ETFs & ATHs
November 9, 2021
Welcome to the M31 Capital Investor Newsletter! We use this platform to share monthly updates on the industry, our views on the broader market, important crypto-native metrics, as well as to highlight specific cryptoassets and decentralized finance (DeFi) protocols we find interesting.
For those reading who are new to M31 Capital, we are a global alternative investment firm focused exclusively on digital assets backed by cryptography and blockchain technology. This new asset class, pioneered by Bitcoin, is beginning to change the way humans coordinate economic activity at a global scale and holds the potential to create trillions of dollars of value in the process. M31 Capital exists to promote this paradigm shift and to capture the unique, cryptoasset-specific investment opportunities for our investors along the way.
We at M31 Capital have staked our careers and our reputations on the success of this technology. As always, we thank you for putting your trust in us and for your support of this new asset class. Please feel free to reach out to our Investor Relations team with any questions, ideas, feedback, or just to say hi: contact@m31.capital.
Nathan Montone
Chief Executive Officer
M31 Capital Management, LLC
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October Performance
Market highlights and rationale from a selection of the most interesting assets in the industry:
(NOTE: M31 Capital may or may not hold positions in the following tokens)
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P A R T N E R H I G H L I G H T S
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Uptober By the Numbers
October played out just as bullish as we said it would in our last newsletter: Uptober Only. Approval of the first U.S. Bitcoin ETF and news of Facebook converting itself into a Web3 DAO (...more or less) sent crypto-shaped shockwaves throughout TradFi and sent nearly every digital asset higher. Let's review:
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DeFi TVL
The total amount of value locked in DeFi protocols hit a new ATH, crossing over $250bn for the first time. That's a 12.5x increase from where it started the year.
There is no clearer signal that banks have utterly failed their customers and that new, decentralized financial technologies are quickly taking their place, than the insane growth of DeFi TVL.
Who could have possibly guessed there'd be consumer demand for financial services that are 1,000x faster, 100x cheaper, 24/7/365, globally accessible, and permissionless, with no bank lines or paperwork....?
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Uniswap also broke new ground as it crossed $500bn in cumulative trade volume for the first time. The protocol is now regularly averaging over $5bn in trade volume per day.
At this rate, Uniswap will cross $1 Trillion in total trade volume by January. This is absolutely incredible for a piece of open source software controlled by no one.
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Ethereum Escalates
On the Ethereum front, it seems investors are waking up to the fact that ETH is absolutely critical to all the major crypto trends: DeFi, NFTs, Web3.0, the Metaverse...
ETH price hit an ATH just shy of $4,700 after the artist formerly known as Facebook announced plans to relocate the world's largest social media empire into the aether.
And of course it doesn't hurt that the 2nd largest asset has reduced its supply by +800,000 in the last 3 months. Increased demand... reduced supply... you know the rest.
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BTC ETF
And finally, all eyes we're on Bitcoin as the first ever Bitcoin-linked ETF in the U.S. made its trading debut: Proshare’s Bitcoin Futures ETF (BITO).
Over $1B worth changed hands on its first day including after-hours trading volume, a record for Day #1 of any ETF launch ever (including Gold).
Bitcoin price hit a fresh high of $67.7k on the long-awaited news, though to be very clear, Bitcoin isn't going up because an ETF was approved...
A Bitcoin ETF was approved because BTC keeps. going. up.
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It's definitely worth reflecting on the fact that Bitcoin hit a new all time high just 12 weeks after everyone and their mother was calling for $0 BTC and every media outlet cheered its demise.
It's important to remember this because each time BTC resurrects from the dead, millions of new "Forever Hodlers" are minted.
During the last rally (March 2020 - May 2021), 204,330,480 new Bitcoin wallet addresses were created!
That's millions of new users who had never seen BTC "die" before.
And just 12 weeks later, after panic selling thinking BTC was dead, these millions of new users watched in disbelief as Bitcoin did what Bitcoin does: rose from the dead, stronger than ever.
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TL;DR
This was the 5th time Bitcoin has fully recovered from a +50% drawdown. Each time permanently reducing the available, buyable supply as people in the "I'm-never-selling-under-any-circumstances-ever" camp increase by the millions.
BTC has returned +719% on average each time this has happened before. If it returns just half of that this time around, it will soon be trading hands at $300,000.00 each.
With DeFi finding serious product-market fit and Web3 entering public awareness in a major way, it's full steam ahead for decentralized, permissionless, disruptive crypto assets.
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N A R R A T I V E F O C U S
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ETFs & ATHs
For those of you living under a rock in October, the two big news announcements were:
- The United States approving its first ever Bitcoin ETF
- Facebook becoming a Metaverse-first company
In other words, the world's most powerful government and the world's most powerful tech company both caved to the admission that decentralized digital assets are here to stay and will be a core component of the internet's next iteration.
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BTC ETF
At long last! Bitcoin has officially broken through the gates of mainstream finance, receiving regulatory validation, increased awareness, and greater investor accessibility in the process.
It's all great. Big milestone.
...and I don't want to rain on the parade, but here's the hot take: the fact it took U.S. Regulators nearly a decade to approve a single investment product proves exactly why DeFi is so disruptive.
In the time it took them to approve one little ETF, DeFi users created dozens of:
And hundreds of other tokenized index-based financial products.
