Dear Investors,
In Q3 crypto markets were mostly influenced by macroeconomic factors, ETF flows and corrections across altcoin markets. The anticipated launch of the first U.S. spot ETF for Ether (ETH) took place in July. Following the launch ETH’s price saw a sharp decline. We witnessed significant sell-offs by large funds such as Grayscale, Paradigm and Jump Trading. Over 430,000 ETH ($1.29B at $3,000 per ETH) was sold.
While some viewed it as an underwhelming launch, it is important to note that by the end of Q3, U.S. Ethereum spot ETFs collectively reached a net asset value of $7.44B. Notably, BlackRock’s fund alone surpassed $1B in AUM within just two months, signaling growing institutional interest in crypto assets. For comparison, the highly successful Sprott Uranium Miners ETF managed to gather only $130M in AUM over a similar period, highlighting the scale of interest in the Ethereum ETF market.
Despite positive developments, ETH continues to underperform compared to BTC, which makes it a frequent topic in our investment meetings. Since The Merge (Ethereum transitioning to Proof Of Stake), we’ve maintained a large position in ETH, recognizing Ethereum’s progress in scaling through L2s and L3s. However, it’s uncertain if this roadmap benefits ETH the asset, as much of the activity may shift to L2s. We share some concerns about ETH’s future value capture but remain optimistic about its fundamental utility and hold a substantial position in ETH. To ensure probabilistic exposure for our investors, we’re also diversifying into Solana and other ecosystems. Our goal is to identify future winners within and outside the Ethereum ecosystem.
August saw a surprise rate hike by the Bank of Japan triggering a massive unwind of the yen carry trade, which resulted in global market sell-offs, including the liquidation of over $1B in leveraged crypto positions within just two days. This proves crypto markets are becoming more and more connected to the overall global economy.
Q3 closed on a positive note, with altcoins finally showing good performance, following the FED’s 50 basis point rate cut. FED’s chairman Jerome Powell signaled additional smaller cuts ahead, paving the way for a risk-on market sentiment.
From a micro perspective Sigil thrives to find the best performing crypto assets. From a macro perspective, we are all macro investors. Macroeconomic factors will continue driving this cycle. U.S. interest rates are putting pressure on fiscal sustainability, with 76% of June’s income tax revenue used for debt servicing. Historically, monetary easing has driven speculative growth of risk-on assets, and crypto is expected to lead this cycle as further rate cuts are anticipated. Sigil Fund is positioned to capitalize on the upcoming liquidity wave, viewing the current moment as a favorable time to invest in crypto before further rate cuts.
Key Highlights:
- Ether Spot ETF launch & Market Reaction
- Impact of Macro Factors
- Singapore Conferences Highlights (Wayfinder & Mother)
- Tron’s Strong Performance
- Investment in Helium (DePIN sector)
In the Q3 of 2024, Sigil Core recorded -6.82% vs EUR, -3.34% vs USD, -4.10% vs BTC.
Sigil Core Net Performance vs EUR Q3 2024
In September our investment team attended major crypto conferences in Singapore, including Token2049 and Solana Breakpoint, along with numerous side events. This provided an opportunity to connect and catch-up with top crypto founders. Should one name any project that stood out, it would be Wayfinder.
Wayfinder
Imagine a chatgpt like AI chatbot, which upon receiving and confirming instructions from you, acts on your behalf as your financial agent, executing transactions, deploying smart contracts, researching and managing your assets. We believe this could be the new interface most people will use to interact with their crypto finances. There are a few projects building in this direction, but the Wayfinder demo we saw in Singapore was by far the most impressive.
Led by the Parallel team and their world-class CEO Kalos, Wayfinder is an omni-chain AI tool that enables secure, cross-chain transactions through Web3 wallets. Its key innovation, “wayfinding paths,” allows AI agents to interact with decentralized apps, manage assets, and learn autonomously.
Sigil will gain exposure to Wayfinder’s token, PROMPT, by a cached portion of our PRIME holdings resulting in receiving PROMPT once the token is issued.
Gaming
We see gaming as one of the biggest angles of mainstream adoption for Web3, and Asia is the most interesting gaming market. Our observations in Singapore reinforced this belief and led us to double down on Ronin (RON), as the leading asia-focused web3 gaming infrastructure.
Memecoins
Even though Sigil is dominantly a long term tech investor, we can’t ignore the relative outperformance of memecoins this cycle. Memecoins are basically tokens with no underlying product, innovation or promise of future product or value capture. They represent viral internet memes which people then trade based on the zeitgeist. Before you dismiss this idea as short term speculation consider some of them retained billion dollar valuation for multiple cycles (Dogecoin was created in 2013 and is firmly in TOP10 biggest cryptocurrencies).
