As I write this, Michael Saylor has announced another purchase of about 253 Bitcoin as a part of MicroStrategy’s treasury reserve strategy. Conviction is a trait very few have in their arsenal, and while Saylor should be applauded, conviction can also be a curse. The primary goal of investing and treasury management, regardless of your strategy, is to properly manage risk, full stop! Lumpsum risk is frighteningly powerful at destroying portfolios, and it often rears its ugly head when one does not diversify properly, hedging lumpsum risk. Investors and treasury managers entering crypto must account for this. Afterall, Bitcoin dominance currently stands a shade above 50% of the entire crypto market and dwindles with every passing day.
I can confirm that over the past month I have personally spoken with roughly half a dozen publicly traded companies from around the world that are exploring Bitcoin as a core piece of their treasury reserve strategy. What is most interesting is that the rationale for each is different. I have heard some fearing the looming threat of inflation, concerned by their extensive fiat positions, others seeking gains on Bitcoin’s price appreciation and even one that was convinced Bitcoin would be the new global reserve currency within the decade. Some are all-in, wishing to move hundreds of millions of cash into Bitcoin while others are a bit more conservative, wishing to deploy 5% or so of their liquid assets into Bitcoin. There is no right or wrong answer to any Bitcoin strategy as every personal and corporate situation and strategy is different. The only thing you must do is get off 0!
But while mainstream and media focus has been on bitcoin for pretty much the entirety of the past year, Alt coins have been the big winner thus far in 2021. No, I’m not speaking about the NFT craze or the DeFi Apes (I’ll touch on this in another article) but I mean Ether and other layer-1 and leading layer-2 protocols. As of this writing, Bitcoin has appreciated roughly 100% YTD, which is awfully impressive until you start to look at the returns some of the leading Alt coins have yielded. ETH is up 185%. BNB, largely due to the launch of the Binance Smart Chain and the DeFi ecosystem being built around it, is up nearly 900%. SOL, a project I have been keeping a keen eye on for a few months now, is up 1,200% YTD and yet all of these pale in comparison to the absolute moonshot BTT is on, up roughly 4,000% YTD and now a top-20 coin.
While Bitcoin remains king (and likely always will), it is impossible to ignore the merits of many of the other leading coins. Each crypto asset has a unique value driver, which we will be demonstrating in an upcoming research report, and it is important to remember to diversify within the crypto space rather than ride a single horse. While conviction is an admirable trait, one must not forget the lumpsum risk that comes with significant exposure to any one particular asset.
This will be one of the two main reasons Altcoins will be the winners of 2021. While institutions and asset managers have largely adopted Bitcoin as a digital store of value, very few have ventured into the murky waters of alts. What we witnessed in 2017 was a surge in Bitcoin’s price creating significant wealth and liquidity for the largely retail crypto investor class who began to move their gains into altcoins and other ICO projects. While this didn’t workout in many (if not most) cases, those that locked in gains and diversified their portfolios into other leading coins have largely done well and have outperformed Bitcoin. In fact, the BITA-20 index, which one of Iconic Funds’ vehicles uses to track the performance of the top-20 crypto assets by market cap, continually outperforms Bitcoin due to the massive gains from alt coins. It is inevitable that institutions and enterprises will be forced to similarly diversify to avoid the pitfalls of lumpsum risk, especially as Bitcoin continues to push new all-time highs again and again. Many would be wise to seek diversified, passive exposure to other leading alt coins and well-established protocols. This will lead to phase 1 of altcoin adoption as Bitcoin was merely mainstream’s toes getting wet in crypto.
Phase 2 of altcoin adoption comes when institutions and enterprises begin to do their own research on other leading crypto assets. This will be triggered as managers seek diversification while being intrigued by the promise of crypto, but it will come full force once enterprises realize what they can build on top of leading protocols that will enhance their customer’s experiences or help firms realize cost-efficiencies by implementing blockchain and crypto internally. Now, faced with the inevitability that many processes they manage or customer interactions they have will be cryptographic in some form, they are forced to acquire the native crypto assets of leading protocols to enhance their current and future purchasing power on said protocols. This will lead to an altcoin explosion like we have never seen and there are hints it has already begun with Google Cloud partnering with EOS and Coca-Cola being baselined by Unibright and Provide. Adoption is inevitable, and we are merely on its cusp.
On Iconic related matters, March proved to be one of our busiest months yet! We opened our brand-new office in the DIFC in Dubai, continued the regulatory process of launching new investment vehicles we are unbelievably excited about, have nearly completed KYC/AML on the first batch of investors for the multi-manager funds and have brought in three new Iconic team members. I would like to introduce you to the first now.
Please meet Iconic’s new Head of ETP’s, Michael Geister. Michael has a long track record of excellence in capital markets, particularly in ETF/ETP distribution and sales. Formerly the Director of ETF sales for both State Street and ETF Securities, Michael is an ETP veteran who helped pioneer and establish commodity ETPs such as for gold and other precious metals. Always with a mindset towards product innovation, he helped establish the European market for thematic and Smart-beta ETPs for equities and fixed income assets. Michael’s foray into crypto began in his most recent role as the Head of Sales for Van Eck Vector ETFs in the DACH region. His passion and excitement for crypto and the opportunity to establish a new asset class for institutional investors led him our way, and we are ecstatic he has joined our Iconic family. He has already been instrumental in the design and development of products on the cusp of release, and I cannot wait to finally share with you all the fruit of our labors for the past few years.
I expect April to be an absolutely massive month for crypto and Iconic. Not only do we have new investment vehicles imminently set to launch, but we also have two tokens I expect Iconic Lab will be distributing to ICNQ holders in late April or early May. Keep your eyes glued as we are set to go into hyperdrive at Iconic in Q2 (or Q10, for those keeping track in our community) and are excited as ever to have you along for the journey!
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- Crypto Assets In A Portfolio Theory Context
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