August 2020 Newsletter Hi Ember Crew,
We hope everyone is safe and sound. Please see below for our monthly updates.
📱Company & Product Updates: We appreciate everyone’s patience during this past month with mining fees on the Ethereum blockchain surging. We announced last month that it has become unsustainable for us to continue paying mining fees. Despite that, we’ve continued to come out of pocket to help some of these costs for our users.
We’re excited to announce a new member to our team, Hayden Todd. Hayden, currently runs customer success at Acorns, a leading fintech mobile app with over 7 million users.
We’ve added the All-Time Performance of each fund on the invest tab
🔥Milestones: As of August we’ve processed well over $30 million in transactions!
📊 Fund Performance Quant - The quant managed to preserve last month’s returns after a spectacular performance in July. Anyone riding the waves of the market throughout August would have a hard time believing that BTC would only end the month up 2.7%. It certainly seemed more volatile than that on an intra-month basis. In the chart below, I have highlighted the various moves BTC experienced from the beginning of August to the end. As we have discussed in previous letters, Bitcoin, likemost volatile assets, tends to deliver the most significant moves quickly as we saw in July, followed by long periods of consolidation. These consolidation periods are difficult to evaluate for the algorithmic trader because the windows of volatility take time to compress before the nextbreakout, either up or down.
https://i.imgur.com/AoMxAW1.png The “Strategic Beta” algorithm is by no means perfect, but it handled this period favorably compared to the May and June time period. The algorithm only traded once during the month, on August 22nd exiting BTC swapping into USDC when the market rolled over from approximately $12,400 down to about $11,300 before exiting. As I write, BTC is currently approximately $9,900. The algorithm remains in USDC.
As a reminder, The Quant is driven by statistical analysis. Like counting cards in Vegas, the algorithm is designed to tilt the odds in an investor’s favor. This means that in order for the Algo to “work” for you, you must stay committed to the algorithm. This is the tricky part,roughly 2/3rds of the trades are losing trades and only 1/3rd of the trades are winners. This may sound counterintuitive, but the winning trades tend to outperform the losing trades by almost 6x so it pays to stick with it and let the algorithm work for you. Over longer periods of time, this compounding effect can lead to significant outperformance with a lot less “stomach acid” from significant “drawdown” periods. The unfortunate “cost” of this longer-term potential outperformance is having to sit back and “play several losing hands” before being dealt awinner. This is how investors with strong convictions are able to outperform those who only want to chase the “hot dot.”
Having said that, remember the three keys to maintaining strong convictions:
Don’t invest more than you can afford to lose
Get educated, learn as much as you can. The more you know the less likely you are toget scared and emotional when things go wrong
Diversify, blend multiple assets with multiple strategies so you can withstand market turmoil
Please remember that these numbers took a little over three years to accumulate and the quant is a longer-term strategy and should be used as an addition to your main portfolio. We believe in our strategy and we believe in Bitcoin becoming one of the most powerful wealth generators of the next decade, but don’t forget the most basic lesson from finance, the only “free lunch” in investing is, diversification. Harry Markowitz earned the Nobel Prize for his work on Modern Portfolio Theory, and in a nutshell, this is what his entire thesis was about. Blending two or more non-correlated assets or strategies with one another can actually improve portfolio returns AND reduce risk. This is obviously easier said than done, but it is truly magic when you see it in action. If you have two assets that each produce Y% return with X% risk and you then blend them together, you can end up with a combined return that is greater than Y% and has less risk than X%. Always remember, you want to be in the upper left quadrant of the following chart, low risk and high return.
https://i.imgur.com/oYUpiAi.png Photo by Smitha Hari (gettingyourich.com)
From a macro perspective, everything continues to suggest that we are in the right asset class. Many institutional and private investors are quietly allocating money to crypto but, remember, few of them are completely switching from traditional assets to crypto. The interest in digital assets is rising by the day and the volatility and returns are proof of that. We genuinely believe that one day it will be a dominant asset class. Until then, let’s keep a level head so we can front-run the institutions without getting shaken by market volatility.
Detailed Fact Sheet
linked. -Eric
S-Tier - After a wild month of DeFi hype and Bitcoin explosions, the S-Tier fund and Bitcoin are now fighting for the lead. This is currently the most interesting time in crypto, as we see Bitcoin hitting its scalability bottleneck and major changes could turn the crypto world upside down.
Altcoins are still seeing good growth, but Bitcoin is not being shy either.
August will surely bring lots of interesting changes. The Halving is done, we have been in a heavy bull run since the Corona dump and August will decide if we will see a direct continuation of the bull run or rather a calming down. A continuation could surface completely new trends to follow up on the previous DeFi hype. A global stock market crash could also be just around the corner. Things remain interesting. Right now is the best time to make large financial gains, but probably only when buying in low after the big crash. However, the only way to make large profits is to be in USDC right now and buy in cheaper after a crash. If the market keeps going up, we can simply re-enter as well and readjust. We are playing both sides. Detailed Fact Sheet
linked. -Marius
Indexes - Our indexes continued to capture the returns of the broader market with Bitcoin and Ethereum leading the charge. Despite the recent pullback, Bitcoin was ranging between $11 and $12k while Ethereum has surged from $350 to a peak of $477 in the month of August. We’re currently seeing strong support at $10k. The big news of last month for Bitcoin was that Microstrategy a publicly traded company has decided to allocate $250 million of the company’s treasury to Bitcoin. This has fundamentally changed the way CFOs around the world are viewing Bitcoin by furthering the narrative that Bitcoin is a compelling store of value and hedge against currency inflation. On the Ethereum side of things, excitement around Ethereum 2.0 and massive influx of capital into DeFi products (on the Ethereum rails) continues to drive interest and thus price. We’re hovering around $7 billion in total value locked in DeFi. Much of this increase has been fueled by the Yield Farming mania. Our position is that, like the ICO craze of 2017 there will be a cooling off period as many projects will fail due to flaws in the codebase (YAM) and / or questionable practices (SUSHI). With that said, we're bullish that new models leveraging yield farming architecture will eventually revolutionize other business models, furthering our conviction in ETH, which is heavily weighted in our indexes. All of our indexes are up over 100% since inception at the time of this writing.
Feel free to reply with any questions or comments.
Kindest regards,
Alex, Guillaume, Mario
Co-Founders | Ember Fund
W emberfund.io
E
[email protected]
