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Parkour Ventures – Interim Investments Update June 22, 2021

The past several weeks for cryptocurrency markets have been wrought with a slew of negative news stories. “Bitcoin is Dead,” “Crypto Crash,” “[Insert Country Name] Bans Bitcoin,” are all common titles to news articles you will find littered around the news media right now. In fact, Bitcoin has been pronounced dead over 400 times according to 99bitcoins.com: Bitcoin Obituaries – “Bitcoin is Dead” Declared 400+ Times (99bitcoins.com). Bitcoin is fantastic fodder for sensational journalists for a few major reasons: 1) there is significant public interest and intrigue in Bitcoin and cryptocurrencies as an emerging asset class and technological innovation, 2) cryptocurrency, as an asset class, is one of the most volatile investments – both to the up and downside, and 3) there is still a significant lack of understanding when it comes to the core technology behind cryptocurrencies with the general public. 

Investors too often fixate on the downside, but do not realize that the flip-side of that volatility is what all investors are searching for – rapid increases in value. In essence, you have to be willing to pay the admission price (stomaching the downside volatility), in order to enjoy the upside. Furthermore, when there is a lack of knowledge of the space, combined with downside volatility, it is especially easy to dismiss all cryptocurrencies as baseless or purely speculative. It takes time and energy to understand the underlying technology or the more nuanced, longer-term factors at play. 

Despite the price action from the past 2 months, and sensational journalism attacking cryptocurrencies, there are many positive fundamental catalysts that have taken place and others that are on the horizon. For instance: 

  • El Salvador became the first country to adopt Bitcoin as official legal tender. 
  • Mining operations continue to migrate out of China and into a variety of more jurisdictions, which helps with decentralization and a more stable network. 
  • The formation of the Bitcoin Mining Council and its doubling down on their commitment to encourage green/sustainable Bitcoin mining with the support of several large companies led by Tesla and Microstrategy is a nice step forward focusing on the long-term viability of the Bitcoin network. 
  • The Federal Reserve’s recognition of increasing macro inflation worldwide. 

Bitcoin is not dead, and neither is Ethereum or many of the “blue chip” DeFi protocols. There have been no changes when it comes to blockchain fundamentals or the investment case for any of these digital assets.

Although it has not been pleasant (to say the least), corrections on the order of -57% (peak-to-trough for Bitcoin, as of 6/22/21) are not unheard of, even in the “bull market” years of the 4-year halving cycle. For instance, in 2013, Bitcoin had a drawdown of -76%, starting on April 15th, that lasted 84 days into mid-summer. Bitcoin then proceeded to take out the previous highs from April and finished 2013 with a yearly high of $1,243 in November (an 1800% rally).

When we started Parkour, we entered the crypto investment management arena knowing we would have to deal with some serious volatility along the way. The fund was designed with two primary goals in mind: 1) to accelerate the gains during bullish trends, like we saw for most of the first quarter and 2) to cushion the drawdowns that inevitably come. 

The Parkour team wants to reassure our partners that we are accomplishing both of these goals. Our monthly investment returns since the February launch demonstrate the ability to navigate all aspects of the price cycle. When compared to a buy-and-hold strategy (assuming a balanced mix of Bitcoin, Ethereum, and alts) Parkour Ventures I has outperformed; returning +113% in the first quarter, +4% in April, and -27% in May. While dealing with one of the worst drawdowns we have seen, we have been able to protect around half of the gains we achieved in the first two months of the year, while Bitcoin erased all its gains for the year and many DeFi assets have declined more than -75% from their May highs at of the time of this writing. We designed the fund to have a twelve month outlook for exactly this scenario because we remain patient and firmly believe we have not seen the highs yet for this year or market cycle. 

Finally, we would also like to address deviations from the stock-to-flow model that are also within the realm of what has been seen before during the “bull year” in the Bitcoin cycle. As you can see in the model below, there has never been a year when the price did not significantly increase during this period in the cycle (~1000 days out from the next halving event). In fact, this period is frequently when the largest gains materialize.

We would also like to point out the deviation from the Stock-to-Flow model that took place in July 2017. Bitcoin hit $1,910 on the 16th of July when the model was predicting $5,380, a difference of ~182%. As of now, the model is predicting $82,400 and the current price is $32,900, a difference of ~150% (of the current price). There have been deviations of this order before and they are normal and to be expected. We remain extremely confident in our thesis and believe Stock-to-Flow remains the most accurate model when it comes to predicting the path for prices going into the second half of the year. The steadfast and patient investors will likely reap the rewards from what has been the best part of the cycle in past “bull years.”

We will be publishing a detailed and comprehensive update along with the close of the second quarter that will discuss the salient news items and events from the last couple months and how they have affected prices. We will also give a detailed account of our forecast for the rest of the year and the reasoning behind our convictions. 

Thank you for your trust! 

The Parkour Team

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