While we do not consider memecoins as innovative in any way, they are very attractive to retail traders and some command big and passionate communities of holders. We could see memecoins as tokenized internet culture brands around which speculators and crypto-natives gather, speculate, unify and try to make their get rich quick dreams come true.
Because of their speculative and sometimes outright nonsensical nature (why would a coin with a dog be worth anything?), memecoins are not attractive assets for most institutions and other sophisticated investors. They are dominated by retail and thus are more prone to market inefficiencies. We at Sigil decided to allocate a small portion of our fund to select memecoins which we believe can yield outperformance this cycle.
Now back to Singapore — Iggy Azalea’s Motherland Rodeo Party was probably the most talked about side-event of the conference. Iggy Azalea is a rapper and creator of the $MOTHER coin, a memecoin centered around her celebrity persona.
Sigil is holding a speculative position in $MOTHER, which may raise the eyebrows of some of our investors. The project, while controversial, received positive acceptance within the crypto community thanks to its innovative approach to celebrity-fan engagement, and Iggy’s viral social media presence. We don’t think of $MOTHER as a pure memecoin, as there are plans to give the token additional utility from online casino and other products launched or supported by Iggy.
The project’s buzz at the conference, combined with its bold and unconventional marketing reaffirmed our confidence in what we refer to as the “fat ass thesis” on $MOTHER coin. (note: “fat protocol” is a term for blockchain infrastructure accruing more value with more activity on top of it. Similarly “fat app” is an investor term for a blockchain application layer startup accruing value to itself and its token via user adoption.).
Tron
We believe stablecoins are one of the biggest use cases of blockchains.Tron blockchain has established itself as a dominant player, facilitating USDT transactions across the world, mainly in less developed regions, where access to USD digital payments is non-existent. These include countries from South East Asia, Latin America, but also Nigeria, Turkey or UAE.
While Tron doesn’t possess the cheapest and fastest blockchain, it was able to gain a strong network effect with Tether (USDT), first across crypto exchanges using it as settlement network and later among aforementioned unbanked regions. Tether is a clear stablecoin market leader with a market capitalization over $119B and a market share of over 75% among stablecoins. With More than 50% of its issuance on the Tron blockchain, buying TRX appears to yield the best exposure to USDT adoption.
Stablecoin Chain TVL:
Our bullish view was validated by TRX’s strong performance during Q3, despite broader market weakness. The Tron network reported a record $577M in Q3 revenue, surpassing key blockchains like Bitcoin and Ethereum in quarterly earnings.
However, we also had to carefully evaluate the risks associated with Tron’s founder, Justin Sun, and the protocol’s centralization around his leadership.
Circle
The second largest player in the stablecoin arena is Circle, issuer of USDC. Sigil also holds a position in Circle’s equity, betting on the IPO event next year.
Helium
In our Q4 2023 letter we described the potential of Decentralized Physical Infrastructure Network (DePIN), which might become another fast growing crypto segment in near future. However, finding investable DePIN projects turned out to be challenging due to inflated valuations, flawed tokenomics and unfavorable risk/reward profiles.
According to our research, Helium and its token HNT is a rare investable exception in DePIN category. Initially expanded as an IoT network by leveraging blockchain technology and token incentives, resulting in the deployment of hundreds of thousands of hotspots during the 2021 bull market. Later it broadened its focus to 5G and mobile services, attracting nearly 95,000 subscribers from the US utilizing T-Mobile network as a Virtual Network Operator.
The further growth for Helium may present in offloading data for large operators. Promising first tests have already taken place. It may also push its Helium MOBILE further in the US and also expand into developing countries. Additionally, Helium is entering the energy sector with a ‘virtual power plant’ network — enabling hundreds of thousands of already deployed IoT devices to contribute to the energy grid with a simple software update.
Recognizing Helium’s upside potential, Sigil took advantage of the April drawdown and added Helium Network Token (HNT) to its portfolio.
What Do We Expect Next
As we look ahead to Q4 2024, we maintain a bullish outlook. If the four year cycle thesis holds, it would suggest we could be entering the main phase of the bull market. For more insight on this, please refer to our CEO’s letter, especially the charts at the bottom outlining the cycles. Note that while we are fully allocated, expecting the bull market to continue and altcoins to finally catch up, we keep challenging our thesis and shifting our portfolio according to new insights.
On the macro side, the upcoming U.S. elections are another trigger, particularly in case of Trump’s win. Trump is definitely seen as a pro-crypto candidate for most of the market participants. Harris’ win could yield more short term uncertainty and volatility, but even she started to voice more positive messages towards our industry.
Beyond elections, the broader economic outlook is positive as we anticipate quantitative easing measures (not just from western countries but also China) that have a potential to create another liquidity wave.
Thank you for your ongoing trust in Sigil Fund.