Portfolio Dynamics - February 2024

Welcome to Portfolio Dynamics, your monthly investor update & guide to crypto.

In this February edition, our team reviews a curated selection of headlining coins within our ETP offer that are making waves in the market, as well as providing a comprehensive view of flows within digital asset investment products to get a grasp of investors’ sentiment. Lastly, we review the performance of a balanced investment portfolio containing stocks, bonds and 4% bitcoin—a recipe that pursues to prove its success over the years.

Let’s dive in!

Headlining Coins

In this February edition of Portfolio Dynamics, we look at BTC, ETH and UNI recent dynamics.

Bitcoin

Increasing net flows from spot Bitcoin ETF demand demonstrated organic growth, combined with dwindling GBTC outflows further restricting supply amongst the 70% of circulating coins that haven't moved hands over the last year. On-chain analytics shows the market value of Bitcoin is creeping into over valued territory demonstrated by a 2.19 MVRM ratio, albeit it is far off historical peaks.

Ethereum

ETHBTC ratio has broken the downtrend lasting ~1.5 years with strong alt-coin narratives such as Uniswap's proposal to distribute proceeds to stakeholders. This could cause further Uniswap usage, increasing demand for the Ethereum base layer and ETH gas price, increasing the burn and the deflationary nature of ETH. Ether sentiment has been poor previously, and with alt-coin hype cycle potentially in the beginning phases, investors could see continue to ETH outperform and hog the spotlight.

Uniswap

Uniswap jumped 78% to its peak after the announcement of a proposal to distribute proceeds back to $UNI token holders. The next dates to watch are March 1, 2024, an off-chain Snapshot vote, and March 8, 2024, an on-chain vote. Funding rates, open interest and volumes all stand at historically high rates,

Investors Activity - Monthly Fund Flows

What were investors' moves this month in the market? In Fund Flows, we break down the capital flows in digital asset investment products, including CoinShares Exchange-Traded-Products, providing you with the prevailing market sentiment.

January's successful launch of the US spot-based ETFs continued into February with net new inflows totalling US$6.2bn, an all-time record monthly inflow, and a considerable step up from January which saw US$1.5bn inflows.

Bitcoin was the primary beneficiary, seeing 97% of all inflows, although the recent price run upwards has seen some tepid interest into short-bitcoin investment products totalling US$27m.

Ethereum has also benefitted from the Bitcoin SEC approval, with high expectations that an ETH ETF could follow and be approved in May 2024. Consequently we saw US$137m inflows in to Ethereum investment products.

Solana, on the otherhand has suffered, we suspect this is due to recent investor concerns over the recent downtime the network experienced.

Portfolio Review

Conventional wisdom is that bitcoin has had great returns but it does that by adding substantial risk (volatility) to a traditional equity/bond portfolio.

However, our research has found that:

• Small weightings of bitcoin have an outsized positive impact on risk-adjusted returns and diversification relative to other alternative assets.

• Bitcoin’s lack of correlation to other assets make it a useful alternative asset that can help reduce exposure to economic cycles.

• Quarterly adjustments (rebalancing) of Bitcoin, back to the original weight in the portfolio can help limit volatility and enhance returns.

February saw Bitcoin significantly outperform both gold and equities while the volatility has remained relatively low. While the correlation between equities and bond has fallen it remains positive at 30%, much higher than the current equity-bitcoin correlation at 7%. Investors consequently continue to seek alternative assets that diversify, and in meetings we are increasingly seeing clients cite Bitcoin as having attractive diversification merits.

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