ByteFolio Update 42

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 continues to perform well in absolute returns but slips in relative terms. That’s fine. We know that in the past, altcoin rallies have been the moments to make multiples of our money, but they are always preceded by periods of bitcoin dominance. For the time being, we enjoy the absolute gains and make sure we’re prepared and alert for a broader move. These are exciting times for the sector.

This is illustrated in the chart below. Early-stage recoveries in crypto (blue arrows) have been marked by altcoin underperformance as money comes into the system via bitcoin, the largest, most liquid and pristine asset. As enthusiasm spreads into the ecosystem, eventually, we see outperformance from the alts (yellow arrows). When it comes, it’s incredibly powerful. This is outperformance in a steeply rising market, don’t forget. Also, the red line below is an average line – we aim to identify trend winners and outperform that substantially.

Source: Bloomberg

ByteFolio makes no changes to the portfolio this week, having removed Chainlink (LINK) in a flash note last week as it hit our stop/loss limit.

Movers

Bitcoin (BTC)

As if Central Banks buying gold wasn’t enough to show that countries are finding ways of reducing reliance on the US$, news breaks that Argentina and Brazil are working on a common currency, which will be eligible to other Latin American countries. Whether or not it’s a good or bad idea - and it will be heinously complicated to implement – it helps make the case for bitcoin. The world is looking for a global reserve asset and medium of exchange that isn’t the US$, but it’s impossible to see what replaces it from the existing options. There will always be irresolvable objections put forward to any national or regional alternative. Yet there is a truly neutral option, which shows no favour to any country, large or small, rich or poor, strong or weak. An absurd idea, of course, but then again, the only one that makes any sense.

The main news of the last week has been that crypto lender Genesis filed for Chapter 11 bankruptcy protection. What’s interesting is that the crypto market didn’t bat an eyelid, despite estimated liabilities between US$1bn and US$10bn. There are doubtless more sordid tales to emerge from the messes of last year, but we’re reminded that when markets stop reacting to bad news, it’s often a good sign that they’ve reached the bottom.

As an aside, googling “Genesis Chapter 11”, I was amused that the crypto story doesn’t feature. Instead, one is reminded of the Tower of Babel, where God confuses everyone’s language so they will not understand each other. Like reading Twitter, then…

Shakers

Fantom (FTM)

Fantom, a project we have followed with interest from afar in the past, is on a 4-star trend relative to BTC on ByteTrend. We’ll cover it in proper detail soon, but here is a quick introduction for those of you who’d like to delve further.

FTM is the native token of the Fantom network, which is a decentralised, high-performance platform for developing decentralised applications (dApps) and smart contracts. To achieve fast and secure transactions, the platform employs a proprietary technology known as the “Lachesis Protocol”, which is based on a “Directed Acyclic Graph” (DAG) data structure.

A DAG is a type of information organisation method used by computers, which is made up of small circles called “nodes” and the lines that connect them. Each node represents a piece of data, such as a word or a number. The lines depict how the information is linked, such as how one word is related to another. The term “directed” refers to the lines having a direction, similar to an arrow, indicating the flow of information. Finally, “acyclic” means “without loops”, as in a maze where you can go in circles. So, in short, a DAG is a way to show the relationship between different pieces of information in a clear and organised way, like a map.

The goal of Fantom is to provide a scalable infrastructure that can support a wide range of use cases, including decentralised finance (DeFi), gaming, and supply chain management. The FTM token is used to pay transaction fees and as a means of value transfer within the Fantom ecosystem.

Source: ByteTree

Cardano (ADA)

Cardano is a top 10 token by market cap, but the price trend has been poor for some time. Perhaps this helps explain why.

Source: Token Terminal

The chart above shows the daily active developers on Cardano since its launch. Until recently, that number had been growing steadily. According to a report by DappRadar, Cardano had the second-highest average daily active developers among all the blockchains in 2022. However, starting in December 2022, daily active developers on Cardano have seen a sharp fall.

Developer activity is a key indicator of a blockchain’s health and growth. It shows the level of engagement and interest by developers, which is important for the production of new features, increased security, network effects, innovation, and thus, adoption. However, in this case, the decreasing number of daily active developers is a sign of internal problems. The last time we saw ADA score a 5-star trend score against BTC was back in October. Since then, it’s been in a downtrend. Is this a case of the market being ahead of the data?

Source: ByteTree

Chia (XCH)

We also flag Chia, which is one of only three names on a 5-star score in BTC. Chia Network is a blockchain platform founded in 2017 by Bram Cohen that utilises a custom programming language called Chialisp to support smart contract execution. The network is built on Nakamoto consensus principles and utilises a unique consensus mechanism called Proof of Space and Time, where miners are rewarded based on the amount of hard disk storage they dedicate to the network instead of processing power. Like Bitcoin, the Chia Network provides enhanced security and decentralisation. The native token of the network, XCH, is used to reward participants who secure the chain.

On 19 January 2023, Chia announceda leadership change with Bram Cohen stepping down as CEO and taking on the role of Chairman of the Board and CTO, and Gene Hoffman becoming the new CEO. This transition aims to scale the company’s infrastructure to meet the increased demand for access to the Chia blockchain and technology, and to accelerate the company’s goal of going public.

Source: ByteTree

Additionally, on 17 January, the number of transactions on the Chia network dramatically increased to over 708k, up from 80k just two days prior. This led to a significant increase in the value of the XCH token, rising over 40% in the last week.

We haven’t yet looked at the project in detail, having initially been sceptical about the technology. Chia Network has struggled to gain traction compared to other blockchain platforms and is relatively unknown in the industry. The IPO process should be interesting, though, not least in finding out the sort of regulatory hurdles that have to be jumped and how crypto tokens/coins fit into a traditional capital structure. We will watch with interest.

ByteFolio Performance

ByteFolio Asset Allocation

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