January 2020 Market Commentary

Paul Cappelli, Portfolio Manager

February 1, 2020

Digital assets turned in a strong performance in January, in what will hopefully set the tone for the rest of 2020. As we closed the chapter on a historic decade of technological developments and globalization like we have never seen before, we must raise the question of how digital assets and blockchain technology will change our society over the next ten years.

As the longest standing, largest, and most liquid digital asset, bitcoin is most often seen as the bellwether. During periods of directional market movement, other digital assets often follow the pattern of bitcoin, which is now widely accepted as digital gold. January saw bitcoin up just over 30%, to a closing price of $9,354.31, but despite that strong performance it was still the BGCI’s second worst performing asset. After briefly dipping below $7k just after the new year, bitcoin saw a relatively steady climb to break above $9k, where it finished. While January has typically been a month during which bitcoin investors and traders expect to see seasonal selling ahead of the Chinese New Year (Happy Year of the Rat!) the macro picture looks to have played a role in price appreciation. The data patterns are certainly limited, but two key geopolitical events in the Middle East and Asia appear to have positively impacted bitcoin prices. As tensions rose between the United States and Iran amidst bombings of the U.S. Embassy in Iraq and the killing of Iranian military leader Qasem Soleimani, bitcoin’s price began to rally mid-month. As concerns shifted from the Middle East to the Far East, fears of a possible health crisis emerged as a market in Wuhan, China was identified as the source of the coronavirus. While the situation is still developing, the number of infected people continues to increase and expand to new geographies globally, which certainly looks to be a possible catalyst in the extended price rally. Additionally, bitcoin knowledge and understanding is the highest it has ever been. This, in conjunction with the continued rollout of institutional-quality infrastructure and solutions, is likely helping to attract new buyers to the space across all levels of investing.

Looking at the performance of the rest of the constituents held in the Galaxy Crypto Index Fund, one would ask the question, “is it Alt Season?” While it certainly has been a good month for the largest, most liquid assets outside of bitcoin, it would be a bit premature to take that view. Large cap alts, meaning everything outside of bitcoin, have a high correlation to bitcoin and seem to have found a near-term buyer base following a year that saw them lag behind the market leader. Following a poor 2019, XRP increased 25.34% in January, but was still our worst performing holding, finishing with a price of $0.2389. It was a good month for bitcoin forks as Bitcoin Cash was our best performing holding, with an increase of 84.21%, while Litecoin appreciated 64.70%. Ethereum finished up 40.66% for a final price of $180.62. It’s important remember the world’s second largest digital asset continues to make strides and still has more developers working on its platform than any other competitor globally. Lastly, EOS finished the month with an increase of 60.31%, with a final mark of $4.12 as it announced plans around the rollout of its social media platform, Voice.

The Bloomberg Galaxy Crypto Index finished up 40.26%, for a final price of 391.36.