Nickel Manager Commentary: September 2023

Multi-Strategy Fund Performance

Bitcoin was up nearly 4% for the month but it was Solana (23%) and Chainlink (37%) that were the best performing assets in the portfolio in September. While the beta portion of the portfolio saw strong performance for the month, the systematic strategies offset some of those gains due to the lower volatility of the markets. Our systematic strategies tend to perform best when there is a clear trend in the market but in 2023, BTC and ETH have traded in pretty consistent ranges. This is yet another reason we are excited to further integrate our Quant Alpha strategy as it performs well in these periods and adds more robustness to the overall portfolio.

Market Commentary

After seeing volatility come back in August, September was much more steady with regards to price action in the crypto markets. In past newsletters and monthly updates we have highlighted the strong support exhibited by long term holders anytime bitcoin dips around $25k. However, it is the short term holders of bitcoin that have provided resistance to the upside. The aggregate cost-basis of short term holders (aka coins moved within the last 155 days) is currently around $28k meaning most traders in the market are, on average, break even or just under water in their current bitcoin holdings. Anytime we approach upwards of $30k, we get increased sell pressure from this cohort who appear to be happy to get their original investment back. If BTC is able to break through this level and sustain its price above $31k, it should provide a positive outlook for price action during the remainder of 2023.

This sell behavior from short term market participants is in stark contrast to the behavior of more long term oriented participants. An all-time high of nearly 15 million BTC (76% of total outstanding supply) hasn’t moved in at least 155 days. Not only is the aggregate number BTC held by long term market participants at an all time high, the rate at which they are acquiring is increasing too. It is clear that as short term holders sell, long term oriented participants are on the other side of that trade. Should this behavior continue, eventually marginal sellers should be exhausted and it will be easier to break to the upside.

This trend also means the supply side continues to become increasingly illiquid which is setting the stage for a parabolic bull run whenever the next wave of demand enters the market. The good news is that we are starting to see early signs of that demand returning. On average for the past 30 days, ~550,000 new Bitcoin addresses have been created each day. This is an unprecedented amount of on-chain activity compared to previous bear markets. The only times prior in which activity was this high was during the absolute peak of the past two bull markets.

The Nickel Team