Luke's Crypto Fund achieved a return of 7.6% over the First Quarter of FY2022.
Our Crypto portfolio as at September 30, 2021 is as outlined in Figure 1 below:
Figure 1 - Crypto Fund Asset Allocation Pie Chart
The breakdown of the Fund’s performance contribution is outlined in Figure 2 below:
Figure 2 - Crypto Fund Asset Performance Contribution bar Chart
Figure 2 shows Ethereum (new position) was a drag on the Fund performance over the quarter. This is primarily Bitcoin outperforms Ethereum in "bear" markets, whilst Ethereum outperforms Bitcoin in "bull" markets. We began adding to Ethereum during and just prior to September, during a "bear" phase.
As can be seen in Figure 1 above, we have expanded our portfolio to include Ethereum tokens. We opened a position in Ethereum, following the successful implementation of the London Fork, as part of the progress towards Ethereum 2.0. The reasons why we have incorporated Ethereum into our portfolio is as follows:
New wallet growth, the number of developers working on the protocol , applications, and layer 2.0 networks are larger than Bitcoin's. With the adoption and the expansion of decentralised finance and non-fungible tokens, it seems quite clear, Ethereum’s use case, and the network adoption will inevitably surpass that of Bitcoin.
The transition to Ethereum 2.0, proof-of-stake model, together with the implementation of the London Fork has made Ethereum 2.0 a scarce asset, with long term holders staking their tokens to earn yield, and Ethereum tokens being burnt via transaction fees following the London Fork. Currently, Ethereum stock to flow ratio is less than that of Bitcoin.
We consider Ethereum to be the better investment, and will seek to increase our weighting in Ethereum over time.
Furthermore, we are entering what traditionally is the final phase of the quadrennial Bitcoin bull cycle. We have outlined how the previous cycles have transpired in Table 1 below according to the corresponding calendar months within the cycles, we note this is a very small sample size, and are not relying on this alone in our decision making. A unique feature of blockchain derived assets, is the ability to analyse transactions far more deeply than any other market today. We subscribe to on chain analyst, Willy Woo, and he has identified Bitcoin is in an accumulation phase, where long term holders are acquiring more Bitcoin. This has always preceded strong price action in Bitcoin over the medium to longer term. For this reason, we have increased our exposure to Bitcoin and Ethereum over the second quarter of the financial year through Luke’s Global Fund, which we outlined in our report earlier today.
Year Following Halving
Table 1 - Historical Bitcoin Price Movements - Year Following Halving
OVERALL ASSET ALLOCATION
The asset allocation across Luke's three funds is outlined in Figure 3 below:
Figure 3 - Overall Asset allocation Across Luke's Funds
We believe we are on the verge of a one in four year event, that has previously resulted in significant returns for Crypto investors. If we begin to experience the rally that we are expecting, we may well provide an update prior to the end of Q2, to give you dome insight on our exit / trimming strategy should the market become overly exuberant.
If you have any opinions on our asset allocation, crypto, or what like to know more, we would love to hear your feedback.