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Monthly Commentary (February 2022)


The Smart Beta Liquidity Index (SBLI) aims to capture a balanced and long-term exposure to the market. SBLI gained +6.07% in Feb.

While the overall crypto markets recouped some of the previous month's losses in February, the portfolio remained cautiously optimistic. We are in an interesting time where shifts among the underlying cryptocurrency sectors are happening in terms of fund flows/market cap dominance and adoption, similar to the periods seen in the past couple of years. This kind of dynamic is normal and healthy in the long run.

It is important to include exposure of promising Alts (besides BTC) while navigating the market carefully. Indeed, Alts carry higher return potentials in hindsight, but certainly not all of them, and often they are highly volatile. For example, the gradual inclusion of ETH and our smart beta factors significantly contributed to the SBLI outperformance over the Top 10 (benchmark) over the past 4-5 years (since 2017 and 2018). SBLI also consistently outperformed BTC over recent periods like 2021. These consistent benefits of our Smart Beta factors typically become more notable once these underlying trends play out.

Looking Ahead

Despite the market volatility, we remain optimistic for crypto in 2022. We strongly believe the smart-beta factors will continue to serve the investment objective of SBLI. The current consensus year-end price targets imply a +26%~ overall gain from February. MTD: SBLI +1.59% vs Top 10 -8.77%, BTC-8.78% and ETH -8.71% (as of March 5th).


Macro Update

The Russia/Ukraine conflict takes center stage as global macro markets turns into risk off mode when Putin ordered troops into different parts of Ukraine. Since 24th of February when the invasion officially started we saw equities and risk on assets initially dump, we saw an interesting phenomenon and saw most risk on assets (specifically for BTC) making a u-turn intraday, closed the day higher, and even turned the trend around.

There have been a lot of talks amongst the market about BTC finally being recognized as a safe haven asset just like gold, due to international sanctions against Russia to be removed from SWIFT payment system (along with a slew of asset freeze / trade sanctions). I wouldn't trust the narratives just yet as historically data shows crypto is still largely uncorrelated (and relationship is erratic) amongst key tradfi assets. Taking the 30day rolling correlation as an example, you can see that there are barely any correlation against Gold or S&P 500; if anything there's a relative stronger relationship with DXY (ranges from 0.4-0.7 since start of the year):

With macro market now expects a less than 50bps hike this month, the crypto world is now embracing Bitcoin as the de-facto asset to hedge against dollar inflation. News on Russia Central Bank to legalize bitcoin, alongside the Ruble's depreciation due to geopolitical risks, is potentially creating more demand for crypto in general.

According to Citi, Russians have bought an average 210 Bitcoins a day with rubles over the past week. At recent prices around $44,000 per coin, that would amount to $9 million a day.

We expect the war in Ukraine to continue take center stage of the market this month. As crypto continues to have stronger ties with tradfi market due to increasing institutionalization, our eyes will continue to be on how legacy markets react as the war unfolds.



Total marketcap trend

The total marketcap kept within a smaller range this month (1.5T - 2.06T) and managed to close back in the green after 3 months of downtrend. Looking at the D3 chart, it is encouraging to see the market bounced off the 200EMA (light pink line) to form a double bottom; coinciding with a rising RSI and breaking out of a long term diagonal downtrend, we hope to expect some more consolidation around this range and look for a rebound in growth. This is all dependent on whether there are any surprises from the war (or from the Fed) of course.


The corn follows similar setup as the total market cap. One key point to look at is on the weekly chart as BTC was on the lifeline once again, trying to save itself from breaking below the cloud. The last time it broke, the market had a strong rebound reaction (back in mid January). Similar reaction was seen from the run in end of February that sent BTC from 37k to 44k; however we need to move back above the clouds swiftly to reclaim the bullish trend - otherwise we may have to expect a longer correction phase to come.

BTC Dominance

While BTC dominance continued to climb higher in February we're noticing a bearish divergence against RSI on weekly timeframe. It is also hitting the 50 Week MA (green line) - possible sign of altcoin season to come?

BTC & ETH exchange net flows

Exchange netflows from CeFi (exchanges) continue to be on the quieter side of things, with BTC showing more outflows than inflows.

We're also not seeing any significant change in long term holders addresses since December - which makes a very strong case of BTC holders resiliency in a downtrend.

What's interesting is there is an uptick of wallet addresses larger than 1000 BTCs that happened at the end of the February. Perhaps some institutional buying?

Spot vs Derivatives

Since late January we're seeing CVD on derivative positions moving higher whilst spot CVD staying largely flat - which signals the move is still artificially driven by short term speculation. The Long/Short accounts ratio still appears on the low side, which denotes that majority of the traders are still not bullish in the market just yet.

Volatility (Options)

Vols smiles continue to be skewed to the downisde - the market sentiment is still bearish amid the uncertainty in the outcome of the Ukraine war which is ongoing.

Rolling 30 day Realized vol managed to break above implied volatility when the news of war broke out. Seeing how its only short dated realized vols breaking higher (while other tenor's realized vol stayed roughly in line), should you believe vols will subside this is a great opportunity to be shorting vol (or gamma) here.

Open interest continues to be concentrated in the quarterly expiry (25March) with more calls than puts open interest. No change in the max pain price of 42k at the moment.

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