Dear Investors,
The final quarter of 2023 showcased strong growth. The initial uncertainties in the markets at the beginning of 2023 were forgotten and the year was overall very positive.
The primary focus of the growth in Q4 centered around the anticipated approval of spot BTC ETFs which materialized in January 2024.
In the Q4 of 2023, Sigil Core recorded +68.22% vs EUR, 75.49% vs USD, 12.13% vs BTC.
Over the course of the entire year 2023, the performance of Sigil Core was +131.28% vs EUR, +137.99% vs USD, -6.76% vs BTC.
Sigil Core Net Performance vs EUR Q4 2023
A Recap of 2023 Financial Dynamics
In 2023, the S&P 500 experienced a robust return of +26.29%, contrasting sharply with the -18.11% decline observed in 2022. Reflecting on the crisis year of 2008, the S&P 500 plunged by -37.00%, only to rebound with a remarkable +26.46% in 2009.
The total crypto market cap already surged by 120% in 2023. While stocks respond promptly to a decrease in Fed rates and economic stimulus, sectors like real estate tend to lag behind. Notably, the crypto market exhibits an accelerated and amplified reaction, a bit like “stocks on steroids”.
We could say BTC is now perceived as a technology stock, and this trend will continue given recent ETF approval. ETH being the second major crypto asset also reflects this correlation. The attached five-year chart shows the performance dynamics of BTC, ETH and technology stocks. Notably, NVDA is experiencing an upswing due to the AI trend, while other stocks have reverted to their mean.
In contrast, gold, being a conventional asset has sustained its stability but lacks the dynamic wealth storage appeal witnessed in the growth of BTC.
The market capitalization of stablecoins not only reflected the upward trajectory of BTC prices, but also revealed the inflow of capital into stablecoins as illustrated in the chart showing the net positive change in Q4.
The comparison with venture capital investments provides an interesting perspective, albeit with some delay. Based on the following chart, it can be assumed that there will again be an increase in crypto VC invested capital in the following years.
Solana Rally
The bullish sentiment materializing with the SOL growth in Q4, was seen as confirmation of the start of the bull market. SOL witnessed a 7x increase in 2023. Commencing from June 10, Sigil adopted Dollar Cost Average (DCA) strategy to accumulate SOL, additionally staking it to gain extra yield in Marinade and Jito (with the latter also aiming for the Jito airdrop).
Blast Launch
In November, a new Ethereum Layer 2 (L2) offering “native” yield for ETH and stablecoins was launched. Sigil secured early access starting Nov 21 through a code-restricted entry. Blast provides approximately 5% yield on staked assets, with additional performance expected through a future BLAST airdrop. The yield is generated via Lido staking, which contributed to the growth of LDO price, a significant position in our portfolio. Developed by the Blur team, staking BLUR in Blast protocol will also result in an airdrop.
Blur Investment
Blur is a leading NFT marketplace and lending protocol with a liquid token. Sigil acquired a BLUR position on 21.11 at $0.33 and staked tokens in the Blast protocol. An unexpected Binance listing on 24.11 led us to sell 50% of our position at $0.6. Subsequently, we rebought roughly the same amount at around $0.43 on 18.12.
PRIME Price Moves
In March, Sigil obtained the anticipated PRIME token through investments in Parallel assets, accumulating a total of 93,000 tokens. Following this, a substantial portion was sold at an average price of approximately $6, as outlined in our Q1 2023 investor letter.
From June to August, we started buying back between $1.8 and $3.50, while continuously earning PRIME via Parallel assets. By late August, we decided to book some profits by deploying assets to the UNI v3 ETH and PRIME liquidity pool while also generating trading fees. In September and November, we strategically bought back during price drops. November saw us once again taking profits through the ETH and PRIME liquidity pool in the selling range between $9 — $12, earning substantial LP fees along the way.
We remain bullish on Parallel.life and its PRIME token with currently approximately 2.9% held directly in our portfolio and an additional 1.8% through the proxy PDT token and keep earning more via PRIME generating assets.
Portfolio Insights
While we are not in a habit of writing analytical predictions, our portfolio represents a bet on the future developments in crypto markets. Here are some noteworthy insights from our portfolio.
BTC mining
Last year Bitcoin outperformed Ethereum and most of the other major crypto assets. The BTC halving has gained recognition among a broader population, which anticipates the subsequent market growth. This might just evolve into a self-fulfilling prophecy.
We are long BTC, but we believe that with its size it will be hard for it to keep outperforming. There are few ways to get beta to BTC exposure. One obvious segment to look at is Bitcoin mining. Currently, revenue of Bitcoin mining companies hovers around zero or even turns negative due to fixed mining costs and volatile nature of the value of BTC. But if we expect the BTC price to rise (thanks to the upcoming halving and the ETF tailwinds), we must assume it will translate into increased profit margins of Bitcoin mining companies. Furthermore, the possession of BTC in the treasury mining companies becomes advantageous during BTC surges. Hence, Sigil has decided to include Valkyrie Bitcoin Miners ETF in its portfolio.
ETH Burn & Layer 2 Scaling
Since the Merge, over 300k ETH was burned, instead of +5M ETH minted if Ethereum stayed on PoW. With current prices, that is over $13b sell pressure gone. As the bull market accelerates, a growing number of transactions is expected. Even more ETH will be burned which will likely drive prices higher. An intriguing development.
Furthermore, we anticipate scaling solutions to emerge on Ethereum, primarily through Layer 2s, competing for market share. Notably, Manta with its Pacific modular L2 network for zero-knowledge applications, has been recently added to our portfolio.
Decentralized Physical Infrastructure Networks (DePIN)
DePINs revolutionize the construction of networks, including WiFi or solar power setups. Builders of these decentralized networks receive financial compensation and ownership stakes in the network.
It’s no surprise that this area caught the attention of big companies such as Google which was strongly visible during the Breakpoint Amsterdam conference.
We see Filecoin as a great product-market fit. Filecoin operates as a decentralized peer-to-peer network designed to securely store and retrieve data in an efficient, censorship-resistant manner. Users can engage in the trustless and transparent buying and selling of storage space, presenting a groundbreaking alternative to conventional centralized cloud storage services.
Conclusion
Overall, Sigil is currently fully allocated in long positions, focusing on maximizing performance in a bull market. With such a strategy we expect higher than usual portfolio volatility, but in case our market cycle assumptions are correct it will lead to over performance.
In 2024 we also expect a new wave of mainstream adoption. This will help us to validate (or invalidate) many of our investment theses. We plan to rebalance our portfolio according to our learnings. Investors can thus expect higher than normal turnover in our non-core part of the portfolio.
While BTC experienced a significant surge of +156% last year, it was still within the accumulation phase of its cycle, a pattern that historically precedes a bull market (you can read more about BTC cycles here). From an investment standpoint, there remains a favorable risk/reward ratio to invest in crypto before the onset of the bull market, typically observed several months after BTC halving, scheduled for April this year.
Thank you for your ongoing trust in Sigil fund.