October has historically been a great month for crypto assets and this year it certainly didn't disappoint. The Etherbridge fund posted 17.87%, with BTC (28.1%) and ETH (8.49%).
This rally has primarily been an off-chain rally, with real new spot inflows. Participants are clearly trying to front-run the ETF approval and the narrative around bitcoin between large TradFi allocators seems to be coming together. Larry Fink's comment on "flight to quality" seems to be on point here. I expect other rational minds to come to the same conclusion. So we have real strong catalysts for BTC, well understood and becoming more broadly shared.
It's fascinating to see BTC perform so well on the back of two large scale potentially catastrophic geopolitical events whilst traditional flight to quality assets such as US treasuries continue to trend lower. Perhaps the paradigm is officially changing, the market is accepting Bitcoins legitimacy as a credibly neutral asset in a world of politicised money.
One thing worth noting is that on-chain fundamentals haven't bounced back yet, bar Solana which has seen strong growth this month (relative to EVM ecosystem, very small but still noteworthy). Perhaps crypto remains highly price reflexive where price leads and improves underlying fundamentals, which in turn causes more price appreciation.
ETH has been very disappointing, perhaps it hasn't moved due to a lack of catalysts or attention being on other ecosystems and L2. It's almost as if L2 tokens act as a drain on ETH inflows, as they obscure the means of expressing a bullish view on the Ethereum ecosystem. Buy ETH, Buy L2 tokens, buy both? Integrated chains such as Solana don't have this problem. Given BTC catalysts are a simple and easy to digest narrative compared to ETH catalysts eg: protodanksharding and account abstraction, one can imagine participants are funding tail end exposure by selling ETH not BTC.
However in the long run we expect these enormous improvements to ETH to be reflected in price. ETHBTC also looks like it's bottoming out here around its 18 month lows. The fund will remain cautiously positioned until on chain fundamentals show a sign of life.
Blockchain, a General Purpose Technology
At Etherbridge we view blockchain technology as a significant improvement to global financial plumbing. These are systems that facilitate the processing, executing and settlement of transactions of value such as Fedwire, Target, CHAPS, clearing houses, custodians and even payment networks such as SWIFT. Our thesis for blockchain is that it will from the bottom up provide a new open source technology stack for transacting value online. This new technology stack will facilitate transactions in a cheaper, faster, more transparent and secure manner than its predecessors.
Blockchain is also a fundamental improvement to the Internet itself. The internet of today has no means of establishing an agreed upon global state and therefore has had to outsource the management of this state to trusted intermediaries such as Facebook, Amazon and online banking services. Blockchain introduces a global agreed upon state of who owns what and how much of it they own, meaning we no longer need to trust the intermediaries we choose to deal with and are free to exit them whenever we choose.
Similar to every ledger system that has come before blockchain technology, we expect there to be a variety of use cases as these systems can be used to record anything, from financial assets to digital assets such as your pictures on instagram or a musician's song on spotify. In this sense blockchain technology is general purpose in nature. At Etherbridge we aim to invest across the entire blockchain technology stack.
Apolitical and Non-discretionary Money
For many years we have contemplated the question of “what is money?”. The conclusion we have reached is that money is any medium through which value can be transacted across space and time. And it should be judged primarily based on the speed at which it can move across space and its ability to hold value across time.
This medium historically has manifested in two distinctly different ways, firstly as a commodity, issued by no one and bound by physical limitations. Secondly as credit issued by state governments and bound by the ability of the state to meet existing obligations.
The invention of Bitcoin and its underpinning technology blockchain has introduced a world first, a global internet based commodity. Bitcoin possesses all the characteristics present in commodity forms of money such as sea shells, glass beads and precious metals such as silver and gold.
Our thesis for this theme is simple, credit based money or fiat money has become increasingly political, its value is solely derived by the ability of the issuer to continue paying down their obligations. Given the increase in discretion around the issuance of money and its clearly political nature we view demand for global, apolitical and non discretionary money as a long term sustainable trend.
Smart contract platforms, like Ethereum and Solana, are asset-agnostic ledgers that can capture everything from financial assets to digital and physical asset rights. They have the versatility to manage a spectrum of operations, from direct payments to complex conditional agreements
These platforms make everything we do on the internet verifiable and therefore they fundamentally change an internet user's relationship with any intermediary. Our view is that smart contracts platforms will come to replace or at the very least earn market share of any end market that intermediates the transfer of value. Primarily because these platforms are more secure, transparent, censorship resistant and efficient than their traditional incumbents.
Our thesis for smart contract platforms is that they become ubiquitous infrastructure for the creation of alternative applications to every single interaction online. Our expectation is that every institution from banks, brokerages, social media companies, e-commerce companies to cloud providers will come to leverage smart contract platforms.
Decentralised Finance (DeFi)
DeFi refers to decentralised, rules-based financial services that are available globally 24/7 and boast an unprecedented level of transparency. The open-source nature of their business logic allows users to scrutinise and understand the underlying mechanisms. Through smart contracts, DeFi already offers a range of services such as exchanges, lending, borrowing, asset management, and derivatives trading.
Decentralised Autonomous Organisations:
DAOs are organisations governed by smart contracts, with decision-making processes distributed among members. These organisations enable greater participation in global businesses and streamline governance, reducing the need for traditional hierarchical structures. DAOs can potentially democratise access to resources, opportunities, and decision-making power.
