News
November was a busy month of trading activity. There were good volumes in the futures spread across both the Deribit and Okx exchanges. Futures basis found a steady bid, in line with a strong bid in spot. The market was relatively well behaved. However, we would expect it to become more chaotic, and conducive to the volatility strategy, if $100k convincingly breaks to the upside.
We're starting to see the benefits of our engineers’ development work undertaken earlier this year, on DAFM’s algorithm.
Crypto markets were relatively benign until the final days of the month as we approached the US election. The march higher and then through 70k in BTC saw yields rally materially which the strategy took advantage of. The uptick in yields and prices also saw the return of trading/volume differences
across venues and contracts. The desk remains prepared to take advantage of November's volatility regardless of the outcome.
Yields remained subdued from the tail end of August. The strategy captured cross-exchange opportunities when they presented during sporadic bursts of volatility. The addition of futures spread products delivered a positive incremental source of returns.
Another great month due to the volatility of the basis throughout the month. Absolute yields haven't bounced back to the lofty heights seen at the start of August, but we remain well placed to capture value from any volatility that results, whether cryptocentric induced or otherwise.
Another good performance in July (2.67% after fees) as the digital asset yield structure remained volatile in a month mirroring June in many ways. We believe crypto as an election issue will remain a persistent source of volatility for markets and feel well placed to take advantage of those changes in sentiment as they evolve.
Another solid performance in June (1.88% after fees) as the digital asset yield curve remained volatile. There were no significant events to speak of, just a steady flow of trading between exchanges and yield maturities, enhancing our alpha extraction. We continue to increase volumes on the CME and look forward to strategy enhancements on Deribit and OKX exchanges shortly.
Digital Asset Funds Management’s Digital Income Class (previously know as Opportunities Class) won the Hedgeweek Global Digital Asset Award for Relative Performance of the Year – Digital Assets Fund (Trailing 24 Months).
The trading environment in May paled in comparison to April as we saw a steady increase in the dated futures yields without any commensurate uptick in the volatility. With the yields at loftier levels at month end than where they started we expect the near term performance of the strategy to remain solid. We returned to trading on the CME as the yield differential between there and the other exchanges tightened. Further system enhancements have been deployed during May, with more in the pipeline over the coming months.
Digital Asset Fund has reached a 3 year milestone! The 'Investor Letter' takes you through the successful journey of Digital Asset Fund since its launch in 2021.
April provided the most fertile trading environment for the strategy since DAF's launch in May 2021, with a 9.4% return after fees. A nice birthday gift for our investors! Coming into the month we observed an ultra high yield environment in the digital asset space and significant variability across exchanges. The yield remained consistently volatile but also trended lower which, combined with a few sharp liquidations, contributed to the strong overall return. Of note, given the structure of the yield curve in the crypto native exchanges, we made the rare decision to minimise our CME exposures and optimise our capital usage. In due course we will look to resume trading there. Additionally, we began trading a broader array of derivative instruments in OKX and will roll that out to other exchanges in the coming weeks.
The fervent trading environment has seen yields continue to make new recent highs, albeit with relatively subdued short term volatility keeping trading profits suppressed. The fund continues to have a material amount of carry marked into the curves - if history is anything to go by we will realise this when the market inevitably deleverages. The most notable market dynamic is ETH yields outperforming BTC at times, in particular the short end. Fundamentally we would expect proof-of-stake ETH to trade at a relatively flat yield to USD, suggesting there are some participants expecting an ETH ETF to follow in short order.
Overall February was a good month for the strategy. Whilst the headline return was moderate, the position has a large amount of embedded carry that should be realised in the coming months. Volumes were good, although not to the same level as we saw in January. We’re beginning to observe a shift in the CME landscape as traditional market participants now have access to the yield arbitrage between holding a long spot ETF position vs selling a future. This was long mooted and is now occurring. What this implies for the longer term trading of the CME futures for the strategy is still not wholly clear but will unfold in the next few months.
January proved to be the best month for the strategy since the heady days of 2021. This was due to a combination of factors: multi year highs in long dated futures yields, significant sustained volatility, liquidation events, consistently high trading volumes and the popularity of the BTC ETFs. With implied yields remaining favourable, the impact of the BTC and potentially ETH ETFs in the market and the BTC halving in April, we expect to see a continuation of the friendly trading environment. Additionally, on the trading system side we expect to go live with a suite of new instruments across the bulk of exchanges we trade on, leading to more opportunities.
The unidirectional move provided less trading opportunities than we’d hoped. Coupled with the increasing futures yields (12% in March 2024 for example) that we continue to sell into meant the overall performance was modest. We expect that this yield environment will be conducive to a more profitable future return profile.
Volatility increased and basis (the spread between spot and futures) widened, indicating more leverage being added into the crypto markets, to levels we haven’t seen since late 2021. Conventionally this has been a good trading environment for the strategy and December and January to a larger extent have proved this again.
Leverage started to return to the market for the first time since prior to the FTX collapse, a full year ago, all the way back in November 2022. This was evidenced by the widening basis in the futures, particularly Bitcoin, and specifically in the Chicago Mercantile Exchange (CME) where we see institutional interest piquing.
A relatively dull month on the trading side with limited volatility in either token. CME is becoming an ever more influential venue for price discovery, evidenced by their increasing share of the derivatives market.
Overall a busier month than we’ve encountered for some time. Whilst overall movements in spot and basis were range bound, we did enjoy a particularly violent sell off on the 18th. This occurred during the period where the CME Futures were closed in early Asian trade, a generally illiquid time. We were able to capture many of the opportunities that presented themselves in that 30 minute period, and this episode contributed to over half the monthly return. The move itself was largely driven by technical actors in the options market and we saw all the futures dislocations in Deribit, the principal options trading venue.
July continues on from prior months with CME yields remaining bid over centralised exchanges. The suite of support services continues to expand in the crypto space. We’ve had tentative discussions with providers that aim to provide prime brokerage or trading bridge support to help streamline our capital efficiency and market access
CME yields continued to be bid over centralised exchanges over the course of June, with short date yields printing as high as 30%. We expect the CME to continue being indicative of institutional positioning after the implicit endorsement from BlackRock’s ETF application - the June23 BTC roll market was the most active we have ever seen into expiry along with open interest approaching all-time highs in the active contract. We have the infrastructure available to take advantage of these opportunities and continue to explore options to reduce the friction required to capture them.