Letter to shareholders, Q2 2020

Dear Investors,

We are halfway through the turbulent 2020 which has been creating history in the investment books. So you are anticipating our commentary to the Q2 events.

Sigil Performance in 2020

In the Q1 letter we wrote about the abrupt sell-off in crypto markets and how we protected your investments with a defensive strategy adopted before the big sell-off in March. Whilst we sold a significant part of our position at the levels above $8,000 per BTC, we have not stayed overly conservative for too long and were able to buy back at the levels above $6,000. 

The crypto markets have entered the phase where a specific group of crypto assets outperform Bitcoin. We also deployed profitable market neutral strategies on the “risk-off” part of our portfolio of stablecoins. Going forward, it is becoming a significant profit driver in our overall portfolio.

In EUR terms Sigil is up +46% so far in 2020:

We also gained almost 15% against BTC:

Brief look at a global macro

Our job is primarily to maximise the returns in the crypto world so our commentary on the global macro will be brief.

  • The real economy keeps hurting. Unemployment rates and COVID-19 stats keep growing. On top of that we are observing Black Lives Matter protests firing up in US and dividing the country. We don’t see this magically changing despite best efforts of policy makers to save the system via fiscal and monetary means.
  • Financial markets on the other hand experienced a surprisingly quick recovery on the wave of monetary and fiscal stimulus, seemingly decoupling from underlying economic reality.
  • Even the brightest minds in the investment world are split. The bears claiming that “it can’t last forever” and the bulls reassuring that stocks cannot be allowed to fall and the establishment will always do whatever it takes to protect the financial markets.
  • The argument of the bears is led by Raoul Pal, proclaiming the “End of Hope” phase. According to him the stimulus can fix the balance sheet issues but cannot fix the PNL, so we will eventually see a wave of bankruptcies and insolvency phase driven by the “revenue erosion”. We also see warnings of the piled debt in the emerging markets and related lack of dollar liquidity in the eurodollar market. The investment strategy to wait out the storm (and make money on it) is long USD together with long gold and long Bitcoin betting on it’s narrative shift towards anti-inflation store of value.
  • The bull argument is based on the evident inflationary effect as well as the “strong become stronger” effect. The fiscal and monetary stimulus support the argument that USD and other fiat currencies will be a poor safe haven and the value of financial assets will keep getting bloated. The struggle in the real economy and SMB segment will support the “conquest of the big” like Amazon eating up the retail markets.  The best advice Ray Dalio gives is to widely diversify across geographies and asset classes and don’t rely on cash too much. 

Right now it seems that macro bulls are winning. Stocks are rising up, while becoming a go to entertainment for speculators and influencers. This paradox of markets being decoupled from economic reality is best summed up in the picture (from Jim Cramer’s show Mad Money on CNBC) below:

Should you keep holding stocks because that´s the best place to be and fundamentals don´t matter? Or should you prepare yourself for the coming crisis and create a reserve in cash and gold? Will bitcoin start acting on its “digital gold” narrative and decouple from its correlation with stocks? 

Right now it seems that macro are bulls winning. In our view, this decoupling of economic reality and the financial markets probably won’t last. However, it is interesting to note that the crypto assets have their place in both the bull and the bear narrative.

The Crypto alternative

It is hard for anyone to have a strong opinion on the immediate macro future, apart from claiming it is uncertain. We expect to keep seeing a lot of volatility and paradoxes between financial markets and the real economy. 

When the world stops making sense the first instinct of many investors is to turn extremely conservative. But we see it as an opportunity for fundamental changes to happen. That is why we keep betting on crypto assets, open blockchains and DeFi to disrupt and possibly replace large parts of the currently malfunctioning financial system and failure of the fiat cash acting as a store of value. 

Despite Bitcoin currently being correlated with stock markets, there is a growing positive sentiment among institutional investors. The legendary investor Paul Tudor Jones made the headlines in mid May for buying bitcoin and intention to create a position as big as a single digit % of his total net worth. Together with the BTC halving effect and technological progress of DeFi services, it becomes a solid foundation for a new crypto bull run.  

The bitcoin halving happened in May 2020. Timing couldn’t be more peculiar. Whilst the world was experiencing another huge wave of quantitative easing, bitcoin has entered another cycle of “quantitative hardening”. If we follow the historical cycles after halving as a guide, price should react with couple of months of lag.

