Discover more from Orca Global Management
July 2023 Investment Newsletter
Disclaimer: This page, including any links or posts, is not an offer or invitation to subscribe for shares in the fund. Please read the full disclaimer at the end of this page.
NOTE: This newsletter was written between 14~19th August 2023 and originally sent to investors of Orca Global Management on 23rd August 2023. Sensitive information has been redacted.
1. July Overview
Cooling-off from the BlackRock spot BTC ETF application driven rally in June, the market was broadly down over the month of July, with BTC finishing the month ~4% lower (Figure 1).
[——— redacted ———]
In this newsletter we will give an overview of what’s happening regarding the spot BTC ETF, as well as our views on this, and a quick look at the low volatility environment crypto finds itself in today.
2. Spot BTC ETF
For context, there currently does not exist a physically backed spot BTC ETF in the US and the battle to have one approved has been going on since 2013. Since then, whether its an attempt to convert an investment trust into an ETF (Grayscale’s GBTC), or simply filing for a new BTC ETF (famously Cathie Wood’s ARK and 21Shares’ ARKB), the SEC has rejected every application. It has very much been a trial-and-error process where each new filing tries to address the SEC’s concerns and make improvements to their proposal. However, each time, the market consensus has been that the SEC will reject - one of the few things the market has been 100% correct about (so far). The only ETPs currently available are trusts/ETNs offered overseas (Canada or EU) or futures-backed ETFs in the US (ProShares Bitcoin Strategy ETF - BITO - launched in 2021).
From its launch (and particularly since its entrance into the mainstream in 2017), BTC has been trying to fight its way into the coveted status of “institutional grade asset class”, whilst constantly facing tough oppositions. Negative comments from Jamie Dimon and Paul Tudor Jones and Larry Fink lined the headlines of Bloomberg for years until the gods of finance slowly shifted from being loud skeptics to having a stance of “actually this is not going anywhere” (or even being outright proponents).
As mentioned earlier, physically backed crypto ETF applications have had a long history battling the SEC (with a 100% loss rate): the first trust was filed back in 2013 by the Winklevoss brothers. However, on the 15th of June 2023, when BlackRock filed a registration statement with the SEC, there was a sense of “this time its different” - and it wasn’t hard to see why. The world’s largest asset manager has an impeccable ETF approval track record with 575 approvals and only 1 rejection (the one rejection was almost 10 years ago, for a non-transparent ETF with no daily holding disclosures). Given this incredible success rate, BTC soared ~25% from roughly $25k to $31k. Despite this rally however, we believe that the market is still hardly pricing in the possibility of an approval from the SEC (a 65% chance of approval by end of year according to Bloomberg ETF analysts and their magic wand) and that the rally to $31k in June is merely the pricing in of the confidence shown towards crypto by the world’s largest asset manager.
Although we would argue that crypto, and particularly BTC, reached the “institutional asset class” categorisation years ago, a spot ETF product in the US (especially under the current SEC), would be the final step in cementing its place as institutional grade without leaving any room for arguments. As such, with the anticipation building for a decade, an SEC approval will perhaps be the most positive event in this industry’s history.
Either the SEC will deny yet another round of spot BTC ETF applications or BlackRock will keep their loss record as 1: clearly history will repeat but as of now its impossible to say which side it will favour. With our medium~longer term targets, BTC below $30k as we approach 2024 - a year with a potential ETF approval, BTC halving, and loosening of financial conditions (currently ~100bps of cuts priced in for 2024; Figure 3) - is extremely exciting, and we expect the confluence of tailwinds to kickstart the next bull run, giving the market the push it needs to reach new all-time-highs. We believe 2023 will be an accumulation year and continue to look for high conviction liquid coins for longer term holding.
3. Low Vol Summer
Crypto is currently in a historically low volatility period, and on the 13th of August (currently 14th Aug), BTC saw its lowest ever 30-day vol period on record (Figure 4).
A similar observation can be made when analysing daily trading ranges (calculated by (high-low)/low), as well as the number of days when BTC moved more than 5% in a day (Figure 5).
With the ever declining liquidity (as measured by orderbook depth) and the record high futures open-interest on most exchanges, this is very much a “something is brewing” environment. And considering that long short ratios are currently greater than 1 (long/short, therefore >1 means more longs than shorts) and how vol traditionally tends to come back with big downside moves after these periods, longs are clearly more vulnerable, but we refrain from taking a position based on these market observations. This sort of analysis often is just a flip of a coin as moves can be triggered by small headlines and exacerbated in both ways, making directional plays difficult, and with the IV-RV spread consistently positive throughout July, this isn’t simply a “buy vol” trade either. We remain focused on the fundamental catalysts for end-2023/2024 and continue to build our positions around those.
The following important information relates to the use of Orca Global Management’s substack publications. Orca Global Management is a fund registered in the Cayman Islands. This publication is directed only at persons who: a) Are expert investors who fall within the definition of Accredited Investor b) Are otherwise permitted to read this publication in compliance with the governing laws of their respective jurisdiction. It is not directed at or intended for retail clients nor general public dissemination. Any person considering an investment into Orca Global Management’s fund must ensure that they are suitably qualified, experienced and knowledgeable on such investments considering jurisdictional rules, regulations and restrictions, tax implications, residence or domicile and their financial circumstances. Past performance is not a guide to what may happen in the future. Prospective investors should be aware that the value of their investments could fall as well as rise. Any investment carries the risk of potential total loss of capital and investors may not get back the value of their original investment. Information on this publication may include data and opinions derived from third party sources. Orca Global Management does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice. Furthermore, the information provided does not constitute an offer to buy or to sell cryptocurrencies or any other financial instrument, nor does it constitute investment, legal or tax advice. Details relating to the investment including the risk disclosures can be found in the Private Placement Memorandum. This brief statement cannot disclose all the risks and other significant aspects of the various markets traded by Orca Global Management.