Dear Investors,
The second quarter of 2024 witnessed a market correction, a normal phase in an ongoing bull market, alongside some favorable developments for crypto. During a bull market cycle even minor negative news can trigger liquidations of (over)leveraged positions, causing prices to decline until they stabilize at a new level which is a typical crypto market behavior. This quarter we had the US government selling crypto seized from the Silk Road, the German government selling their seized BTC, and on top of that, the bankrupt exchange MtGox which still held over 114k BTC, announced a final settlement. While this triggered a market sell off, we believe resolving these long term supply overhangs will help crypto markets to become more mature and absolved from old sins.
Volatility was also influenced by BTC spot ETF inflows and outflows, a new metric to monitor in this cycle. We saw over $4 billion in inflows within 19 days before outflows began on June 10.
In the past crypto bull markets there were around nine corrections per cycle with an average drawdown of approx. 23%, indicating no significant change in the overall market sentiment. In other words, for crypto investors it’s business as usual. :)
The quarter ended with several positive regulatory and adoption developments, setting a solid foundation for continuous growth. With the price of BTC 20% below its all-time high and other cryptocurrencies seeing even larger declines, it presents a good opportunity to consider increasing exposure to crypto. Let’s explore the reasons behind this positive outlook and take a closer look at the projects we believe are poised to become future leaders.
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Key Highlights:
- Common market correction in crypto markets; bullish sentiment intact
- ETH spot ETF approval signals a maturing regulatory environment
- Upcoming U.S. elections as a potential catalyst
- Doubling down on web3 gaming tokens; newly acquired Metaplex position amid NFT sector growth
- Investment in Circle - the issuer of USDC
In the Q2 of 2024, Sigil Core recorded -27.51% vs EUR, -27.88% vs USD, -18.09% vs BTC.
Sigil Core Net Performance vs EUR Q2 2024
Positive US outlook and spot ETH ETFs
On May 23, the US Securities and Exchange Commission approved proposals for the first spot Ether ETFs in the US, following the approval of spot Bitcoin ETFs earlier this year. This decision came amid pressure from Donald Trump’s presidential campaign which began accepting crypto donations and advocated for self-custody of digital assets. This posed a challenge to the Democrats, particularly to the crypto-opposing group behind Elizabeth Warren, forcing them to reconsider their stance. As a result, prominent Democrats shifted their views and acknowledged the political necessity of supporting crypto markets.
Bloomberg’s senior ETF analyst predicted a launch in early July, with leading asset managers like iShares (BlackRock), Fidelity and Grayscale at the forefront. Initially ETH price reacted positively to the news but later retraced to previous levels with the market wide sell-offs led by the German government selling their seized assets. We believe the Ethereum ETF is still not fully priced in.
Despite price declines including significant drawdowns for alt-coins, fundamentally strong protocols are demonstrating solid KPIs. This presents an opportunity to eliminate underperformers and double down on future winners.
Increasing web3 gaming exposure during the sell off
We have a long-term bullish outlook on Web3 gaming. By leveraging blockchain technology, Web3 gaming offers true ownership of in-game assets through fungible and non-fungible tokens (NFTs), decentralized economies, and enhanced security. This empowers players to trade, sell and monetize assets across games which creates a more immersive and player-driven experience. We believe the sector is poised to enter the plateau of productivity phase soon. Therefore we increased ImmutableX (IMX), Ronin (RON), Parallel.life (PRIME), and ParagonsDAO (PDT) positions in our portfolio during the recent sell-off.
source: https://x.com/QwQiao/status/1806657906651119776
Investing in IMX and RON offers broad exposure to the Web3 gaming sector. The IMX blockchain alone supports over 270 games, including major titles such as Illuvium and Bornless. It also has a strategic partnership with ESL, the world’s largest esports organization. Additionally, IMX’s recent promotion, which offers up to $50 million in rewards, has significantly boosted its Q2 growth stats as shown in the chart below.
Ronin is another gaming focused blockchain which targets mostly Asian gaming projects, and we consider it as the best way to get exposure to this high growth potential market. However one of the games they recently announced a support for is the long awaited Web3 RPG Runiverse.
