8DC Update Q1–2023
[Originally posted on April 10, 2023]
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
New year, who dis? So far, the 2023 crypto markets have shown a different face compared to the doomy 2022.
8DC Optimizes Your Crypto Holdings
We’ve had a lot of conversations with prospective LPs this quarter, and we’ve noticed a similar pattern. Many are individuals who hold crypto, likely in Coinbase or some other exchange, but realize they aren’t making the effort to optimize their holdings.
After accumulating assets during the bloodbath of 2022, and now seeing a glimpse of gains in a strong Q1, this highlights the value that 8DC as active managers can provide to you as LPs.
At 8DC our focus is two-fold:
- We optimize gains on foundational assets (BTC/ETH) during crypto cycles
- We deliver exposure to the next frontier of crypto assets and projects
By timing cycles and trends, we outperform a buy-and-hold strategy on BTC/ETH over time by maximizing upside exposure, and minimizing downside exposure. Our efforts beyond BTC/ETH provide greater asset diversification in crypto — we scout, track and invest in the next innovation cycle of crypto assets.
We continue to live and breathe crypto so you don’t have to. Many people aren’t equipped to handle crypto on their own, it’s too easy to emotionally sell the bottom (Q4 2022), or buy the top (Q4 2021). This is our arena, and our years of experience in this space make us very comfortable navigating the cycles.
An example of Active vs Passive Management
Market Update
Q1 2023 has sparked many conversations around why crypto, and why now? Without getting too long winded, here are two key points we’re seeing based on this last quarter:
- Global Money Supply
Turns out, “Money Printer Go Brrr” is more than just a meme. As we’ve mentioned in previous communications, there’s a strong correlation between crypto asset valuations and the global money supply. The Bitcoin Halving Narrative has been used to explain the cyclicality of the crypto space. However, as shown by the following graph, perhaps a more robust explanation is the easing and tightening of Global Central Banks Balance Sheets.
Why is this the case? If Bitcoin, and crypto broadly, are viewed as “the life raft” from the current sinking financial system, then any time the market sniffs out the hint of future monetary debasement, Bitcoin, and other crypto assets, begin to move upward.
Even before the SVB incident, we started to see Global M2 tick up. Since then, with the Bank Term Funding Program (BTFP) the door has been opened for money printing that could dwarf what we saw in 2020. Arthur Hayes explains:
As stated in the BTFP document, the facility only accepts collateral on banks’ balance sheets (~$4.4 trillion) as of 12 March 2023, and ends one year from now. But… I don’t believe this program will ever be ended, and I also think the amount of eligible collateral will be loosened to any government bond present on a licensed US banks’ balance sheet (~$18 trillion).
The Fed printed $4.189 trillion in response COVID. Right off the bat, the Fed implicitly printed $4.4 trillion with the implementation of BTFP. During the COVID money printing episode, Bitcoin rallied from $3k to $69k. What will it do this time?
Regardless of how severe or how accelerated the shift ends up being, the markets (being forward looking) are already signaling a shift in monetary policy which is bullish for crypto assets over the next couple of years.
2. 15 month Downtrend Breakout
Since November 2021, price action has been in a monthly downtrend. The graph below shows each monthly open and close price for BTC since 2014. Historic charts show a monthly downtrend after cycle highs, with an eventual breakout that has been a signal for setting up the next cycle. We currently just closed March above the trendline, signaling this monthly breakout has started.
In 2015, after we broke the Macro Downtrend, BTC price soared 6,600% from $300 to ~$20,000 at its peak in 2017. In 2019, after breaking the Macro Downtrend, BTC price increased another 2,100% from $3,000 to ~$65,000. No one knows where price will be during this next cycle, but history suggests we’ve got plenty of room to the upside. (Also to note, we’re using BTC here as a proxy for the broader crypto markets. We see upside potential in BTC, ETH, and crypto more broadly.)
Looking Forward
We expect to see volatility in 2023. In previous four year cycles, Year 3 is typically an accumulation period, where we either create the cycle low or revisit the low from Year 2 (maybe already in at ~$17K). Historically, Year 3 has also seen retests of Year 2 highs which in this case is around ~$46K BTC.
Regardless of prices, and amid some turmoil in traditional banking, we’ve seen more crypto announcements and growth from large financial institutions during Q1 2023:
- Per Forbes, two of the world’s largest financial institutions with a combined $14 trillion in assets under management– Fidelity and BlackRock– are now offering BTC and ETH to their clients, and are hiring teams to offer even more tokens.
- Nasdaq announced that they will be offering custody services for digital assets by the end of Q2 this year.
- Visa’s Head of Crypto also publicly announced — despite the challenges and uncertainty of the crypto ecosystem — that they continue to partner with crypto companies to improve fiat on and off ramps.
These types of announcements from last quarter are examples of the continual growth happening in the space.
