August 2020 Market Commentary

Paul Cappelli, Portfolio Manager

September 12, 2020

To those just beginning their foray into the digital assets space, August may not have appeared to be much
more than a flat month.

Bitcoin rose a modest 3.32% amidst consistently strong spot volumes in the $1B – 2B range while pushing
towards a high of $12,400 mid-month, finishing with a closing mark of $11,731.42. It continued to build
around its narrative as tech stocks in the NASDAQ 100 pushed to record highs, gaining another 10.94%
while the S&P 500 rose 6.98%.

The broader market had more overt activity. The Bloomberg Galaxy Crypto Index (BGCI), which measures
the broader digital assets market, rose 11.21% to 558.82 for its highest monthly close of 2020. This was
largely driven by the continued out-performance of Ethereum, which finished with a price of $438.16, an
increase of 27.10%. Decentralized finance (DeFi) growth continued to “lock in” billions while investors
expanded their exploration of DeFi applications. For peer-to-peer primitive financial functions such as
lending, debt issuance, and compounding interest, ETH continues to benefit as the backbone for these
transactions’ operations.

Back to bitcoin: unbeknownst to many casual observers, August saw one of the most seminal and
legitimizing events for the space to date. MicroStrategy Inc., a business intelligence software firm publicly
traded on the NASDAQ (ticker: MSTR), announced a balance sheet investment of $250 million into bitcoin.
This represents nearly 20% of the firm’s overall cash position, with CEO Michael Saylor citing that cash
returns were fading amidst a weakening greenback. While it is unclear how many other companies have
chosen to use working cash to invest in bitcoin under the current macro environment, this could be an
indication of what is yet to come as a sophisticated base of investors consider the long-term impact of
inflation due to COVID-19, unprecedented government stimulus, and global political, social, and economic
uncertainty. Note also that this announcement came after an earnings call in which the CEO said the
company was considering gold, bitcoin, and other alternative investments. This seems to indicate that, after
careful consideration, bitcoin became an asset of choice to mitigate inflation concerns for the company.
In closing I’d like to highlight some notable quotes from Mr. Saylor:

“This investment reflects our belief that bitcoin, as the world’s most widely-adopted cryptocurrency, is a
dependable store of value and an attractive investment asset with more long-term appreciation potential than
holding cash… MicroStrategy has recognized bitcoin as a legitimate investment asset that can be superior to
cash and accordingly has made bitcoin the principal holding in its treasury reserve strategy.”

Saylor continued, “We find the global acceptance, brand recognition, ecosystem vitality, network dominance,
architectural resilience, technical utility, and community ethos of bitcoin to be persuasive evidence of its
superiority as an asset class for those seeking a long-term store of value… Bitcoin is digital gold—harder,
stronger, faster, and smarter than any money that has preceded it. We expect its value to accrete with
advances in technology, expanding adoption, and the network effect that has fueled the rise of so many
category killers in the modern era.”

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