CryptoWinter is Over

In Case You Haven't Noticed

I should have made this post a few months ago. I called crypto winter ahead of it actually happening. But, I didn’t and so this is a very belated post. I am falling down on the job. Sorry if I cost you any money. I am being a bit Captain Obvious in this post.

You can tell it is over because Coinbase stock has been on a tear.

Coinbase stock is basically a proxy for crypto. Bitcoin gets all the headlines and hit $60k per token today.

I want to be clear. Bitcoin is NOT a hedge against inflation and it is not a “store of value”. It’s a pure speculative instrument and that is it. Neither is gold despite the commercials on Fox News.

The purse strings among crypto VCs are starting to thaw as well. In the daily emails I get from various tech outlets, there are funding announcements. Everyone went into lockdown mode during crypto winter. VCs hibernated. The firms that made it through the other side seemingly have a chance at success.

However, don’t delude yourself. The crypto winter survival paradigm is not the same as the 2001 internet meltdown paradigm. In 2001, the survivors had real businesses. In 2024, it remains to be seen if the survivors have actual businesses. At the bottom of this blog, I will highlight two that do if crypto is indeed a thing.

The big news is about the Bitcoin ETFs that have proliferated. All the bigshots have one now. I am not a fan of those as an investment, since it’s much more efficient just to buy the token, but my good friends tell me for the average Joe, this is a great development and so far they have been correct.

It seems to me, a basket index ETF of the top cryptos with quarterly rebalancing would be better than a single token ETF. It’s worth noting that the Winklevoss twins filed to have a Bitcoin ETF in 2013. It’s taken the SEC 11 years to get off the schnied. Don’t hold your breath for rampant ETF innovations to hit the market. Gary Gensler is less commissioner than he is an evil Sith Lord trying to control everything.

In my own personal investment portfolio, I have had some good news. If you want to invest in a crypto product that is not an ETF but more like a delta-neutral algorithmic strategy, check out MLTech.

While ‘sell the news’ led to a significant downturn in the market, ML Tech strategies navigated the resulting volatility well. Our Statistical Arbitrage strategies had a strong month with TS3 returning 2.25% (1Y at 16.16%) and TS16 11.52% (1Y at 35.73%) net of all fees. With lower volatility and reduced funding rates, delta-neutral strategies had a mediocre month but they continue to deliver consistent returns with a high Sharpe ratio. Last - while some of our intraday directional strategies (TS13 and TS15) did not perform well in January after a stellar end to 2023, TS14 continued to post highly impressive numbers - TS14 1Y returns are 30.10% net of all fees. (bold mine)

Looking forward - we are excited to offer US-based Investors with BTC and ETH Smart Beta Factor Model strategies on CME Futures through Interactive Brokers. We are working to partner with additional FCMs to ensure we can support a wide variety of options. In addition to the current strategies, we are developing and testing a number of new strategies including CTA style (momentum/trend following) and AI generated signals that would be available on US exchanges (CME, Coinbase, Kraken, CBOE). 

Last December, Bitnomial received CFTC approval on a number of initiatives. They are the only exchange in the world to be able to settle their futures contract with physically delivered tokens. They have their own clearinghouse. They are allowed by the CFTC to use digital assets for margining purposes. They also have a captive institutional type broker, different than a clearinghouse. It has been a long road to get to this point since the companies founding, but to their credit, they cut zero corners and did things the right way.

Physically deliverable crypto-assets have been a better hedge against risk than cash-settled ones according to data. This is also why many commodity contracts are physically delivered.

To date, nothing of note using crypto has been built. The rally is all on the come. This rally could fade as fast as it has come if nothing people use daily gets built.