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  • Writer's pictureVimal Gor

Trovio's December Flash Report

Updated: Feb 15

Digital assets solidified their outperformance in 2023 with a strong rally into year-end. Throughout 2023, the crypto market added $848Bn to its market capitalisation, largely led by Bitcoin which saw its dominance (over the total market cap) rise from 42% to 52% throughout the year. As many anticipated, the SEC announced the approval of spot Bitcoin ETFs on the ARK application deadline – this is a huge milestone for the maturity and acceptance of digital assets, more on that in our outlook below.

As highlighted to investors earlier in the week, our flagship Digital Asset Fund returned a net estimate of 18.5%* for December, bringing its total return for the year to 109.2%*. The continued uplift in investor activity across marketplaces provided an opportune environment for our Digital Asset Market-Neutral Fund, with the Primrose Capital team’s relative value volatility arbitrage strategy returning an estimated 10.9%* for the month, net of fees. We are pleased to partner with the Primrose team on this strategy which continues to be developed by the highly experienced team. Primrose will be issuing commentary shortly – if you would like to receive a copy, please let us know.

Whilst the ongoing speculation of ETF approvals pushed Bitcoin up 12% in December, within the crypto ecosystem, leading Alt-Tokens dominated returns, with some returning over 100% for the month. In our view, some key catalysts and narratives spurred the Alt-token market to rally:

  • Solana's continued rise throughout 2023 – further fuelled in December by the sell-out of Solana Saga phones and speculative meme-coin trading. Solana’s tie to FTX and SBF saw it hammered in the 2022 sell-off, however, the shifting preference for monolithic blockchains and a strong developer presence pushed the Layer-1 back in favour.

  • Proliferation of Inscriptions – initially used as a method of bringing NFTs to Bitcoin, inscriptions have also taken off across a range of other blockchains including Ethereum Layer 2’s like Arbitrum, and Layer 1’s like Avalanche, with the latter seeing 76% of network gas fees in December originating from inscription activity.

  • Token airdrops – throughout the last few months of 2023, several notable projects airdropped tokens to early adopters, driving fresh value and activity into the digital ecosystem.

We believe December was a sneak peek at the next bull cycle. Whilst Bitcoin (and arguably Ethereum as it matures into a “blue-chip” digital asset) are key components of any investor exposure to the space, we believe there is utility and value that is captured by a range of different blockchains and protocols, a reason why we are proponents of diversified exposure to the space.

As we enter the new year, we believe the recently approved spot Bitcoin ETFs in the US will act as a positive catalyst for fresh capital entering the digital asset market. As reported by Bloomberg analysts, the newly listed Bitcoin spot ETFs saw over $4.3Bn in volume on their first day of trading (over $6Bn if you include the existing BITO Bitcoin futures ETF). Whilst over $2Bn in volume was from Grayscales GBTC which were likely sales given the previous illiquidity of the trust, overall, the opening day of trading was a successful launch, especially considering large brokerages like Vanguard and Merrill Lynch chose not to support the products.

On the back of the approvals in the US, many expect to see similar approvals in other jurisdictions. Locally in APAC, Hong Kong regulators have recently expressed readiness to accept spot ETF applications, and the ASX in Australia appears to be considering approving its first Bitcoin product.

We believe the impact of the ETFs in the long term cannot be overstated. Soon we will see the world's largest asset managers actively promoting Bitcoin to investors as a key component of a balanced portfolio, in our view, pushing the asset “across the chasm” to a serious and investable global asset. On the role of Bitcoin in a portfolio, Coinbase recently released its Q1 2024 Guide to Crypto, which highlighted Bitcoin's return to low correlations to traditional assets in 2023 following the uncharacteristic tight correlations in 2022.

As covered previously, alongside the ETFs, Bitcoin’s halving is scheduled to take place in April. Historically, Bitcoin halvings have been the driver of Bitcoin's 4-year cycles. With the halving of new supply paired with an all-time high level of coins that haven’t moved in 1+ years, alongside increased demand from new access points, we believe 2024 will be another positive year for the adoption of digital assets. 

Please do reach out to the team should you wish to discuss any of the above commentary or outlook in more detail -

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