Our thesis for DeFi is a component of our smart contract thesis, almost every financial interaction can be replicated and improved through the use of smart contracts. The way we exchange assets, how we acquire credit or manage our assets can all be made more inclusive, transparent, efficient and orderly. Defi will expand the variety and complexity of what is possible in the world of finance.
NFTs are unique digital tokens representing ownership of a specific asset or item, such as art, collectables, or virtual real estate. NFTs have opened up new possibilities for creators and collectors, enabling the digital representation and monetisation of unique assets and fostering new markets and opportunities in the creative and cultural sectors.
Blockchain technology is transforming the gaming industry by truly allowing players to own their in-game assets. With a market worth billions of dollars, gaming benefits significantly from integrating blockchain, enabling secure trading, monetisation, and ownership of digital assets. This shift could lead to new business models and gaming experiences.
Cloud Services (DePIN):
Blockchain-based solutions for file storage, processing power, and streaming services are disrupting the traditional cloud computing landscape. By distributing computational resources across a decentralised network, blockchain technology reduces reliance on centralised providers like Amazon and Microsoft, opening the market for greater competition and more efficient resource allocation. This approach has the potential to significantly lower costs and improve the utilisation of excess capacity.
Decentralised social media platforms built on blockchain technology offer an alternative to traditional, centralised platforms, addressing censorship, privacy, and control issues. Blockchain-powered social media can provide a fairer, more transparent, and censorship-resistant environment for users to engage, communicate, and share information, regardless of their political beliefs or geographic location.
Our thesis for the web3 theme is centered around ownership of our online assets, specifically of digital goods and digital resources. Whether this be collectibles, in-game goods or our social graph. We believe ownership will bring with it unforecastable new products, markets and economic relationships. The web3 theme also enables the crowdsourcing and coordination of physical and digital resources outside of traditional business structures, we believe this will greatly decrease the costs of these services and remove single points of failure in the management of infrastructure.
How are we positioned in the context of Blockchain themes
The Etherbridge fund remains defensively positioned with large allocations in BTC and ETH. The current market rally is exogenous to the crypto industry and has come in the form of excitement around a potential BTC ETF in the United States.
Crypto measures of success remain suppressed, there's no real evidence that the industry has turned a corner and that we are now in the expansionary phase. It is for these reasons we remain cautiously allocated to themes such as DeFi and Web 3. These themes historically require strong improving network fundamentals to outperform themes such as infrastructure.
Bitcoin (BTC) remains a long term strategic allocation for the fund. We remain confident that demand for apolitical, non discretionary money will continue to build and that bitcoin is the purest expression of this demand.
Ethereum (ETH) as infrastructure is home to over 1000 projects leveraging smart contracts, the majority of on-chain liquidity and the largest developer base in the world of public blockchains. It remains the go to infrastructure for anyone who wishes to build out blockchain enabled use cases. Solana (SOL) is our other investment in smart contract platforms, whilst not posting numbers as impressive as Ethereum, Solana has made drastically different design choices which opens it up to serve unique use cases not possible on Ethereum.
Uniswap(UNI) , Aave (AAVE) and Chainlink (LINK) remain the kings of blockchain enabled financial services. Uniswap, a decentralised exchange, posts trading volumes comparable with the likes of Coinbase. Aave, a decentralised money market continues to remain solvent and manage orderly liquidations in an industry that has witnessed the blow up of centralised equivalents such as Voyager and Celisuis. Not to mention the recent banking crisis in the United States. And without our third component Chainlink, none of this would be possible. Chainlink guarantees that DeFi itself can operate in an orderly fashion and have access to information not available on the blockchain.
Lido (LDO) stands at the forefront of the DeFi landscape, enhancing capital efficiency across a myriad of Proof of Stake networks by converting staked assets into tokenized representations. Through Lido's seamless facilitation, these assets not only gain liquidity but also unlock a multitude of opportunities within the DeFi space. From serving as collateral in lending protocols to fueling market-making operations, Lido ensures that stakers don't have to sacrifice liquidity for rewards, bridging the gap between staking returns and DeFi versatility.
Arbitrum (ARB) and Optimism (OP) are roll up technologies that solve the biggest challenge facing the Ethereum network, high gas fees and lack of scale. Both have unique technical roadmaps and have gained significant traction, capturing market share from Ethereum Alternatives and attracting meaningful liquidity. Ethereum has chosen a scaling roadmap which is centered around roll up technologies as the main means to reach billions of users.
Render (RNDR) is a network and market place for computational resources and can be thought of as decentralised cloud services. The render network crowdsources a supply of computational resources through the Render token and can service any client who requires cloud computing for the functioning of their business. Given the Hype and clear explosion in AI use cases and demand for abundant processing power we believe the Render Network is positioned well to service this demand as an alternative to traditional cloud providers such as Amazon.
While it’s easier to look away, seeking to understand is the only path to a more enlightened and empowered world. Bitcoin, Ethereum and distributed ledger technology are complex systems that require due diligence to comprehend and operate in. Etherbridge lowers the barriers to understanding this fast-growing digital economy.
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This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments. Collective Investment Schemes (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up. Past performance, forecasts or commentary is not necessarily a guide to future performance. As neither Lima Capital LLC nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor’s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and should not be construed as advice.
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