ByteFolio Update 47

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 drifted back a little again this week and now stands at 9.30 BTC. Bitcoin has outperformed the rest of the pack, gaining 0.9% to become 49% of the portfolio, mainly benefitting from weakness in MATIC after its strong recent run. Note that MATIC remains on a 5-star trend in both BTC and the USD on ByteTrend. Binance (BNB) has also performed well over the past week, rising from 14.3% to 14.9% of the portfolio.

We add two new names this week and make a couple of internal adjustments. The new names are GT and ENS. GT is the token of Gatechain, the Asian crypto exchange, while ENS is the token of Ethereum Name Service. ENS is a service running on the Ethereum blockchain that converts typical crypto wallet addresses into a more user-friendly “.eth” address. Both positions will be initiated at 2.5%. Research notes on both GT and ENScan be found in the Token Takeaway section on our site.

After a brief period of consolidation, Gatechain and Ethereum Name Service have resumed their uptrend relative to BTC, and both now stand on 5-star trends.

Gatechain (GT) Scores a 5-star ByteTrend in BTC

Source: ByteTree

Ethereum Name Service (ENS) Scores a 5-star ByteTrend in BTC

Source: ByteTree

We also take the opportunity to increase exposure to both ETH and MATIC. As explained below, we believe that the Shanghai fork will be a positive catalyst for ETH, while MATIC’s profit-taking after a stellar run gives us an opportunity to boost the position. We also comment below on why we think that MATIC will continue to outperform and, therefore, despite the disparity in market cap, why it is the larger of these two positions.

MOVERS

Ethereum (ETH)

Relative to BTC, the performance of ETH since The Merge last September has been a disappointment. Many anticipated that the move to Proof of Stake, and an accompanying deflationary supply dynamic, would be the platform for sustained outperformance. New demand, it was argued, would come from institutions that would be able to tick the ESG box now that the consensus mechanism no longer relied on vast quantities of energy. Furthermore, they would be eager to participate in “staking” and earn a yield on their capital. Thus far, this hasn’t happened. Indeed, as we approach the Shanghai Fork (expected sometime in March), there are concerns that there is worse to come. This is because the fork will enable “liquid staking”. To date, stakers have been locked in, in some cases for over 3 years, and the fear is that this change will unlock a floodgate of supply, crashing the price.

While this scenario can’t be entirely ruled out, there are some powerful arguments for taking the other side. The first is that many investors who would have liked to have staked their ETH over the last few years would have been put off by the fact that it would be locked up. It is impossible to quantify, but the liquidity constraint would certainly have been a barrier from a risk management perspective for many institutions. If this is the case, we may suppose there is natural demand waiting in the wings that will be mobilised when staking becomes liquid. Second, around 14% of ETH’s total supply, or around 16.6 million coins, is currently staked. This compares to 55%, 72% and 37% for Cardano, Solana and Polygon, for example, so the precedent is for greater staking involvement. Third, it stands to reason that anyone taking an early view on staking is likely to be a long-term believer in the growth potential of the network. Many would have originally staked at much higher prices. Unless there are pressing requirements for the capital elsewhere, it doesn’t make much sense to sell here, especially since you are receiving a yield of ~5.2%.

There is also a widespread belief in the market that ETH always pumps before an event and sells off on the news. The fact that ETH hasn’t pumped before the Shanghai fork suggests that the market has woken up to that particular ruse. If anything, the reverse is now likely, with investors having been excessively cautious in the lead-up to this episode, in all probability unnecessarily so. Therefore the risk/reward of adding to the position at this point seems favourable.

Source: ByteTree

Uniswap (UNI)

One of the main features of Uniswap is that it allows users to trade without relying on a centralised intermediary. Uniswap uses a unique model called an Automated Market Maker (AMM), which enables users to trade tokens based on a predetermined algorithm. Depending on the trading pool, Uniswap charges from 0.01% to 1% trading fees on every trade made on the platform. However, contrary to popular belief, the trading fee on Uniswap is higher than the fees charged by some centralised exchanges such as Binance. It would be a concern if the disparity was substantial, but benefits such as greater decentralisation, transparency, and control over assets will, we believe, continue to outweigh the higher fees for many users.

Chainlink (LINK)

TrueUSD (TUSD), the fifth largest stablecoin pegged to the US dollar, has launched a new system with Chainlink to ensure that reserves are sufficient before creating new stablecoins. The Network Firm LLP aggregates the reserve data, which is then distributed on-chain via Chainlink. TUSD is the first stablecoin to be able to programmatically control minting with real-time on-chain verification of off-chain reserves, thanks to this new feature.

TUSD is currently available on nine blockchains, including Ethereum, Polygon, Avalanche, and Fantom. The launch of this system coincides with an increase in investor scepticism about collateral-backed stablecoins, while stablecoin issuers are being compelled to be more transparent with reports and other assurances.

Polygon, (MATIC)

With MATIC surging over 65% YTD 2023, this year has started on a positive note for the Polygon ecosystem. This surge can be attributed to the launchof various NFT projects and dApps, as well as the announcement of the Polygon zkEVM. Other recent launches on Polygon include Shemaroo’s NFT marketplace Virtasy.io, which features NFTs from iconic Bollywood films, containing images, movie clips, and 3D avatars that are metaverse-ready.

Moreover, National Geographic has launched its inaugural NFT collection, GM: Daybreak Around the World, showcasing works by 16 renowned photographers capturing daybreak, along with their greetings from different parts of the world. K-pop group aespa has partnered with Paper Magazine and Web3 fashion marketplace “The Dematerialised” to launch a digital capsule collection exclusively on the Polygon network.

Lastly, StackerDAO Labs plans to build its first product on the network leveraging Polygon ID’s self-sovereign private identity solution. The product aims to facilitate the creation and operation of a legally compliant Web3 organisation, enabling founders, operators, and DAO members to raise funds, govern protocols, take action, and manage assets without any legal hurdles.

All the activity and innovation on the network are evidence that the Polygon network is poised for growth. Assuming Polygon’s growth continues at this pace, we believe it has a real potential to outperform Ethereum and other smart contract platforms in the years ahead.

Gatechain (GT)

Proof of Reserves was crucial for exchanges to establish their credibility in the aftermath of the FTX fiasco. Unsurprisingly, the GT token’s ByteTrend rating dropped from 5-stars to 2-stars in BTC during that period, not helped by unfounded allegations of manipulation of reserve assets involving Gate.io and Crypto.com.

However, the dust has settled, and the GT token has regained its 5-star rating in BTC. With FTX’s downfall and Hong Kong’s easing of restrictions around crypto trading, Gate.io is poised to benefit. The exchange has over $4.2bn in 24-hour trading volume and boasts more than 12 million registered users, establishing itself as one of the leading players in the CEX space. We initiate a 2.5% position in ByteFolio.

ByteFolio Performance

ByteFolio Asset Allocation

Action

• Buy GT to 2.5%
• Buy ENS to 2.5%
• Increase MATIC from 12.4% to 15%
• Increase ETH from 5.1% to 10.0%
• Reduce BTC from 49.0% to 36.6%