Bitcoin/Blockchain Portfolio Update (October 2021)

Summary

• Crypto/Blockchain investments highlighted in prior Seeking Alpha articles have, on balance, been successful.
• The digital assets space is growing exponentially and the spring/mid-summer bear market is in the rearview mirror.
• A massive Q4 rally, similar to what happened in Q4 2020, may be in the cards.

Olemedia/E+ via Getty Images

Introduction

This article continues an ongoing series covering my blockchain portfolio strategy. In early September, in my last crypto update article, I wrote the following:

I am bullish on the blockchain space in both the near term and the long term. The recent run-up in prices has been powerful, but without as much fanfare and speculative fervor as we witnessed on the last upcycle (people are not texting me about crypto or trying to convince I should buy Dogecoin (DOGE-USD) and other speculative projects). For this reason, among others, I suspect there is room to run here. [Emphasis supplied]

Well, as of this writing, Bitcoin (BTC-USD) and Ethereum (ETH-USD) prices have declined since early September, while some of the other Layer 1 blockchains I own have soared. In short, in my view, we are firmly in bullish territory for crypto. I reiterate my expectation for new all-time highs on Bitcoin and Ethereum before this latest rally is over.

Historically, the fourth quarter has been when the magic really happens in the crypto space. See the returns below for Bitcoin on the graphic below courtesy of Defi Technologies Inc. (OTCQB:DEFTF) (posted on twitter on the @defi_NEO handle), which shows massive fourth quarter gains in 5 of the last 8 years (2013 - 2020) AND double digit October returns in 6 of the last 8 years.

Further supporting the case for material fourth quarter gains is the fact that monetary policy remains very loose (notwithstanding taper talk) and on the fiscal side, Congress is looking to spend trillions.

Furthermore, with the COVID delta variant in decline, I am expecting a growth surprise as we head into the holiday season and the reopening theme re-accelerates. Already, I am having to leave earlier in the morning to get to work because of increasing traffic in the Baltimore Metro area. Admittedly, this is a speculative view based, in part on anecdote, but it is also fashioned within the context of rapidly increasing crypto adoption as shown on the chart below (ostensibly, the leveling off in the most recent quarter shown is because of the China mining ban, among other hostile Chinese crypto actions, as well as the crypto bear market earlier in 2021).

Update on Portfolio of Blockchain Investments

Since my September 7th article dropped, the Bitcoin, blockchain and other crypto investments highlighted in that article have had mixed results (as of October 4th, 2021, a roughly 30-day period):

• Recommended at $23 in November 2020 (see link below), the Grayscale Bitcoin Trust (OTC:GBTC) decreased modestly from $40.73 on September 6th to the current price of $39.13. Currently, GBTC trades at a discount of more than 10% to its underlying net asset value. There is still no Bitcoin ETF in the US, notwithstanding numerous applications. I have held my position in GBTC steady in my tax-deferred retirement accounts, enjoying the ability to trade around a core position without any tax consequences. As has been much publicized, Bitcoin is now legal tender in El Salvador.

• Recommended at $19,700 in November 2020, Bitcoin decreased modestly from $52,000 to $49,000 during the period. Being such a high volatility asset, you could say that it was basically flat. In any case, I am simply HODL'ing the position and, at this time, continuing to add to it via credit card rewards from BlockFi.
• Ethereum has decreased during the period from around $3,900 to $3,375. Notwithstanding the decline, I expect the August rally to resume in Q4 and have been buying the dips.
• During the period, the Grayscale Ethereum Trust (OTCQX:ETHE) decreased from $38.50 to $32.35. The current discount to net asset value is only 1%. Similar to GBTC, I am able to trade ETHE in my retirement accounts without having to worry about the tax consequences. Ethereum and ETHE collectively remain my largest crypto position.
• HIVE Blockchain Technologies Ltd. (HIVE) - during the period, HIVE decreased from $3.60 to $2.83; however, HIVE reported positive results on October 4th.
• Defi Technologies Inc. has been a painful ride for me. I lost a fair amount on this company earlier in the year in the crypto bear market when my position was stopped out. My view at the time was summarized in an article as follows: "With barriers to participating in DeFi relatively high, the company aims to provide shareholders with diversified exposure to the emerging DeFi sector. The company is building out its business across several verticals and there are signs, particularly in the structured products and trading divisions, that things are off to a solid start. Moreover, the DeFi Ventures division is making seed investments. The strategic relationships with HIVE and Pomp also offer credibility."

  I think the company remains a speculative buy, but beware, it is very volatile. My current basis in my new DEFTF position is $1.40, and the stock is trading at $1.55.

• During the period, I nearly doubled my position in BLOK after having written an article about it back in August. My basis in the position is $47, and the ETF is trading at $45.66.

Alt-Coin Basket

As noted in prior portfolio update articles, to diversify away from Bitcoin and Ethereum and go further out on the risk curve, I have added a basket of other crypto coins to the blockchain portfolio (the "Alt-Coin Basket"), namely (as of October 4, 2021) direct investments in

• Algorand (ALGO-USD),
• Cosmos (ATOM-USD),
• Tezos (XTZ-USD), and
• Solana (SOL-USD).

During the period, other than closing my position in Polygon (MATIC-USD) and moving those proceeds to Solana, the alt-coin basket has largely been kept steady and performed well in the past month (relative to Ethereum in particular).

