ByteFolio Update 44

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 has gained more ground this week against BTC. After a period of drift, both ETH and BNB have finally shown relative strength against BTC. BNB/BTC has bounced off its 280-day moving average (MA), which remains in a strong upward trend, while a star has reappeared on ETH’s relative performance, which remains rangebound over the longer term.

We make no changes to the portfolio this week.

Binance massively outperformed BTC from early June until the end of November last year but gave a large amount back in the aftermath of the FTX collapse, with questions being asked about its solvency. In nominal terms, that meant a 35% fall in price from a high of US$354 on 4 November 2022 to a low of US$231 on 16 December 2022. With the price having recovered to US$327, the worst is quite clearly past. It’s a 10% position in ByteFolio, so a meaningful allocation. Should we increase? Not until we see a 5-star score.

BNB 3-Star ByteTrend Score in BTC

Source: ByteTree

As discussed last week, the relative performance of ETH has been indifferent for a while. The latest bout coincides with the market trying to grapple with the impact of the upcoming Shanghai upgrade. Of potential interest to short-term traders is that since July, a move from a zero- to a 1-star score on ByteTrend has generally been the starting gun for a decent relative bounce.

ETH 1-Star ByteTrend Score in BTC

Source: ByteTree

The two weak performers over the week were Monero (XMR) and Quant (QNT). Until a couple of weeks ago, XMR had been an excellent performer since we added it in July 2022, but it has lost altitude rapidly. It now sits on its 280-day MA, still above where we added it, but one to watch. There’s no obvious reason for the relative weakness, but there is a theory that it classically behaves defensively in a bear market and underperforms a bull. If that’s the case, we should perhaps celebrate its weakness. It certainly makes it a good through-cycle portfolio diversifier.

XMR 2-Star ByteTrend Score in BTC

Source: ByteTree

There isn’t much to write about as regards QNT. Quant seems to sit about as close to traditional finance as it’s reasonable to get, advocating both Central Bank Digital Currencies (CBDCs) and more regulation - doubtless to the horror of crypto maximalists. We like the positioning and transparency – those interested in more detail can click here.

Movers

Bitcoin (BTC)

In a slightly negative development for the bitcoin network, the largest block ever (in terms of memory usage) has just been mined. The block contained an “Ordinal”, which is a new type of NFT made possible by a loophole in the 2021 Taproot upgrade. Purists think bitcoin’s ledger should simply be a place to record financial transactions (“peer-to-peer electronic cash”, as per the white paper) rather than store data. Secondly, the inordinate use of block space could cause congestion and drive up fees, which would increase the technical requirements of running a node and, in turn, impact decentralisation. Far from critical, but something we will be keeping our eye on in the months ahead.

Binance (BNB)

Last week, Binance announced “BNB Greenfield”, accompanied by a whitepaper. BNB Greenfield is a new decentralised data storage system that enables infrastructure and an ecosystem to facilitate the decentralised data economy. It differs from existing centralised and decentralised storage systems by enabling Ethereum-compatible addresses to create and manage both data and token assets. It will also provide developers with similar API primitives and performance as good as existing Web2 cloud storage, or so they claim.

Binance’s move towards the decentralised data storage system comes as the company seeks to expand its influence in the DeFi sector. This allows Binance to compete in a new sector within the crypto market where familiar projects, such as Arweave, Filecoin, and BitTorrent, are current market leaders by market capitalisation. As far as we know, Filecoin is the most active of these communities, with over 3,500 active miners and 18.6 exbibytes (EiB) in network storage power. The BNB Greenfield testnet will be available in the coming months.

Uniswap (UNI)

Venture capital firm Andreessen Horowitz (a16z) used its 15 million UNI to vote against the proposal to deploy Uniswap V3 on the Binance Smart Chain (BSC) using the Wormhole bridge. The reason why is due to the 2022 hack, where the Wormhole protocol experienced a major security breach that resulted in the loss of 120,000 Wrapped Ether (wETH). While a16z is probably right to step in, it doesn’t say much for the decentralisation of the space if one large private equity fund can halt something like this.

Shakers

dYdX (DYDX)

dYdX, the Ethereum-based decentralised exchange, announced in a recent blog post that it has postponed unlocking its DYDX token for investors until the end of this year. Originally, the intention was for 150 million tokens to be made available to early investors and the dYdX team on 3 February 2023. Consequently, with 148 million tokens currently in circulation, the DYDX supply was set to be increased by around 88%. On the day of the announcement, the DYDX token made a high of over 40% and the price has more than doubled since before consolidating.

Source: ByteTree

With the amendment, the release of the DYDX tokens will now commence on 1 December 2023, with 30% being released initially. From 1 January until 1 June 2024, another 40% will be unlocked. Then, from July 2024 to June 2025, another 20% will be made available. Finally, the remaining tokens will be made available in equal monthly instalments from July 2025 until June 2026.

Although postponing unlocking dates has significantly pushed DYDX’s price, it has little or nothing to do with its long-term bull case. The entire supply will still be released into the market in the coming years, and if the demand for the DYDX token doesn’t match the new supply, it could impact the token price negatively.

BYTEFOLIO PERFORMANCE

ByteFolio Asset Allocation

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