October Investor Letter and Markets Outlook
I hope that you are well! Going forward, we will include our assessment of the markets that we invest in, the performance of our funds and the future outlook in our public letter on our website. As always, each investor will receive, individually, a statement of accounts for the month.
Our main fund returned 3.64% during the month of October, underperforming the broader crypto market by 6% on a pure-return basis. The diversification in our portfolio, however, enabled us to bypass the extreme volatility in the market, which saw markets decline and then recover by a massive 30% in a single month.
Overall, we are quite pleased with the risk-adjusted returns and continue to expect similar results as we move into November.
Crypto Market Outlook:
It is our assessment that the crypto market remains tied in a sideways trend. Although the market soared on the back of positive regulatory news from China during the month, it corrected sharply soon after. At the time of writing of this letter, despite all the strong fundamentals, we see the market unable to break the overhead resistance.
Overall, we expect the fundamentals to keep improving. In the absence of corresponding price action, the strong fundamentals should act as a coil ready to release all that pent-up energy in a sudden, extreme burst.
A very important upcoming development to remember is the 2020 Bitcoin halving, which we will cover in a separate update. The key message to remember, however, is that halvings are directly correlated with strong price action. This means that not only is it unwise to move money out of crypto right now, it is also in an investor’s favour to start dollar-cost-averaging into bitcoin at these price levels.
Equity Markets Outlook:
We reiterate our stance that US (and by extension, global) equity markets are running on fumes. The most recent rate-cuts by the Fed prolonged what we believe is an over-extended market. While we do anticipate further rate-cuts by central banks around the world, which will extend the markets even further, we are not confident in our assessment of the timing of such developments. Nor are we sure of the outcomes of key developments such as the ongoing impeachment inquiry against Trump, the upcoming British elections, the upcoming US elections and so forth.
While there is money to be made in these markets, the risks do not justify the returns and we are happy to take a more cautious approach to equities.
Gold and Silver both encountered strong resistance and experienced significant declines in the month. While the general trajectory is downwards for precious metals, we are not writing them off just yet. It may, in fact, be a good time to start dollar-cost-averaging into these assets as well before they resume their upward journey. Let’s not forget that gold (per ounce) still has roughly $450 to go before it attempts to form a new all-time-high, while global macros are worsening. This might actually be a sure way to make money in the medium-term.
As the overall investment climate is becoming challenging, we believe that it is worth de-risking the portfolio and focusing on making consistent, even if small, returns while protecting ourselves against serious downside. Let’s not forget that our goal at Acinox is to build long-lasting wealth, which can’t be done if we don’t protect ourselves against losses.
We, therefore, recommend shifting focus away from short-term daily gains towards medium-term returns to be earned over the next 3-6 months. We reiterate that economic cycles have peaked, and we must tread with caution.
Chief Investment Officer.