Created by people who didn't have to ask anyone's permission to build. Bought by people who didn't have to ask anyone's permission to buy.
As we say in DeFi:
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Too Little, Too Late
Is the newly-launched BTC ETF a simple, normal, easy-to-understand spot ETF holding real BTC?
Nope - it's a futures ETF which are good for two things:
- Short term trading
- Profiting sophisticated investors who understand nontrivial concepts like contango and backwardation
In other words, the product couldn't be more misaligned to the properties of the underlying asset which:
- Reward long term hodling
- Are meant to be accessible to everyone, not just sophisticated traders
I definitely applaud the forward direction regulators are moving with respect to crypto assets (even if it takes a decade), but I wonder why it's still so difficult to approve an ETF that simply buys and holds real BTC...
Meanwhile, for anyone looking for a more straightforward way to securely buy-and-store Bitcoin long term, there's the M31 Capital Bitcoin Access Fund! |
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Meta (f.k.a Facebook)
Facebook is reorganizing the entire company around the Metaverse. They are the first, but definitely won't be the last, company coming around to the realization we've had for years: that products, services, and experiences built on decentralized architecture are inevitable.
The game theoretic design and anti-fragile properties of Bitcoin, DeFi, and Web3 makes the transition from Fiat, CeFi, and Web2, respectively, a matter of 'WHEN', not 'IF'.
The sooner you understand this, the greater head start you'll have in the new economy.
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The Memeverse
This is a thought I'll flesh out more fully in another post, but we seem to collectively be meme-ing a lot of things into existence recently...
- We meme'd Magic Internet Money into reality
- We meme'd the Shiba Inu dog into a multibillion dollar community
- We meme'd Neal Stephenson's Metaverse into existence
There's a Harambe statue facing off with the Wall St. bull for God's sake...
It's sort of a perfect metaphor: internet-native DeFi "apes" taking the TradFi bull by the horns.
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But honestly, we meme'd Bitcoin (a.k.a. "Magic Internet Money"!!) into a Top 10 global currency.
Think about that for a minute...
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Conclusion
All signs point to the fact that crypto is here to stay. The U.S. wouldn't approve an ETF for an asset it was on the cusp of banning (there are no Heroin-Futures ETFs...)
The largest companies and governments are coming around, not just on Bitcoin but on the emergence of the entire crypto universe (er... Metaverse). And not slowly either: they're diving in head first.
The two major events of October - Meta & the BTC ETF - and their timing is profoundly telling:
Simultaneously as the digital world continues to get meme'd into the "real" world with Harambe statues & BTC ETFs, the "real" world, including even the biggest of centralized tech monopolies, is being absorbed into the Metaverse.
Like two galaxies colliding, the collision of Web3/DeFi gas and Web2/CeFi dust will create new stars as the two worlds continue to pull each other closer at an exponential rate.
Maybe we really are heading toward the Singularity...
If you are interested in investing with M31 Capital, visit this page to access our subscription materials. You can also always reach our Investor Relations team at: contact@m31.capital
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PROTOCOL HIGHLIGHT
In our ongoing effort to be a value-add educational resource for our investors, we include a section in each newsletter highlighting an interesting or important part of the crypto ecosystem
Alchemix (ALCX)
Permissionless lending protocols like Compound and Aave let users deposit an asset like ETH as collateral and take out a loan onchain with a single click.
Alchemix Finance takes this concept a step further by combining two existing protocol functionalities, lending and yield aggregation, into a new primitive: Self-Repaying Loans.
Effectively, by depositing a yield-generating asset as collateral, Alchemix uses the yield to pay down the interest and principal of the loan. Automatically.
All you need to do is sit back and watch your loan repay itself.
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How it Works
Users deposit DAI into the Alchemix Vaults - these vaults park the DAI in the Yearn.Finance DAI vault, generating 9.92% APY (as of writing).
The user can then borrow alUSD (Alchemix’s synthetic stablecoin pegged 1:1 to DAI) up to 50% of the deposited value. The interest rate to borrow alUSD is 10% *of the yield* generated by the collateral.
In other words, your DAI collateral is earning ~10% interest: around 1% goes to the Alchemix protocol's treasury, and around 9% is used to repay your loan.
As time passes, the entire loan will eventually be repaid solely by the yield generated on the deposited collateral.
Example
Imagine you want a $200k overcollateralized loan to buy a house without dealing with banks, paperwork, etc. A user could:
- Deposit 400,000 DAI into the Alchemix vault
- Borrow 200,000 alUSD against it
- Swap alUSD for USDC on Curve
- Cash out USD on Coinbase (or another CEX)
A $200k loan will repay itself in 1,984 days.
In essence, Alchemix's Self-Repaying Loans allow users to get an advance on tokenized future yield.
It's a 10x financial innovation over permissionless lending protocols which themselves are a 1,000x innovation over traditional lending.
Try it for yourself!
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If you want to start working at a Web3 project today, take a look at
M31 Capital's Jobs Board to see opportunities at some of our token investments.
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What We're Reading
A selection of our favorite articles this month:
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U P C O M I N G E V E N T S
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The M31 Capital team will be speaking at and attending a number of upcoming conferences and events. Please reach out if you are interested in connecting, or better yet - meet us there:
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