Firinne’s Victor Li traveled to Thailand last month to attend DEVCON. In his words, “Few events capture the evolving ethos of the blockchain world quite like DEVCON … DEVCON 7 offered more than technical discussions; it was a showcase of the Ethereum ecosystem’s ambition to redefine trust, security, and decentralization.”

The US November 5 election was a step change in many ways, not the least of which for the cryptoasset market and ecosystem. With a decisive majority of the popular and electoral votes, Donald Trump will resume his second term as the 47^th President of the United States. Along with Republican control of the Senate and the House, cryptoasset denizens are expecting sweeping support in the form of clearer and friendlier regulations, broader awareness, and speedier adoption by the general populace. Adding to this, the Federal Reserve lowered benchmark rates by 25 bps on November 7. It is no surprise that we are seeing expectations and prices running hot.

The approval and launch of Ethereum spot ETFs in the US in the second half of July was a major milestone for the broad adoption of digital assets. The volatility that ensued a week later in early August was a reminder that crypto markets trade 24/7/365 and constantly price in new information. Not paying attention is a source of risk and missed opportunities.

The “dog days of summer" refers to the summer months in the Northern Hemisphere, characterized by hot temperatures, inactivity, and was previously associated with misfortune, according to the Old Farmer’s Almanac. That pretty much sums up the digital assets price action over June. But one doesn’t have to look too far beyond prices to realize that the ecosystem has been anything but inactive and unfortunate.

Reflecting for a moment on ourselves at Firinne Capital, we are thrilled and honored to announce that we won the Hedgeweek’s Performance of the Year – Directional Fund (1+ Year) award.

If it's true that volatility can be thought of as a proxy for time, then it’s no wonder why two years in crypto feels like a decade in traditional finance! Since we began our journey, launching the Firinne Liquid Digital Assets Fund in June 2022, we’ve weathered a complete market cycle – from exuberance to despair, to renewed optimism, and finally, a return to growth.

The Bitcoin Halving occurred quietly on a Friday night, April19, 8:09 pm Eastern time, when most were out unwinding from their workweek, at block 840,000. Programmatically, miners’ reward for securing a block on the blockchain dropped by a half to 3.125 BTC. Eventually, this reward will drop to 0 as the BTC supply asymptotically reaches a cap of 21 million. But declining rewards obscure the richness of the development around the Bitcoin blockchain.

“March comes in like a lion, out like a lamb” is often used to refer to the passage from winter to spring in the northern hemispheres, but the same can be said of the cryptoasset market this past month. One can blame it on lower inflows to spot Bitcoin ETFs in the second half of March or lower expectations for rate cuts by the US Fed for 2024, but much can be placed on the speculation that the US SEC is trying to classify ETH as a security. How this plays out for the second largest Layer 1 will have repercussions for the cryptoasset industry and for many investment portfolios including ours.

We’re delighted to share that Firinne Capital has been shortlisted for awards in five categories in the Hedgeweek Global Digital Assets Awards 2024!

Or: How I Learned to Love Tokenized RWAs

Imagine that one day hospitals and doctors decided to no longer care for people’s health and instead, provide patients with a list of the top medicines as well as guidelines or heuristics for their use. Seems quite unfathomable, doesn’t it? It seems ludicrous for individual amateurs to be required to achieve results similar to professionals and institutions, yet that is exactly what has happened with the shift from DB plans to DC. As long as the full range of investment opportunities available to institutions and wealthy individuals is essentially off-limits to most people, we face a terrible inequality of our own creation.

Hopes for an SEC approval of spot Bitcoin ETFs were duly rewarded on January 11, Running Bitcoin Day. Ten sponsors, including Blackrock, Fidelity, Van Eck and Bitwise, promptly started trading their ETFs on Jan 12. Having achieved such a milestone, high-fives and other congratulatory gestures were passed around, but the market kind of shrugged it off. BTC and the rest of the digital assets market were range bound albeit with a bit of volatility for the month. In a sense with such a fast pace of change, it’s no surprise that the markets had priced this in over the previous months and are now asking, “so, what’s next?

2023 was a defining year for the crypto industry. If the 2020-2022 boom bust cycle represented a false dawn, where crypto assets finally looked, but failed, to gain mainstream acceptance, then 2023 will be remembered as the year which finally paved the way for mainstream adoption with the expected ETF approvals in 2024. Whereas 2022 came as a necessary fire burning through the landscape, destroying many bad actors (FTX, Celsius, Terra Luna, 3 Arrows Capital), 2023 represented a yearlong springtime where the tentative green shoots of an industry rebuilding itself root and stem began to quietly and slowly emerge from the winter.

