Nickel Manager Commentary: July 2023

Nickel Update

July was a productive month for Nickel. At the start of the month, the team put into production a new algorithmic trading strategy for ETH that we had been working on over the past few months. Whereas most of our existing ETH trading strategies are trend following and work best in times of sustained directional movements in the market (both bull and bear) the new long/short trading strategy is designed to perform better in more choppy conditions as we have seen for much of the year. The new strategy performed well in July and we believe will continue to make the multi-strategy portfolio more robust.

This month also saw Nickel Capital publish its latest research report. We periodically author in-depth reports that contain tactical insights, thematic views, and on-chain analysis of the crypto industry. Our latest report focuses on the unique structural supply dynamic currently forming in bitcoin, a crucial topic given its exceptional performance (nearly 75% year to date) and growing global adoption. You can access our exclusive Research Report using this link if you are interested in reading more. Should you wish to have a conversation about Nickel or topics discussed in this report, please do not hesitate to reach out.

Multi-Strategy Fund Performance

July saw a lot of positive developments for the crypto industry. Larry Fink, CEO of BlackRock, publicly championed bitcoin on national TV, a US judge ruled that XRP is not a security, there were multiple bills introduced in both the House and the Senate, and France’s third largest bank, Societe Generale, obtained the country’s first crypto license. However, those positive developments were not reflected in the price of BTC and ETH which were both down roughly 4% on the month. It was however, a good month for altcoins such as Uniswap (23%), Solana (23%) and Optimism (21%) which rallied off the ruling in the XRP case. As a result of the altcoin resurgence in July, the Fund was able to offset some of the losses from BTC and ETH and outperform both for the month.

Market Commentary

Towards the end of June, bitcoin reached $30,623 marking a new one-year high. This is potentially a significant market because there have only been four other instances in bitcoin’s history in which a new high has been set over the previous 365 days and in each case, the signal corresponded to the beginning of a bull market. Previous occurrences took place in August 2012, December 2015, May 2019 and August 2020, with the actual bull markets materializing in 2013, 2017, and 2021. Each market top was reached within 24 months of this signal being triggered.

There are also qualitative reasons to believe we are at the start of another bull cycle. The crypto markets have seen three distinct tailwind events thus far in 2023. The banking crisis in March highlighted the fragility of the banking system, the value of self custody and the benefit DeFi offers by removing counterparty risk. In June, Blackrock, Fidelity, WisdomTree, Invesco, Ark and Valkyrie all filed for a spot bitcoin ETF which if approved, could lead to billions (if not trillions) of dollars flowing into bitcoin over the next couple of years. Finally, the ruling in the Ripple lawsuit that XRP is not a security and the multiple bills currently being brought forth in both the House and the Senate signal a change in tides in the regulatory regime in the US. It appears that the regulatory winter of the past 6 months is beginning to give way to a bipartisan spring.

Bitcoin is up 73% this year, significantly outpacing both gold (5% YTD) and the S&P 500 (16% YTD). Given the tailwinds, the on-chain data (see our research report for more details), and the technical analysis, we believe the market is poised for significant value appreciation over the next 18-24 months similar to what we saw in 2020 and 2021.

The Nickel Team