Quiescence & Volatility

From: Ari Lewis and Sagar Rambhia
Date: 03/31/2018
Subject: Quiescence & Volatility

March 2018 recorded Fund I’s worst performance since launching mid-2017. We lost 45.4% during the month. The cryptocurrency market saw a broad sell-off attributed to retail investors covering tax payments for the year of 2017. Many investors amassed significant tax bills due to the substantial run-up in prices in 2017. Additionally, many investors did not know they had to pay taxes on gains made in cryptocurrency. This tax event left many investors scrambling to sell at the last minute.

Tom Lee of Fundstrat1 estimated $25B was owed in taxes for cryptocurrency-related gains. If this is true, $1 of outflow equated to about $20 in market capitalization decline. The sell-off highlights thin liquidity and the immaturity of the cryptocurrency markets. We do not believe capital outflows were significant compared to the total capitalization of the markets. We think these and other recent events are creating opportunities.

We continue to remain optimistic for 2018. We were net buyers in March and believed institutional money would soon pave the way for a resurgent bull market in 2018. One factor is particularly attractive. Although the development around custodianship tools progressed more slowly than anticipated, custodianship challenges show signs of resolution. We believe this will be a pivotal catalyst to inflows from pensions, sovereign wealth funds, and institutional investors poised to bring significant capital into the market.

Thanks,
Ari & Sagar