Investor Letter

The message below was sent to all partners on Monday, January 7th, 2019

To all Partners,

With 2018 in the books, we can officially say that the Third Wave Digital Asset Fund was profitable for the year. While it is true that we got a late start with an inception date of 10/31/18, Bitcoin was trading at $6,310 then and finished the year at $3,700 – down 41% over the same term. I have looked to see if any other crypto fund was profitable for 2018 and couldn’t find any. According to the Financial Times (paywall), Pantera Capital was down 77% leading up to November, calling it a “difficult year for all cryptocurrencies and tokens.” The famed Galaxy Digital fund run by former Goldman Sachs Partner Mike Novogratz was down 50.6% in 2018. Even algo funds like Systematic Alpha ended up in the red.

In the final 2 months of the year, our fund was up 0.55%. We’ll take it.

I also will say that the “Crypto Winter” is over. That isn’t to say, that we won't see pullbacks. However, tax selling and fears have subsided. A recent article from Bloomberg says, “Crypto Technicals Flashing BUY as Diehards Begin Anew.”

As always, Mainstream Media is two steps behind.

In our last Blog post, we informed you that a “Santa Rally” was coming and while others were selling, we were buying. We had added to our portfolio’s mixture of digital assets including Ethereum (ETH), Litecoin (LTC), Basic Attention Token (BAT), Stellar Lumens (XLM) and Ripple (XRP). In 2019, we have added positions in Bitcoin Cash (BCH), PundiX (NPXS), Binance Coin (BNB) and PolyMath (POLY).

I encourage you to check out all of the white papers for all of the coins, but PundiX (NXPS) and PolyMath (POLY) are particularly interesting to me.

PundiX has developed an eco-system and payment system for digital assets in developing countries.

PolyMath has created a system to ease the burden of creating ERC20 Security Tokens.

Looking ahead, we see Ethereum continuing to capture market-share. We were accumulating ETH around $85 (currently $153) with two events in mind:

1. Approval of a Crypto-based Exchange Traded Fund by the SEC; and a more recent development,

2. A fork in the Ethereum blockchain called Constantinople:

According to Alex Kruger:

“Ethereum's Constantinople fork is coming on block 7080000, around January 16, 2019. Constantinople will reduce the block rewards from 3 to 2, decreasing new ETH supply accordingly. On the long run, this is decidedly bullish.”

What is the Constantinople fork? It is a Hard Fork, which according to the inventor of ETH, Vitaly Buterin is designed to move from Proof of Work (PoW) to Proof of Stake (PoS) in an effort to address issues surrounding mining and scalability.

The fund is still in accumulation mode. Some analysts, like DonAlt, continue to remind us that we are still in a monthly bear market. While I don’t disagree, as the Bears begin to pull up the shorts and the Fear Of Missing Out (FOMO) begins to set in, we should expect this rally to continue.

On behalf of all of us at Third Wave Digital Asset Fund – Happy New Year!

Steven Orr, Portfolio Manager

Third Wave Digital Asset Fund