Blockforce Master Fund July Performance
(as of 7/31/2020) MTD: 24.32% YTD: 34.88%
Market/Economic Conditions:
The month of July took everyone by surprise, especially in the second half.
Bitcoin rallied over 24% in July, inflation concerns were part of the rally, but the significant activity in the DeFi space that we mentioned in our previous letter is creating a lot of interest from speculators, dabblers, and other technologists experimenting with this new protocol, which is beginning to deliver on its promise of being the new “IP” “MOIP”, Money Over Internet Protocol.
The general sentiment around Bitcoin and the cryptocurrency industry has been positive since April. The United States Office of the Comptroller of the Currency granted banks permission to operate crypto custody services, institutional investors have continuously invested in Bitcoin and other top cryptocurrencies through Grayscale, and most recently, the Tether (USDT) stablecoin saw its largest inflow in eight months. The CME and BAKKT futures exchanges saw record-breaking volumes in the month of July indicating additional institutional interest coming in from the sidelines.
Some macro factors could have fueled the demand for Bitcoin in recent months. Since April, the U.S. dollar has been in decline relative to other major reserve currencies. Investors such as billionaire Ray Dalio have pointed at the ongoing dispute between the U.S. and China as the biggest factor. As the U.S. dollar dropped, the price of gold rose. Given the recent price correlation between gold and bitcoin, the “store of value, digital gold” crowd will continue to get a lift from the weakening dollar. It appears that this, is the one thing the Fed is committed to. A lesson for any young trader is to never fight the Fed. In this case, when you don’t dare short anything, the one thing you can comfortably short is the US Dollar. It is our view that the best way to place a leveraged bet against the dollar is not through gold and other widely held assets. It is to use something so scarce that even marginal interest from the fringes has the power to send it soaring. I wrote about this previously in Forbes.
For one, an incredibly small market cap. Even if a small percentage of the gold bug crowd started to diversify some of their precious metals exposure into bitcoin it would have profound effects. The second, is the programmability of bitcoin and other digital assets. The DeFi (Decentralized Finance) movement is taking off right now, we feel it has a long way to run. Bitcoin tends to be the gateway asset for many would-be experimenters. They start with bitcoin, move on to Ethereum, then into the world of DeFi, and return their profits back to bitcoin and Ethereum. We are watching this thesis play out in realtime.
Multi-Strategy Hedge Fund Update:
The systematic trading aspects of the fund were primarily long throughout the month of July. As a reminder, even in the most bullish allocation, the fund will be approximately 80% invested in “beta” style assets. The ~20% remaining allocation is typically allocated to market neutral strategies such as arbitrage or lending. The average allocation to beta throughout the month of July was approximately 80%. Given the reduced exposure and volatility, we are pleased to see the fund outperform was able to outperform a long-only allocation to bitcoin. In July, the fund was up 24.3% while bitcoin was up 23.9%. The bulk of this outperformance came from our overweight positions in ETH, and BNB. Through July 31st, the YTD return is now 34.9% with a 37% annualized volatility, compared with 57% for bitcoin with an annualized volatility of 82%. This now brings the year-to-date returns closer in line with our target of capturing 80% of the upside while maintaining a risk-managed lower downside. The fund’s YTD downside annualized volatility is now running at approximately 22% vs bitcoin’s downside volatility at 57%. We are pleased with the fund’s algorithms and the strategic allocations between beta, market neutral, and systematic strategies. We feel the fund is well-positioned for what we believe is the next major bull run. However, at the same time, we are also confident that we have the proper risk controls for the possibility of a bear market.
Our Philosophy:
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 remain to be intrepid but the fund has already proven for these goals to be more than attainable.
We have extended lower fee requirements into August due to all the positive developments in the market and we do not want anyone to get left behind. You can allocate as little as $50,000 to secure your spot and overtime allocate the remaining funds to reach the minimum threshold of $250,000.
Please contact us today if you have any questions regarding the minimum qualifications to get started.
Closing Thoughts:
If there was a time to expose your portfolio to the crypto world — it would be now. We do not ask for you to allocate all or even half of your portfolio, we ask to diversify with a partial allocation. I hope you and your family are staying safe with what seems to be the never-ending pandemic.
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.
