Blockforce Master Fund August Performance
(as of 8/31/2020)*: MTD: 8.70% YTD: 46.70%
Market/Economic Conditions:
After a great month in July, Bitcoin remained in a range-bound market in August with a few attempts to break the $12,400 barrier but unfortunately, it failed to do so just after two days of testing this level. The market continues to speculate and capitalize on the Defi boom just in like previous months — for those new to our commentary, we have covered Defi in our past few letters. The returns in this extremely unpredictable sector somewhat mirror the boom of the ICO’s in 2017. As an example, we can take a look at the YFI token, on July 20th, this token was trading around $930 per token with a market capitalization of approximately $4.5M. As of today, it is trading around $34,000 per token with a capitalization of a little over $1B . Yes, you read that right — thirty-four thousand per token. 3400% in a little over five weeks.
However, just like the ICO boom of 2017, and every other “bubble” before it, there are legitimate projects and applications that will be long term survivors and value creators. We continue to believe that the best risk/reward way to play this boom is through the base layer protocol asset ETH which acts as the “gateway” token for most of the pioneers looking to enter the space. With the help of Metamask and other wallet applications, DeFi is becoming more and more accessible for the average “non-techie” investor to explore. We fully expect these mini-bubbles to burst as new “get rich quick” investors get educated, but we are believers in the long-term potential that DeFi (Decentralized Finance) offers for society. The genie is out of the bottle now, it will be difficult to imagine innovation stepping backward from here.
On the Institutional Front:
Fidelity Investments came out swinging hard early in August as they filed for an institutional bitcoin fund. This is now one of many funds either in the market or contemplated that offers accredited investors and other institutional investors access to a fund that invests in bitcoin directly. A few years ago, news like this would’ve sent bitcoin over the moon but today it barely even impacts the market price. It only shows that the cryptocurrency market is maturing. The negative stigma of bitcoin is starting to wear off as more and more mainstream investors seek to gain exposure and understanding.
Our take on this is that all access is good for bitcoin, but sometimes we need to take a step back to truly understand the value that digital assets bring to society. They offer a digital store of value without the need for a central trusted authority. Bitcoin does not require a centralized custodian and fund management company. Placing a “long-only” bitcoin investment into a fund then layering on fees, custody, administrators, and portfolio managers is a bit like hiring a tow truck to come to pick you and your car up to go to and from work every day. This is the disconnect that so many new investors struggle with. Bitcoin and other digital assets are DIFFERENT. You do not need a car for your car. Certainly, maintaining custody over your own assets has its own risks, and to minimize some of those risks, you can rely on central authorities to keep your assets safe for you, but that is no longer a requirement.
I posted a thread on twitter about this subject. See the image link below. Basically, the market is unnecessarily paying a premium for ignorance. I do not mean ignorance with a negative connotation. Right now, the vast majority of investors lack the proper understanding of how to acquire, store, and use cryptocurrencies like bitcoin, and other digital assets. Financial advisors are not well versed on the subject, and they currently manage or oversee nearly $85 trillion in assets. Many of their clients are asking about how to get a small portion of that into cryptocurrency, but the advisors only know and understand “Funds” they do not know how to advise clients to gain access through any other way. In fact, many are prohibited from advising clients on anything other than the products their firm has “approved” for them to recommend.
Having said all that, the irony of Blockforce Capital managing an investment fund focused on cryptocurrencies is not lost on me. The key difference however is that this is an actively managed investment strategy, focused on trying to deliver superior risk-adjusted returns for investors who are looking for either a compliment to their existing long-only exposure or as an entry point designed to offer a bit less “stomach acid” than a straight long-only investment in bitcoin directly.
Multi-Strategy Fund Update:
Our fund performed extremely well in the range-bound August market, the primary sources of outperformance came from overweight exposures to Binance and ether. The fund was up 8.7% during the month capturing 272% of a direct BTC investment MTD and about 84% YTD. Please keep in mind that these numbers were achieved with an average exposure of 71.2% to the cryptocurrency assets with “beta”. The remaining 29% was allocated to cash and stable coins focused on lending. The YTD volatility for the fund is within our target at less than half of the volatility of bitcoin. The fund volatility was 37.2% while BTC finished August at 77.8%. We are pleased with the fund’s performance in such a choppy market in the month of August — not only did it bring the YTD capture to our goal but it went beyond our target.
As a reminder, we continue to steer our fund towards our core objectives. Our mission remains:
- 80% of the upside of the crypto markets with 40% of the downside.
- Half of the volatility of a long-only cryptocurrency portfolio, and
- Little to no correlation to other asset classes.
These objectives are bold, but we continue to believe that with hard work, discipline, and patience, we will deliver on what we set out to accomplish.
As we stated in our previous letters, we are no longer waiving the minimum qualifications to invest in the fund as the demand is growing on a daily basis and we have to be selective due to a limited number of spots.
Please contact us today if you have any questions regarding the minimum qualifications to get started.
Sincerely,
Eric Ervin, CEO
*Blockforce Capital Management, LLC and its affiliates are furnishing this publication (this “Article”) to sophisticated current and prospective investors for informational purposes only in relation to existing or potential subscription in the Blockforce Multi-Strategy Fund. This is neither an offer to sell nor a solicitation to buy units or shares in any fund. Any such offer or solicitation will be made solely through definitive offering documents, identified as such, which will contain information about each fund’s investment objectives and terms and conditions of an investment and may also describe risks and tax information related to an investment therein and which qualifies in its entirety the information set forth in this Email. Interests in the Fund are exempt from registration under the Securities Act of 1933, as amended, and Regulation D promulgated thereunder, in accordance with the definitive offering materials. Investors should conduct their own assessment prior to making any investment and consult their own investment, legal, accounting and tax advisors in order to make an independent determination of the suitability of an investment. An investment in the Blockforce Multi-Strategy Fund involves significant risks, including entire loss of investment, and is suitable only for sophisticated accredited investors. Past performance does not guarantee future results.