Algorand

During the period (September 6 to October 4), Algorand increased from $1.40 to $1.95 (roughly 40% as of the time of writing [i.e., October 4th]), and it actually reached an all time high (well above $2) during the period.

Algorand is a cryptocurrency and blockchain protocol that aims to be scalable, secure, and decentralized, all at the same time. Algorand uses a consensus algorithm called "pure proof-of-stake." The project was co-founded by MIT professor Silvio Micali. He is notably a Turing award winner and simply brilliant. Here, I am betting on the jockey supported by a brilliant team of mathematicians, cryptographers and advisors, including Naval Ravikant. Recent projects include a project to help build El Salvador's blockchain infrastructure, as well as a partnership with ZenLedger. In a previous article, I wrote:

Block by block, Algorand is showing that it has staying power, and that it is being built for the long run. The problem of course is that I am sitting on material losses and there is no guarantee that a successful blockchain will produce economic returns for its token holders. In any case, if it comes to it, I will go down with the ship on this one, but fortunately I have the means to do so.

Those recent losses are now material gains and I continue to earn daily staking rewards. Even with the rise, I cannot help but feel like Algorand is the Rodney Dangerfield of the space (getting no respect from the market). Daily transaction volume on Algorand is now averaging over a million transactions per day. Algorand is my largest alt-coin position by far.

Today, daily transaction volume continues to move higher and people are starting to notice this (professional) layer 1 blockchain, which continues to onboard quality projects, including a recent partnership with the drone racing league. Algorand was also recently featured in an article in Forbes.

I have been buying Algorand pretty consistently throughout the year, and, as of October 4th, my Algorand investment has nearly doubled (not including staking rewards).

Cosmos

During the period, Cosmos, a cryptocurrency that powers an ecosystem of blockchains designed to scale and interoperate with one another, increased materially from roughly $25 to near $37 (more than 45%). As previously noted, the Cosmos team aims to create an "Internet of Blockchains," where the blockchains are able to communicate with each other in a decentralized way. In August, I wrote:

I think interoperability among chains will come into greater focus in the near future, or at least that is my thesis. Nonetheless, my position is impaired and, at this juncture, it is too small to even worry about it. I am earning staking rewards on the position of roughly 5%, but I am not adding new funds to this investment absent a catalyst.

Year to date, my Cosmos investment is up roughly 90% (not including staking rewards). I remain bullish but will not be adding to the position any time soon absent a material pull back.

Tezos

During the period, Tezos increased materially from $5.50 to above $8.25 (roughly 50%). Tezos is a cryptocurrency and decentralized computing platform, featuring, among other things, proof of stake consensus and formal verification (which lets developers verify the correctness of their code). Its block creation process is called "baking" - holders who stake their tokens can receive Tezos tokens as a reward for creating and verifying blocks.

I continue to like the project's clean energy focus and am content to let it ride while earning staking rewards of near 5%; however, I clearly did not invest enough in this project -- my year to date returns on this investment are up over 300%. I did think about selling the position in the bear market earlier this year; needless to say, I am glad I did not!

Solana

In a recent update, I noted that I had sold a portion of my Polygon (MATIC-USD) stake in August. In September, I sold my remaining stake in Polygon and, together with other available funds, purchased Solana. This article from The Daily HODL was instrumental in making that decision (and creating a certain level of FOMO). I have a basis of $171, and as of this writing, Solana is trading at $166.

Blockchain Portfolio Today

As of October 4, 2021, my evolving blockchain portfolio is roughly allocated as provided below.

Asset Exposure Percentages

Investment	Category	Allocation September 6, 2021	Allocation October 4, 2021
GBTC	Bitcoin	38%	36%
ETH-USD	Ethereum	30%	29%
ETHE	Ethereum	27%	26%
BTC-USD	Bitcoin	0.2%	0.25%
Alt-Coin Basket	Diversified Alt. Coins	3.8%	5.75%
Blockchain Equities	Diversified (HIVE, DEFTF & BLOK)	1.0%	3%

Click to enlarge

Concluding Thoughts

For the reasons discussed above, I am very bullish on the blockchain space in both the near term and the long term. On September 24th, Rao Paul stated the following on Real Vision:

Nothing is going to change versus the macro backdrop of network adoption. We’re at the point in the cycle where network adoption is very strong. I don’t see a change in that. So really, it’s where are we and when does this correction finish, which I think finishes in the next two to three days if my work is right. And then if I’m right, we should start to see accelerated moves. My thesis is based [on the assumption] that October, November [and] December [price appreciation] are ridiculous.” [Emphasis Supplied]

Last September (2020), I started the crypto investing journey and "booked" substantial gains in January (2021). While history does not repeat, I am speculating that it will at least rhyme (and speculating too that the Chinese property bubble will not infect the rest of the world). Crypto is not for the faint of heart and the volatility on both the downside AND upside can be very stressful. Do your own due diligence! Good luck!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BTC-USD, GBTC, ETHE, ETH-USD, DEFTF, HIVE, BLOK, ALGO-USD, SOL-USD, ATOM-USD, XTZ-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The digital assets/blockchain space is very volatile. Between the time of writing and the time of publication, large swings in some of the prices referenced in this article are likely to occur. This article is not investment advice and is solely for peer-to-peer learning purposes. Do your own due diligence and consult your financial advisor before making any investments.