Bi-Monthly Performance Update
February/March 2023

Quarterly Performance Update

The upward trend of the last bi-monthly period remains intact with the Bitcoin debenture once again topping performance with an impressive 25,8% return over the period. Whilst the other investment products lagged somewhat, on a quarterly basis performance remains very similar. Bitcoin continues to benefit from a flight to hard assets (which has also seen gold surge) in the wake of the banking crisis that saw Silicon Valley Bank, Silvergate Bank, Signature Bank, and the Swiss giant Credit Suisse all fail in March.

* Performance is measured in rand terms and excludes fees.

Market Commentary

While the banking crisis contributed to a brief bout of stablecoin volatility, the crypto market mayhem of last year appears to be behind us, with the asset class decoupling from global equity markets to continue surging over the last month. This has led to many analysts in the industry to label this year’s price action as the start of a new bull market – although many remain dubious as to the sustainability of the recent rally, especially if global recession predictions unfold.

Key to the recent rally has been the Federal Reserve’s massive injection of liquidity, coupled with growing expectations from the market for imminent rate cuts – although the Fed still managed to hike 25bps at their March meeting.

The liquidity injection came in the form of backstopping banks liquidity issues through the extension of loans to banks based on the face value of the bonds that they hold. Many are calling this stealth quantitative easing, and indeed the Fed’s balance sheet has ballooned, undoing much of the quantitative tightening that has taken place over the last year.

Total Assets held by the US Federal Reserve (millions of USD)

Source: Board of Governors of the Federal Reserve System

Portfolio Highlights

The end of the period has seen the Investment Committee approve several changes to Jaltech’s crypto baskets, with the number of assets in each reduced to eliminate assets straddling the fringe of the Committee’s market cap inclusion criteria. These actions have been taken to both minimise future portfolio churn.

Additionally, Tron (TRX) has been excluded from both portfolios due to legal actions taken against the Tron foundation by the US SEC. This is similar to the prior exclusion of Ripple (XRP), whose case against the SEC is due to receive a ruling in the coming weeks.

The best performing assets over the period included Bitcoin (BTC +27,1%), Stellar Lumens (XLM +22,7%), Ether (ETH +18,6%) and Optimism (OP +11,4%). Lagging within each portfolio were Cosmos (ATOM -12,6%), Solana (SOL -9,9%) and Avalanche (AVAX -8,8%) with the latter two giving up some of the major gains of the prior period. Dogecoin (DOGE) was also down 19,1%, although early in April it surged approximately 35%.

Large Cap Basket

Portfolio Highlights

Out: Dogecoin (DOGE), Litecoin (LTC), Tron (TRX), Stellar (XLM), Algorand (ALGO), Quant Network (QNT)

In: No additional assets

The diversified portfolio will be consolidated to stand at 9 assets covering a number of crypto sub-sectors. The Investment Committee also resolved to remove Litecoin and Dogecoin, feeling that these assets fill a niche that Bitcoin has a commanding lead in.

However, the basket was able to capture the recent Dogecoin upside related to Elon Musk’s Twitter evangelism for the meme coin.

Blockchain Basket

Out: Tron (TRX), Stellar Lumens (XLM), Algorand (ALGO)

In: No additional assets

The portfolio will be consolidated to a total of seven assets (down from ten) for the next quarter.

Outlook

With it remaining to be seen whether global banks are out of the woods, and global inflation continuing to accelerate in services (albeit moderating in goods), risks remain high that we may be in for a painful global recession (a so-called ‘hard landing’ to the rate hiking cycle).

However, if data over the coming weeks point to inflation being a solvable problem that won’t require much more central bank tightening (that would exacerbate banks’ problems), there remains plenty of upside to risk assets and crypto – as significant capital remains side-lined.

Crypto-specific risks involve the US government’s continued crackdown on crypto platforms, although positively, markets have managed to shrug off the impact of the recent slew of lawsuits, with Binance the most recent recipient of the SEC’s ire.

As mentioned in January, these actions may ultimately lay the groundwork for a new crypto bull market in which the industry operates within the confines of a robust regulatory framework.