Ronin blockchain surpassed 1.8 million active wallets in July:
Metaplex — leading NFT infrastructure
We believe that NFTs, along with gaming, are poised to enter a new bullish phase after a long period of disillusionment. Over the past few years both sectors experienced significant hype (celebrities launching their own NFT collections or play2earn) followed by a cooling-off period where initial excitement gave way to skepticism and market corrections. However, recent advancements and trends indicate a resurgence of interest and growth.
Metaplex is the most used infrastructure protocol on Solana. It raises the standards of powering the digital assets. Metaplex Core enables more efficient execution, lower minting costs and increased composability for non-fungible tokens. Compressed NFTs allow projects to mint at scale for a fraction of the cost. In the case of the Helium project migrating to Solana, it was nearly a million of NFTs for just $113.
In May 2024, the Metaplex Protocol generated 8 977 SOL in protocol fees, bringing the total to 103 304 SOL. Fueled by popular memecoins, the platform experienced a surge with 497 000 new fungible tokens and 834 000 unique signers. To this day 512M NFTs were minted via Metaplex and it continues to drive growth, including through its newly launched Startup Program.
These developments position Metaplex for significant influence in the Solana ecosystem and broader adoption, making it a highly promising addition to our portfolio.
Metaplex stands out as the only non-trading focused project among the top 5 Solana projects by transactions and active wallets, as shown in the chart below. Additionally, it reduces its token supply through a burning mechanism.
Circle — $5 million convertible note purchased prior to the IPO
Stablecoins have emerged as the ideal product-market fit in crypto assets, boasting a $162 billion total market cap and capturing a growing share of the $100 trillion electronic money market.
Recently, the U.S. House of Representatives passed the Anti-Surveillance State Act, barring the Federal Reserve from issuing a central bank digital currency which highlights the market’s reliance on private sector solutions.
Additionally, Circle’s USDC stablecoin is positioned to seize market share from Tether’s USDT following the new EU digital asset regulations (MiCA) that favor Circle’s compliance and transparency standards.
We’re happy to have secured a $5 million convertible note in Circle through our network of collaborating brokers just before the expected tailwinds and the IPO.
Remaining Optimistic
The introduction of ETH spot ETFs, alongside established BTC ETFs marks a significant long-term bullish development for crypto, poised to positively influence prices. Furthermore, VanEck’s recent filing for a SOL spot ETF underscores increasing institutional interest.
Political dynamics surrounding the upcoming U.S. presidential elections are fostering a favorable environment for the crypto industry, evident in new supportive legislative proposals. This positive trend is also reflected in the odds across various prediction markets at Polymarket, a portfolio company we highlighted in our previous letter as one of our key investments.
Crypto adoption beyond institutional circles is advancing as well. For instance, the enhanced UX/UI solutions now allow for seamless integration of crypto payment widgets into social media platforms such as Twitter, Telegram or Discord through Solana Actions.
However, we are considering the bearish realities as well. The systemic drag of the wider crypto market is “low float / high FDV” dynamics of many big crypto assets, with a large supply of vested tokens being unlocked into the market and not enough structural buyers (liquid crypto funds) to propel the prices.
It is also possible that in the near term the flows for ETH can end up being disappointing. But long term it is hard to imagine that the existence of BTC and ETH ETFs and discussion about SOL ETF are not structurally bullish for crypto space long term.
Considering the above and broader macro situation, we are still confident that crypto markets are poised to grow with stocks and other risk on assets in the next 12 months. That being said, we believe crypto will become more mature and we cannot expect every crypto asset to “catch a bid” like we saw during last cycles.
We predict there will be a decoupling of assets, with majors such as BTC, ETH and maybe SOL leading the way and only a limited number of crypto assets within select segments outperforming. This would be analogous to the last 12 years of tech stock development, where big tech FAANG companies in aggregate outperformed the long tail and VC funds, with only few exceptions.
The counter argument to that is that crypto is, even after 14 years, still a relatively underdeveloped industry with the bulk of its adoption still ahead of us. Sigil thus remains invested in multiple niche segments that we feel have the greatest potential within a 2–8 year time horizon.
Thank you for your ongoing trust in Sigil Fund.