First Quarter 2024 Trends are Strong
BLOK rallied 8.35% in March, bringing the YTD and first quarter NAV return to 21.72% (see performance). The Fund was unusually active relative to our historic patterns. In an effort to maintain the Fund’s high correlation with Bitcoin, while also remaining focused on the core mandate (investing in public companies that are dedicated to building out the infrastructure around blockchain and “Public Digital Property”), we steadily trimmed stocks like MicroStrategy, Coinbase, and Cleanspark, which appeared ahead of themselves. This activity was relatively systematic in nature as it followed established risk controls and our discipline to remain diversified in our approach.
Bitcoin Halving Historic Outcomes
The Bitcoin halving is scheduled to take place on or around April 19th and it is sure to inspire and surprise! If Bitcoin price follows past trends and rises to new highs, miners will distinguish themselves through the efficiency with which their management teams have scaled their business, but it will certainly not be without drama. This is why we have chosen to diversify across strategic approaches to business, management teams, and geography. In fact, we fully expect to be surprised both on the upside and the downside by the many different variables to this business. However, while the media may make a big deal about the much-anticipated “post-halving rally,” the smart management teams are already looking out to 2028.
Bitcoin Mined Per Block Over Time
Source: CME group, Bitcoin Halving 2024 – This Time It's Different', April 2024.
Historically, each halving has brought extraordinary rallies in the months preceding and following the change in supply. Like a small-cap company that expands its market capitalization, we expect the liquidity in the asset class to reduce some of the volatility as institutions tend to absorb the dips.
- Notably, in the 365 calendar days after the November 28, 2012 halving, when the reward was cut from 50 BTC to 25 BTC, bitcoin prices rose 8,447%.
- In the year following the July 9, 2016, halving, bitcoin prices rose a more modest but still impressive 283%, and block reward was reduced to 12.5 BTC.
- In the 12 months after the May 11, 2020, halving, where reward was cut to 6.25 BTC per block, bitcoin price jumped 527%.
Obviously, as the warning goes, past performance is not indicative of future outcomes, so please do not ask us to come up with a forecast on price. Bottom line, before we talk $100,000, we must clear $75,000, and who knows whether we’ll go lower before we go higher. However, the math looks very compelling. As a result of the halving, the bitcoin network in aggregate will only produce $27 million in bitcoin a day after April 19th (the basic math is $60,000 price times 450 bitcoin). This ends up providing much of the supply beyond regular trading activity from wallets and traders.
Please do not confuse us as maximalists in the way of bitcoin. As portfolio managers, we believe there are times to overweight the asset class and times to be more modest. However...
*BPs: A basis point (BP) is a unit that is equal to 1/100th of 1%.
**Schedule K-1 is a federal tax document used to report the income, losses, and dividends of a business’ or financial entity’s partners or an S corporation’s shareholders. This information does not constitute, and should not be considered a substitute for, legal or tax advice.
1 Decentralized finance, or DeFi, uses emerging technology to remove third parties and centralized institutions from financial transactions https://www.investopedia.com/decentralized-finance-defi-5113835#toc-what-is-decentralized-finance-defi
2 Figures included the Core Scientific Notes and rights (CORZVR) which as of March 31 represented 2.02% out of the 20.52% and which began trading January 24, 2024.