The PDF version of this report can be found here.
General Market Update
The month kicked off with the Fed’s decision to raise interest rates by 0.25% (in line with expectations) bringing the Fed Fund Rate to 4.50-4.75%. The Fed reiterated its view on having to hike rates further this year, and markets didn’t seem to react at first as markets rallied for most of the first half of the month. A strong jobs report and a worse-than-expected PPI rate (a measure of inflation) worried investors that the Fed will be more aggressive in raising rates and that the possibility of rate cuts this year was getting slimmer and perhaps completely unlikely. Markets pulled back as a result and we believe this could be a turning point that will erase part of the gains made by traders since the start of the year. It is clear that financial markets are mainly driven by interest rate decisions by the Fed, and market expectations of interest rate decisions - 3GI Ventures is continuously monitoring those aspects of the market to make informed decisions on investments while taking macroeconomics into account.
3GI Strategy Breakdown Performance
Momentum Strategy
This month was full of action with high trading activity taking place across the board at 3GI. Our momentum strategy returned 63.97% in February versus the crypto market return of 0.12%. Liquity (LQTY) was our top performing asset this month with a return of 183%. Liquity’s gains were driven by investors seeking refuge in a decentralized and censorship resistant stablecoin like the one Liquity offers (LUSD) in light of government crackdown on centralized stablecoin providers such as Paxos’ BUSD. Another factor that contributed to Liquity’s outperformance this month was its listing on centralized exchange Binance on the last day of the month. You can learn more about our Liquity investment thesis here.
Pendle and Gains Network were our second and third best performing assets this month with returns of 83% and 75% respectively. Gains Network returns were powered by its continued success in driving high trading volume on its platform and also listing on the centralized exchange Binance. We have closed our entire position in Gains Network with an overall return of 105%.
We established a new position in a decentralized exchange called Trader Joe given their ambitious plans to grow across different blockchains and innovative model that helps increase capital efficiency but we closed the position prematurely with a return of 8% after holding it for a period of two weeks, in anticipation of turmoil in the markets due to increasing Fed Terminal Rates. You can learn more about our Liquity investment thesis here.
Swing Trading & Yield Farming Strategy
We continued selling covered-calls on our Ethereum positions achieving an average of approximately 30% in annualized yield from premiums and rewards collected. We closed half our swing trade position in Ethereum towards the end of the month. Our overall return from this strategy was 30% this month.
We are earning an annualized yield ranging from 10-30% on a small part of our cash holdings by providing liquidity to derivatives protocols such as Gains-Network, Lyra-Finance, GMX and IPOR.
3GI Overall Performance
The price of 3GI Token increased by 33.75% in February, starting the month at $0.73 and closing at $0.97. This compares with the crypto market return of 0.12%, Bitcoin’s 1.36% and Ethereum’s 3.37% over the same period. The price chart below illustrates the February 2023 return of 3GI in comparison with benchmarks including non-crypto related asset classes such as the S&P 500 (-3.33%) and NASDAQ (-2.47%).
On a year to date basis (YTD), the price of 3GI has increased by 73.28% while the crypto market increased by 34.22%, Bitcoin by 41.45%, Ethereum by 36.2%, S&P 500 by 3.72% and NASDAQ by 10.22% as shown in the chart below.
We would like to reiterate what was highlighted in our January report that 3GI is highly hedged against market downturns while still aiming to offer superior returns to benchmark assets such as Bitcoin and Ethereum, meaning that the Risk-to-Reward ratio that 3GI offers is far more attractive.
Here is a snapshot of 3GI Venture’s Momentum Portfolio Allocation at the end of February 2023.
Web3 Real World Use Cases
BlackRock ETF Tokenized On Decentralized Exchange. The bCSPX token represents one share of BlackRock’s ($BLK) iShares Core S&P 500 ETF (CSPX) - Link
Hong Kong plans on becoming Asia’s crypto hub with a proposal to relax rules around crypto trading - Link
Regulated Exchange Swarm Tokenizes Stocks and Bonds in Real World Asset Push - Link
Ankr partners with Microsoft to offer enterprise node services - Link
Cryptocurrency donations provide fast relief for earthquake victims in Turkey and Syria - Link
Spotify going Web3 - Link