Navigating Digital Asset Volatility: August 2023 Update
In the world of crypto investments, staying one step ahead is everything. August 2023 brought significant shifts in the crypto landscape, affecting the Spectrum Digital Asset Portfolio. In this update, we'll dive into the highlights of August, our strategic moves, and what lies ahead.
August Price Action
August witnessed notable price movements across various cryptocurrencies. Bitcoin (BTC), which had been on a bullish run since the year's start, faced stiff resistance at $30,000. Despite earlier attempts to break this barrier in April and July, mid-August marked yet another failed breakout, leading to a significant BTC sell-off and a subsequent support level at $26,000.
Ethereum (ETH) and most other altcoins mirrored BTC's price dynamics, reflecting the overall market correlation. Reduced trading volumes, typical for the summer months, were observed as many market participants took a break from trading.
However, XRP danced to a different tune. After a remarkable rise from $0.50 to $0.70 in July due to a positive SEC court case outcome, XRP retraced most of its gains in August, closing the month at $0.52.
Our outlook for crypto valuations in September and Q4 '23 is bearish, leading us to adjust the Spectrum Digital Asset Portfolio from 100% crypto exposure to 70%. This aligns with a weak traditional macroeconomic environment, characterized by rising bond yields and a strong USD. These factors also contributed to a pause in this year's equity market rally.
While BTC experienced a brief price boost following Grayscale's court case victory against the SEC, the subsequent gains were limited to approximately +6%, with relatively low trading volume. Later, the SEC's announcement of delays in granting BTC ETFs for WisdomTree, Valkyrie, and Invesco led to a full retracement of the Grayscale news-driven gains. Spectrum capitalized on this news-driven pump to reduce crypto exposure from 100% to 70%. We anticipate a further drop to $18,000 for BTC, at which point we may increase our crypto exposure again.
Despite our short-term bearish outlook, our long-term bullish sentiment for BTC and cryptocurrencies remains strong. Anticipating a retracement, we see this as an ideal entry opportunity before the upcoming Bitcoin halving in April '24. Historical data suggests considerable appreciation in crypto assets following a Bitcoin halving due to reduced new Bitcoin mining. Spectrum aims to be fully allocated to crypto assets ahead of this event, with exposure to BTC, ETH, and high-beta altcoins poised to seize opportunities in this market cycle.
Currently, our portfolio holds approximately 67% crypto exposure and 33% in cash. Our crypto exposure composition includes BTC at 39.98%, ETH at 17.41%, and XRP at 8.21%, representing significant holdings. Although our cash position may seem relatively high for a market in its accumulation phase, we believe this defensive stance is prudent given our bearish outlook for Q4 '23. If the crypto market undergoes the anticipated downturn, our cash position will enable us to re-enter at more favorable price levels.
Regarding the FTX bankruptcy, we have filed our claims in line with the September 29, 2023, deadline. Recovery expectations have been on the rise as crypto asset markets recover from their November 2022 lows. Bankruptcy trustees have also initiated clawbacks against third-party creditors of FTX, further boosting recovery prospects for unsecured creditors.
In the short term, Spectrum maintains a medium-term defensive position. However, our long-term outlook remains bullish, with a close eye on the Bitcoin halving expected in April next year. Should BTC drop to $20,000 or lower, we see this as an exceptional entry point ahead of what we expect to be a highly bullish 2024.
At Stewards Investment Capital, we firmly believe in the essential role of digital assets in investment portfolios. Spectrum Digital Asset Portfolio is our vehicle of choice to navigate these exciting but volatile markets. We appreciate your trust in us and look forward to sharing more updates in the coming months.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the investments or assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results. Information provided by third-party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this communication and are subject to change without notice. The information herein represents the opinion of the author(s), but not necessarily those of Stewards Investment Capital Ltd.