InstitutionsBlogCompany
Alpha Report April Recap
April 18, 2024
Key Takeaways
Market Performance
As of April 30, 2024, the Standard and Poor’s 500 (“S&P 500”) is down -4.22% in the past month and is up +20.51% on an annual basis. Bitcoin (“BTC”) is down -17.68% in the past month and is up +104.32% on an annual basis. The recent downturn is primarily attributed to the geopolitical situation in the Middle East, rising USD inflation, and the Fed’s insinuations of only one rate cut in 2024.
The U.S. Treasury 10-year rate rose 30.38 basis points over the past month. April provided a 1.84% monthly gain in the US Dollar. U.S. equities, U.S. High-Yield, U.S. Investment Grade, and gold changed by -4.22%, -0.99%, -2.32%, and 0.47% over the last month, respectively.
As of April 30, 2024, Bitcoin (“BTC) and Ethereum (“ETH”) wained -17.9% and -17.61% on a monthly basis, respectively. These returns are reflected in our Risk-Adjusted Portfolios (“RAP”), given their dominance in the marketplace. Sentiment and performance in the digital asset market (as proxied by BTC and ETH) has turned neutral to bearish recently, as speculation on a spot ETH ETF application is expected to be denied by the upcoming May 23 deadline (VanEck). To accompany the aforementioned, geopolitical unrest worldwide, rising US inflation, US GDP coming in low for Q12024, and Fed signaling only one rate cut in 2024 has cooled risk-on assets across the board.
The macro backdrop has weakened, but in our Investment Team’s purview, we still believe the next 6-12 months to be constructive for risky assets (see ‘Outlook’ below). While two concurrent geopolitical conflicts remain risky to the global economy and financial markets, effects appear limited to specific locales and assets. The primary near-term catalysts appear to be the continued success and proliferation of spot ETFs, domestically and abroad, and the potential approval of an Ethereum spot ETF in 2024. The team remains mid-long-term constructive on BTC and the digital asset market as a whole in 2024.
Portfolio Performance
Cumulative returns across the three RAP (Balanced, Strategic, and Opportunistic) portfolios ranged from +63.05% to +85.24% from July 18, 2023 through April 30, 2024. This compares to a +11.77% return in the Standard and Poor’s 500 index (S&P500) over the same period (see image below).
The main driver of recent RAP performance is the Investment Director’s discretionary views to remain fully allocated to risk-on assets for at least the remainder of Q2 2024.
Although crypto markets had a difficult April, historically, dips are common around the Bitcoin halving, and the most profitable periods of prior crypto cycles occurred 12-18 months after the halving.
Market Events
Hong Kong Bitcoin and Ether ETFs attract over $200M on day 1
Hong Kong's debut Bitcoin and Ether exchange-traded funds (ETFs) have quickly amassed over $200 million in total assets since their launch on April 30. The Bosera HashKey ETFs alone hold 964 Bitcoin each, equivalent to $71.94 million in assets under management, as reported by Arkham Intelligence. Moreover, ChinaAMC's Bitcoin and Ether ETFs have seen a combined asset accumulation of $123.61 million, according to Eric Balchunas, a senior ETF analyst at Bloomberg.
Compared to their U.S. counterparts, the Hong Kong ETFs have garnered more modest figures, with Harvest Global's asset management data yet to be updated. However, the combined turnover for the available ETFs has already hit $23 million. Balchunas noted the significance of these numbers, highlighting that ChinaAMC's Bitcoin ETF's $123 million inflow on the first day ranks it impressively among the ETF launches in Hong Kong.
Furthermore, HashKey emphasized that non-Hong Kong nationals can also invest in the ETFs, provided they meet local regulatory requirements. Unique to Hong Kong's crypto ETFs is the option for investors to subscribe using BTC and ETH directly, unlike their U.S. counterparts.
