ByteFolio Update 40

ByteTree's Crypto Leaders

ByteFolio brings together ATOMIC, ByteTrend and Token Takeaway to create ByteTree’s model portfolio, known as ByteFolio. This is a selection of crypto tokens, which are weighted according to their risk/reward characteristics. ByteFolio has a modest turnover and will not suit traders. It will appeal to investors who wish to diversify beyond bitcoin, with the aim to beat it.

ByteFolio stands at B 9.99 this week. The New Year has ushered in a bit more risk appetite after the bloodbath of 2022, and we see breadth improving. ByteFolio adds back ATOM and increases the weighting in MATIC. A positive narrative for ETH has emerged as the Shanghai upgrade moves into view.

Breadth has improved over the last week. We can speculate that the new year has brought with it a renewed appetite for risk. In the aftermath of the FTX collapse, many were prompted to move assets away from central exchanges and sit quietly on the side for the time being. This has undoubtedly had a negative effect on less liquid digital assets, a factor exacerbated by year-end fund redemptions. As confidence returns, we hope to see the process reversed. In this light, the last few days have been encouraging. That said, there’s still no real clarity on the health of the Binance Exchange and others, and we remain watchful on this front.

Source: ByteTree

We sold ATOM in mid-December when it broke down to a zero-star trend following the rejection of the 2.0 upgrade. The price has subsequently recovered, and we are compelled to reinstate the position. As we said at the time: “We would be amenable to buying back ATOM when and if the issues are resolved and when we see a commensurate trend change”. This appears to be the case. Don’t forget that ByteTrend acts as a risk management tool as well as an idea generator. We might have lost a little bit of ground, but as long as we’re there for the long haul, we have no problems with that. ByteTrend is the reason we were able to escape FTX so quickly after all, so we’ll take a small miss like this any day.

We also increase the position in the Polygon token, MATIC. We think about the holdings in ETH and MATIC as being in the same bucket, as it provides exposure to the Ethereum ecosystem. The higher MATIC weighting gives us more geared exposure to an ongoing recovery. They’re also super-proactive and we continue to see upgrades and developments.

Movers

Ethereum (ETH)

The upcoming Ethereum Shanghai hard fork in March 2023 will allow ETH holders who have staked their tokens to finally unstake them. It will also provide an opportunity for those wanting to stake their ETH but who have so far been prevented by the lack of exit liquidity. In anticipation of a sharp uptick in ETH holders wanting to stake, the value of the Lido DAO liquid staking protocol has increased by 67% over the past week.

The percentage of ETH that is currently staked is around 13%, which is low compared to other Proof of Stake protocols, so there’s plenty of room for growth. Holders can stake their ETH through platforms like Lido Finance, receiving the stETH token in addition to staking rewards. stETH can then be used to provide liquidity on the Curve (CRV) platform to earn rewards, and as collateral for a loan on AAVE. While staking ETH directly on the Ethereum mainnet may be a safer option, some individuals may choose to stake through Lido DAO due to the additional benefits it offers. This news is likely to be welcomed by Lido DAO, as the platform’s already significant $6.4 billion ETH staking pool may see an influx of additional ETH. The Shanghai hard fork also provides another landmark in the ETH story, and we may see price strength as the date approaches.

Polygon (MATIC)

Polygon, the largest Ethereum scaling solution, continues to up its game. On top of taking Ethereum to new heights, the platform also offers an EVM-compatible Ethereum sidechain called Polygon PoS. Polygon PoS now has over 209 million unique addresses and has processed over 1.4 billion transactions. The chain also has over 3.5 billion Matic tokens staked on it. Moreover, 37k+ dApps have used Polygon to scale. Polygon also has ties with top institutions like JP Morgan, Stripe, Reddit and Instagram, which further solidifies its position as one of the leaders in the space. With the token moving to a 3-star ByteTrend score against BTC this week, we increase our exposure to MATIC in ByteFolio to 10.4%.

Source: ByteTree

Chainlink (LINK)

The LINK price has recovered this week, which is not surprising in our view since Chainlink is among the few crypto projects with real utility.

Source: ByteTree

Kwil is part of Chainlink’s BUILD programme, and is a protocol for creating and deploying decentralised databases. It enables data providers and programmers to store huge volumes of structured data off-chain while ensuring decentralisation. Kwil will be used by Truflation (previously mentioned in ByteFolio) to manage and handle its database systems to store inflation data.

The Cask Protocol, another project from Chainlink’s BUILD program, has developed a new feature called Chainlink Top-Ups. This feature allows protocols utilising Chainlink Automation and Verifiable Random Function (VRF) to automatically maintain an adequate balance of LINK tokens, thereby avoiding low-balance notifications. By using this feature, projects can benefit from:

The convenience of not having to manually check their LINK balances

Saving money by only purchasing LINK when necessary

Feeling confident in the dependability of automated top-ups occurring on schedule

Enjoying the insurance that their balance always has sufficient LINK to prevent downtime

This is another example of Chainlink’s focus on making the system as accessible and dependable as possible to new and existing developers and users.

ByteFolio Performance

ByteFolio Asset Allocation

Action: Buy 5% Cosmos (ATOM) and add 5% to Polygon (MATIC) - new weight 10.4%