Source: cburniske on twitter

Last but not least with the stock markets turning crazier, the crypto market has been recently driven largely by improving fundamentals and growing user traction in DeFi.

Rise of DeFi

Decentralized Finance is one of the pillars of our crypto thesis, and has been gaining a significant traction. For more than a year, we kept accumulating DeFi tokens with solid fundamentals and valuations. In 2020 it really started to get interesting.

Total Value Locked (TVL) of DeFi is currently sitting at around 2b USD after a rapid growth.

The best example is Synthetix. Our long term black horse in the DeFi ecosystem, which managed to overcome network issues we wrote about earlier.



It would take the whole article to cover the scope of the project, but two things we are very excited about are binary options and incentives to liquidity providers of synthetic assets. In general, Synthetix is a strong match in the three “Ps” of 1. Product 2. People and 3. Potential. In the coming crypto bull market it will likely sustain a premium over other competing projects. 

Apart from Synthetix, we have multiple other bets in the DeFi ecosystem. Let’s explore some of them:

  • Kyber Network = decentralized exchange protocol and aggregator with KNC token that has recently kicked off a significant token model overhaul. This will lead to better value capture for KNC token holders.
  • REN = interoperability protocol that bridges different blockchains together. Their Bitcoin <> Ethereum bridge enables using BTC within the Ethereum ecosystem, which unlocks a lot of opportunities for Bitcoin holders to generate additional yield from their BTC holdings.
  • Loopring = decentralized exchange using zero knowledge proofs to scale transactions and provide fast and secure matching engine that is on par with centralized exchanges. LRC token holders can stake their tokens and claim fees generated by trading on the exchange.

Let´s look at the recent performance of these 3 projects compared to BTC and ETH: 


Zoom in the chart above and compare performance of Kyber +550% ytd, BTC +27% and all other assets to evaluate the new trend.

DeFi projects are strongly overperforming both BTC and ETH in 2020. All the ones we mention are already in their main-net product stage and have been gathering a fast growing user traction. Of course we have more bets in the DeFi ecosystem and some are still waiting for their moment of discovery. Our investors can view the portfolio construction and performance in the Crypkit app. 

De-coupling from BTC?

We have previously claimed that crypto markets will start acting more on fundamentals and that we will experience a decoupling of some crypto assets from Bitcoin price.

During the bull run of 2017 some tokens valuations also briefly out performed BTC, but they got way ahead of their fundamentals. The reckoning followed and ultimately BTC correlation reappeared and got even stronger during the bear market and many ICOs died off.

This time around we believe the situation is different. Crypto assets that are outperforming Bitcoin and Ethereum are not just “BTC or ETH killers” (as in competitors) or meaningless utility tokens, but rather distinct assets (almost like securities) with distinct use cases and value capture. Often they require active participation in the protocol in order for them to capture this value (in the form of revenues). We predict this decoupling will continue this time as exchanges introduce more stablecoin based trading pairs and (cashflow based) fundamentals start to be hard to ignore variable in valuations of projects.

The name of the game in 2017 were ICOs and passive HODLing, the name of the game in 2020 is fundamental analysis and earning technical dividend via active network participation.

Closing remarks

We keep being faithful to our investment thesis and focus to find the next big movers of the new decentralized world. We step up our fundamental research efforts and keep looking for the best investment opportunities in crypto markets.

However, facing high volatility and uncertainty, we increased our USD stablecoin basket position and upgraded our strategy to harness more market neutral opportunities. Our stablecoins are yielding double digits yearly returns and thanks to staking and DeFi opportunities, we are earning sizeable interest also with our bitcoin position and other crypto assets. These changes decrease volatility of our portfolio and gives us a buffer we can use to rebalance during dips while keeping our long crypto exposure during a continued bull run.

On behalf of Sigil Team we would like to thank our investors for trusting Sigil with their investments. We are committed to keep providing the best exposure to high quality crypto opportunities and maximising our return on investment.

With best wishes,

Matej Galvánek, Investment Director of Sigil LTD
Pavel Stehno, Fund Director of Sigil LTD

This content piece is performed by Sigil LTD for information and entertainment purposes only and is not to be taken as an investment or financial advice. 

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