What a turnaround year 2023 has been for the digital assets market. Although we seemed to have had an inauspicious start, we have steadily built the foundations for a solid 2024 and beyond.

At Firinne Capital, we aim to bring an institutional approach to asset management in the digital assets space. We have been fortunate to share our journey with Cloudwall, a leader in bringing state-of-the-art analytics and risk management tools to practitioners and researchers in this space. Firinne's Jim Hwang recently sat down with Cloudwall's Kyle Downey to discuss important TradFi experiences and lessons that are very relevant for digital assets fund management.

Visit Firinne Capital on Digital Asset Portfolio Construction | Cloudwall, or listen on Spotify or Apple Podcasts.

And just like that, the winter is over. Due to some combination of possible regulatory clarity, hoped-for spot ETF approvals, and fading memories of traumatic events, investors seem to be paying some attention to the digital assets space. Returns are also commanding attention: as of October 31, 2023, the Bitwise 10 Large Cap Crypto Index is up 84% YTD, Bitcoin up by 109%, and Ether by 52%. For comparison, the S&P 500 total return is up by just 11%, while US Treasury Bonds are down by –2% and emerging market equities are flat. While we’re pleased to see increased interest in digital assets investing, we think it is unfortunate that investors seem to be ignoring important best practices from TradFi.

Investors, hoping for central banks to relieve them of higher rates, began to sober up in September. “Higher for longer” is a common refrain we use to describe today’s US economic environment and investors’ expectations for this market. Similarly, the digital assets industry is sobering up to what it means to have broader retail and institutional adoption. At the end of August, the US IRS proposed new rules for the reporting of digital asset transactions. Shortly thereafter, in the beginning of September, the US FASB proposed new accounting standards that would allow for fair-value accounting to be applied to cryptoassets. Both are not perfect, but both are important markers in acknowledging the importance of digital assets.

Digital assets continue to give back their gains from earlier in the year, retracing about 10% over August. It’s anyone’s guess as to whether this pullback is triggered by macro headwinds, the warning from the US Federal Reserve Chair Jerome Powell that the Fed remains “prepared to raise [interest] rates further if appropriate”, or the SEC’s delay on deciding on the spot Bitcoin ETF applications from several asset managers. And as we often like to highlight during weak markets, evidence of development and institutional adoption continue apace. In August, PayPal’s announcement that it has launched its US Dollar stablecoin, PayPal USD (PYUSD) is one such example.

With a spate of bitcoin spot ETF application announcements, a summary judgement that ruled that XRP is not an investment contract, a July US Fed decision that raised short term rates modestly by only 25 bps, and a declining bitcoin to US equity correlation, the digital assets market is in a state of – uneasy nervousness? In what feels like a Wile E. Coyote moment when he finally catches the Road Runner, the industry got parts of what it wanted, but the prize is not what it appears to be. Digging below the surface headlines reveal that each of these developments are quite nuanced. Declining correlation is but an artifact of how it is calculated and it’s worth diving into some of these details.

“It is always darkest before the dawn” seems to be particularly apropos when looking back over the first half of this year. At the turn of 2023, the digital asset industry was reeling from frauds uncovered during 2022, fresh US bank failures, and regulatory enforcement actions. Since then, we’ve witnessed a couple of rays of positivity. Last month, a spate of established TradFi asset managers applied to offer spot bitcoin ETFs. Then on July 13, after a prolonged two and half years of legal uncertainty, the industry received a ruling that XRP, the token itself, is not a security. While this is a welcomed win in the US, the details and conclusions are quite nuanced.

What a dramatic turnaround in the sentiment we’ve witnessed in June! In early June, the US SEC charged both Binance and Coinbase with various securities law violations, quickly dampening market spirits. In both lawsuits, the SEC listed a dozen or so indicative “crypto asset securities” that, noticeably, excluded both bitcoin and ether. Emboldened perhaps by the exclusion of bitcoin as a cryptoasset security, various institutional asset managers in mid-June submitted their respective applications for their physical bitcoin ETFs/ETPs, leading to a rebound in market sentiment. Meanwhile, equally exciting in Web 3 have been the conversations around Eigenlayer and its promise for permissionless protocol innovation for the Ethereum chain.

One year! It’s been a year since we launched our Liquid Digital Assets Fund back on June 1, 2022, and oh what a year it has been!