A recent survey by Hong Kong-regulated crypto exchange OSL revealed that 76.9% of respondents knowledgeable about crypto in the city intend to invest in the new Bitcoin and Ether ETFs. This positive sentiment underscores the growing acceptance of digital assets in Hong Kong's economy, solidifying the city's position as a digital asset hub.
Despite the enthusiasm, access to Hong Kong's crypto ETFs is limited to the city's 6.4 million adult residents, excluding Mainland Chinese investors who number over 1 billion unless they hold a Hong Kong residence permit.
Binance CEO ‘CZ’ sentenced to four months in prison
Changpeng Zhao, popularly known as “CZ,” the founder and CEO of the cryptocurrency exchange Binance, has received a four-month prison sentence. The US Department of Justice had initially recommended a 36-month sentence, well beyond the 18 months outlined in his plea agreement. This decision followed Zhao's resignation last November and his admission of guilt to several infractions brought forth by the Department of Justice and other US agencies. Binance acknowledged involvement in anti-money laundering, unlicensed money transmission, and sanctions violations.
This case marks the "largest corporate resolution" involving criminal charges against an executive. Zhao's guilty plea pertained to a lack of anti-money laundering program maintenance. Binance, Zhao, and other associated entities were found to have knowingly operated without registering as a money services business, breaching the Bank Secrecy Act by neglecting anti-money laundering measures. Furthermore, they were accused of violating US economic sanctions intentionally to gain from the US market, disregarding US regulations. Binance was established in June 2017, quickly becoming the world's largest cryptocurrency exchange within 180 days. As of recent data from CoinMarketCap, Binance boasts a trading volume exceeding $22.7 billion in the last 24 hours, significantly surpassing Coinbase, the second-largest exchange, with a trading volume of $3.1 billion.
BlackRock's BUIDL Becomes Largest Tokenized Treasury Fund Hitting $375M, Toppling Franklin Templeton's
BlackRock's tokenized asset fund BUIDL has quickly risen to the top, surpassing Franklin Templeton's offering within six weeks since its launch. The fund, known as the BlackRock USD Institutional Digital Liquidity Fund and backed by U.S. Treasury bills, repo agreements, and cash, now holds $375 million in deposits. This growth has been fueled by a recent $70 million influx, as reported by rwa.xyz blockchain data. Partnering with Securitize, BlackRock has carved out almost 30% of the market share since its introduction on March 21.
On the other hand, Franklin Templeton's BENJI token asset, the Franklin OnChain U.S. Government Money Fund, saw a decline to $368 million in assets under management due to minor outflows during the same timeframe.
The rise of Ondo Finance's OUSG, leveraging BlackRock's token as a reserve asset, has played a significant role in this shift. OUSG attracted $50 million in inflows within a week, contributing to the rapid growth of BlackRock's tokenized offering. The trend of tokenizing real-world assets such as bonds and credit has gained traction, offering benefits like quicker settlements, enhanced operational efficiency, and increased transparency.
U.S. Treasuries, as part of the tokenization efforts, have become a pivotal gateway for investors looking for a low-risk option to park their on-chain cash and earn stable yields within the blockchain ecosystem. The tokenized Treasury market has surged from nearly $100 million to close to $1.3 billion, driven in part by BlackRock's entry into this arena.
Outlook
While April has brought about various factors causing us to reassess the rationale for the ongoing bull cycle - such as increased inflation, GDP figures falling short, geopolitical tensions, and the probable rejection of a US ETH ETF - our outlook on the crypto markets remains optimistic. This is due to the FED’s anticipated rate cut later this year, the historical correlation between election years and central bank liquidity cycles, and insights gained from analyzing price trends post-halving.
To couple with this, Numerous market cycle indicators, such as the Pi Cycle, Mvrv Z-score, on-chain analytics, Google trends data, and app store rankings, all point towards our team's belief that this cycle is still evolving and has not yet reached the peak euphoria typically associated with cryptocurrency market cycle peaks.