past cycles. Thus far, this cycle seems to be right on track to follow the same pattern of each of the previous cycles.
Assuming that the November low is indeed the bottom of this cycle as we predicted in January, what might we expect during this next phase? For one, while the price of bitcoin is likely to increase significantly over the next 2-3 years, it will not be a smooth road. Each previous bull cycle included multiple corrections of 30% or more before it reached its top. The last bull cycle, in which bitcoin ultimately went from $4,000 at the start of 2019 to $67,000 at its peak in November 2021, also saw the price drawdown at least 50% not just once, but twice.
Thus far this year bitcoin has led the rally as has been the case during the early stages of every previous bull market cycle. Altcoin Season has not kicked off yet, as that will likely happen after bitcoin’s Halving which has historically been the catalyst that kicks the bull market into full swing. The current cycle is playing out eerily like the previous three and should it continue, we would likely see bitcoin (and the crypto markets at large) experience enormous value appreciation over the next 2-3 years with short periods of significant drawdowns along the way.