Truvius Quantamentals - 8/15/23

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This week markets are eyeing the Chinese economy after the country released weak economic data and unexpectedly cut interest rates [1], suggesting a broad economic downturn for the world’s second-most populous nation. While market participants maintain mixed views on whether the U.S. Federal Reserve can achieve its goal of a “soft landing,” [2] a worsening Chinese economy may make this goal harder by weighing on American companies with heavier Chinese operations (ex: manufacturing and chemical industries).

Larger-cap digital assets generally gained over the trailing week, and institutional adoption activity appears to remain strong for the asset class. In addition to seeing Bitcoin spot ETF filings with the SEC from several notable asset management firms, PwC recently reported hedge fund crypto activity remains high: the report surveys 131 crypto hedge funds (other reports [3] show the existence of close to 700 hedge funds) and reflects a maturing investor ecosystem, showing meaningful improvements in usage of liquidity management tools and counterparty risk management processes, as well as technological innovation that could lead to more efficient financial solutions. Additionally, the report found that nearly a third of traditional hedge funds invest an average of 7% of their overall AUM in crypto, up from 4% a year ago.

Asset Class Roundup

Correlations (Trailing 1-Month)

Over the last month crypto has exhibited low-to-negative correlation to major asset classes, supporting its potential role as a portfolio diversifier within a broad overall asset mix:

Performance

Nearly all major asset classes have exhibited positive performance YTD. Digital assets in particular have demonstrated strong YTD performance, partially rebounding from significant headwinds in 2022.

Over the trailing month, Bitcoin underperformed equity markets while the Truvius DeFi Fundamentals Portfolio and S&P GSCI commodities index* outperformed other asset classes meaningfully:

*The S&P GSCI index is primarily concentrated in energy commodities.

Volatility (Annualized)

Realized volatility has continued to trend downward:

Digital Assets

Performance

Digital assets have shown strong performance for the YTD period. More recently, Bitcoin and digital asset sectors indices sold off over the trailing month.

The actively managed systematic Truvius DeFi Fundamentals Portfolio outperformed the passive Truvius DeFi Index over the month:

Quantamentals

Our models incorporate a combination of proprietary on-chain and off-chain digital “quantamentals” that we consider meaningful indicators of digital asset strength. We apply a quantitative process to these fundamental signals in order to systematically monitor network (on-chain) and trading (off-chain) activity.

This week, we look at a subset of assets held in the Truvius DeFi Fundamentals Portfolio:

• Assets with stronger recent quantamentals:

  • MKR: attractive network activity

• Assets with weaker recent quantamentals:

  • YFI: deteriorating trading dynamics and network activity

Through the Factor Lens

Price momentum (30-day) for Bitcoin and Ethereum has stabilized somewhat more compared to H1 of this year. While the two largest-cap assets generally trend together, July saw some of the widest divergence in 30-day price momentum between the two assets this year, with BTC outperforming ETH between mid-June and mid-July, aided by asset management firm BlackRock increasing its public involvement in Bitcoin.

Figure: 30-Day Price Momentum for Bitcoin and Ethereum, YTD as of Aug. 14, 2023:

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Footnotes

[1] Cutting interest rates can be interpreted as an attempt to stimulate economic growth.

[2] Given today’s higher levels of inflation, the Fed is attempting to slow down (or cease) raising interest rates in the hopes that interest rate levels are high enough to tamp down inflation but aren’t so high as to cause a recession, hence the term “soft landing.”

[3] Source: 2023 Institutional Crypto Hedge Fund & Venture Report, Bailey York, Galaxy Digital

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Data and Disclosures

Data is for the period 8/15/22 - 8/14/23. Pricing data shown above for illustrative Truvius products are sourced from Santiment, Messari, and Token Terminal. Prices for non-digital asset classes are sourced from Yahoo Finance and represent the following:

The Truvius products shown herein represent hypothetical backtests and do not represent live, currently investable products. The universe of assets for these hypothetical backtests include only tradable assets currently offered by Gemini as of 8/14/23, excluding meme tokens, stablecoins, and wrapped/pegged tokens. The backtests shown herein are rebalanced weekly, gross of fees, and net of t-costs, with a 0.10% per-trade t-cost assumption. The Truvius DeFi Fundamentals Portfolio backtest uses an ex-ante annualized tracking error target of 20% relative to the Truvius DeFi Index. The various Truvius Sector Indices used herein are weighted by circulating market capitalization. Past performance does not guarantee future results.

Disclaimer

This Truvius Quantamentals commentary has been prepared by Truvius (the “Company”) solely for informational purposes and should not be construed as legal, business, tax, regulatory, accounting, investment or other advice. The information contained herein does not purport to be all-inclusive or to contain all of the information a reader or prospective or existing investor may desire. In all cases, readers and interested parties should conduct their own investigation and analysis of the Company, its products, and the data set forth in this information. The Company makes no representation or warranty as to the accuracy or completeness of this information or its construction and shall not have any liability for any representations (expressed or implied) regarding data or information contained in, or for any omissions from, this information. This Information includes certain statements, backtested data, and estimates provided by the Company with respect to the historical performance of the Company, its products, and other asset classes described above. Such statements, backtested data, estimates, and projections reflect various assumptions by management, which assumptions may or may not be correct. No representations are made as to the accuracy of such statements, backtested data, estimates or projections. Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate financial results of the Company and its hypothetical products. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections or expected performance of products may be inaccurate in any material respect. The Company's and its products’ actual future results may differ materially from those suggested by both simulated historical and forward-looking statements, depending on various factors including those described in this material or any other written or oral communications transmitted by the Company. Neither the U.S. Securities and Exchange Commission nor any U.S. state or non-U.S. securities commission has reviewed or passed upon the accuracy or adequacy of this Truvius Quantamentals commentary. Any representation to the contrary is unlawful.