Trade Update: Selling altcoins and shoring up cash

Monday, Mar 13th 2023

Investor Update

We’ve sold all of our altcoins and retained our positions in Bitcoin and Ethereum, bringing our net exposure from ~92% to ~85% in Titan Crypto.

The table below summarizes these moves:

Before we dive in, we want to be abundantly clear. No client capital is affected by the recent events with Silvergate Bank, Silicon Valley Bank, or Signature Bank. Neither Apex Crypto nor Apex Clearing have any direct exposure to these institutions.

Selling our altcoins and shoring up cash

We made the decision to sell all of our smaller altcoins on Monday and added those proceeds to our strategic cash reserve (now a ~15% weight). We left our positions in Bitcoin (BTC) and Ethereum (ETH) unchanged. 

Why? We don’t believe the fundamental risks associated with recent events (outlined below) are being appropriately discounted and price has become disjointed from fundamentals. 

Prices of many crypto assets are up ~10-15% over the past 48 hours after American regulators made the decision to protect depositors’ funds following the collapse of Silicon Valley Bank. We think this is leading many crypto investors to “look through” recent events and view crypto as mostly unaffected.

We are less confident of this conjecture given the number of unknown unknowns with respect to contagion risks.  The risk/reward here appears sub-optimal for the four altcoins we held, so we sold. 

We continue to like BTC/ETH, which we believe may have the global liquidity and institutional backing to not only survive but thrive amidst this volatility; hence those positions remain unchanged.

Recent events and risks

Over the last few days, we saw tremendous panic and unraveling in a number of key crypto assets, banking, and crypto infrastructure firms. 

We detailed several of these in our Three Things update. Here is some more color in case you missed it: 

  • USDC De-Peg. Circle’s USDC stablecoin broke its peg with the US dollar, with $3.3 billion stuck at Silicon Valley Bank. Investors cashed out over $2 billion worth of USDC, knocking the dollar-pegged token below 87 cents. USDC has now recovered almost all of its losses since Saturday’s lows after Circle assured investors it would honor the peg despite its exposure to failed SVB.

  • Silvergate Bank Collapse. Silvergate was the bank of choice for the vast majority of the crypto industry. Its woes began after major customers, like FTX, unraveled. Ultimately Silvergate was forced to sell off assets at a loss and shut its flagship payments network (the heart of its services for crypto clients).

  • Signature Bank Collapse. Signature Bank, a lender that served numerous crypto companies (including Coinbase and Circle), failed over the weekend and was taken over by regulators. Signature helped enable fast payments between customers like hedge funds and exchanges in an effort to support digital asset liquidity. Following the collapse, the Treasury Department assured depositors that they will have access to their capital on Monday.

Of the many recent events, the main risk we see for crypto is that the ecosystem has basically been de-banked, especially when it comes to 24/7 fast payments rails. The Silvergate Exchange Network (SEN) and Signature Bank’s “Signet” were real-time payment platforms that allowed commercial crypto clients the ability to make payments in dollars at any time (24/7/365). Major companies like Coinbase relied on Signet to allow clients to instantaneously transfer and settle funds.

[Apex Crypto, our crypto custody provider, does not hold any funds at these institutions and does not anticipate any impact to operations as a result of this series of events.]

If both platforms go out of commission, users may have trouble efficiently moving capital which may have an impact on overall crypto liquidity. We anticipate this may have an outsized impact on the prices of already less-liquid alt-coins.

Perplexing price action vs. risks

It’s no surprise that the recent events are stoking negative price action and bearish sentiment in global equity markets. But counterintuitively, most crypto assets are currently up ~10-15% from their weekend lows.

Perhaps this is just the first-order consequence of the Treasury, FDIC and Federal Reserve announcing that bank depositors will be made whole. Or maybe it’s evidence of crypto’s hedging properties to equities / risk assets, in particular during banking crises – one of the main tenets of the bull case for cryptocurrencies.

On the other hand, perhaps crypto investors are ignoring the potential contagion risks that could surface in the aftermath of the recent events. Specifically, what if the crypto ecosystem is unbanked?

While BTC and ETH may have the global liquidity and institutional backing to not only survive but thrive amidst this volatility, we view the risk/reward for altcoins much less favorably.

Selling our positions in altcoins and moving the proceeds to our cash reserve (earning 3.2% APY as of this writing) seems to be a better risk/reward opportunity at this time. 

The recent trades bring our net exposure in Titan Crypto to ~85% and we remain defensively positioned with high levels of strategic cash.

As always, let us know if you have any questions about these moves.

–Your Titan Team

As of this writing, BTC, ETH were a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.

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