Altitude Fund Overview: 80-100 diverse positions in emergent crypto sectors unavailable on standard exchanges. Currently focused on ETH L2's, ETH competitors, SOL ecosystem, Injective ecosystem, NFTs denominated in 7 different coins, Inscriptions, BRC-20, Rare Sats, DeFi, GambleFi, AI & RWA. Long term focused to play the entire bull crypto cycle with technical analysis strategies that allocate to strength, reduce weakness and take profit in euphoria.
Altitude Fund Thesis
Macro Structural Forces
Liquidity is Everything
Crypto continues to be priced with liquidity. Here is the crypto total market cap compared to WRESBAL (good proxy for US liquidity). Liquidity up crypto up, liquidity down crypto down. A very close match.
Technology is deflationary
Technology is exponentially growing
Our monetary system cannot handle sustained deflation
TL;DR: We’re facing an exponentially growing wave of deflation. To combat, our system must create an opposite level of inflation to remain in stasis and not fall into structural deflation. This is done through many mechanisms but ultimately means one thing. Liquidity.
Technology is Deflationary
Above is the Fed’s balance sheet (WALCL) plotted logarithmically. In log, exponential growth appears as a straight line. Until the data changes our thesis is that the Fed’s balance sheet continues to grow exponentially.
Debt to GDP ratio is too high to be sustainable (general consensus, above 100% is unsustainable) and must eventually come down. All possible options of lowering the debt ratio are: sustained higher GDP, restructuring, default, paying back in full, inflating away. Historically a nation that has high levels of debt denominated in its own currency (US today) has essentially only ever chosen to inflate the debt away via debt monetization and currency devaluing. Liquidity.
Debt to GDP Ratio
Timing
Below is the Year over Year rate of change of global liquidity. When the white line is above the zero bound this means global liquidity is increasing compared to a year prior.
Liquidity Turning
Crypto max pain, max bearish sentiment was very likely in 2022 just prior the FTX and Celsius events.
Sentiment
Those sell-offs triggered a short-lived rotational alt pump, but then as BTC bottomed in Nov/Dec 2022, BTC has maintained dominance in the same pattern as previous cycles. Alts do not begin to outperform until the bull market is more mature.
BTC/ALT Dominance
Below is the market cap dominance of altcoins; when it’s rising altcoins are gaining total crypto market share. The yellow line is BTC’s price. Last cycle, altcoin market share bottomed 34 weeks after the BTC bottom. This cycle appears to be 30 weeks and has recently broken out of a 83 week downtrend (last cycle 89 weeks). From that moment last cycle, the altcoin market cap grew 2000% while the total crypto market grew 1000%. This reflexive nature is why altcoins are so attractive at the right time. In summary, altcoins are beta to crypto. When crypto is in a bull market its beneficial to have some exposure to alts.
Aquion Altitude Fund
Strategy
Thematic Approach. Allocating towards multiple altcoin sectors based on themes and narratives that appear positioned to experience outsized capital in flows during the next crypto cycle.
Market Cap Diversification. From large cap ETH competitors, memes, low cap coins and NFTs, we hold a large basket of 70-90 coins. Sector and asset weighting is a combination of market cap and relative strength of price to the market index. For medium and low cap coins, we use DEXs and various bridges to allocate before the coins are listed on major exchanges.
VC Style Investing. For the low cap sector of the portfolio we purchase and hold a broad range of deeply researched coins that fit certain metrics such as actual real-world use case, fully diluted market cap, liquidity locks, token vesting, doxxed dev team, etc.
Relative Strength. Is one of the few enduring strategies across long historical periods and diverse asset classes with proven outperformance. We closely monitor every asset, trimming or closing weak positions while rolling those funds into wining positions or new assets on deck that have proven themselves with strength.
Refined Version. Last cycle we exited early 2022 after capturing 10x deploying a similar yet less refined strategy, entering and exiting the market at roughly the correct times.
Timing. Broadly we attempt to allocate and terminate the portfolio at a favorable time. This will not be perfect. Timing decisions are based on years of experience with fundamental, technical and sentiment analysis in crypto.
Managing Profits. Lock in profits when coins pump and recycle those gains back into the coins demonstrating strength, but not euphoria while culling under performing assets. - Avoid weakness, buy strength, sell euphoria.
No Leverage. As alts are a leveraged play on crypto there is no need or reason to use leverage in an attempt to increase gains.
Cold Storage. At any given time 90% of all assets and coins are held in self custody cold storage wallets using industry best practices and technology that has stood the test of time during past bull and bear markets in crypto. Allocating happens from hardware cold storage wallets for transaction signing, which greatly minimizes the risk of losing funds on a CEX or in liquidity pools for swaps on DEXs. Backup seed phrases are held in multiple institutional third party off-site secure locations.
Time Horizon. We estimate the fund to be viable over the next two-three years before retiring the fund, returning proceeds to investors or rolling gains into our other non crypto strategies.
Multifaceted Approach
Investing Themes
Bitcoin's capped structure is often viewed as its strength, leading many to pour capital into what is viewed as a finite resource. At Aquion, we take a nuanced approach, during bull markets we instead want exposure to ecosystems with expansionary structures. ETH as an example is a Layer 1 which host Layer 2s on top which can host Layer 3s on top etc., etc. Think of this as an exponential tree with each branch supporting 100 more branches and so on. As an expansionary structure, ETH could theoretically support infinite possible coins and projects. Some might, rightly, point out this is essentially debasement of the ETH ecosystem through infinite money printing and therefore expansionary structures should be avoided because any value will be diluted. However, it’s not that immediate or binary. If expansionary structures are fertile grounds for exponential growth of new projects, it also means exponential growth in attention: hype, innovations, VC investors, dev teams, leverage, passionate acolytes (see sports/lottery below) which can then lead to increased flows which leads to more attention, etc. Therefore, during bull markets, we want to be positioned in the middle of that self-reinforcing dynamic by owning expansionary structured ecosystems. The pattern we then look for is waiting for a catalyst (crypto bull market) which leads to inflated attention, inflated flows, inflated prices, inflated coin creation, which then leads to deflated prices, deflated flows, deflated attention.
Expansionary Structures
Crypto is a fairly closed system, rapidly evolving through TradFi’s historical progression of financially innovative products until one day it will catch up or surpass traditional markets regarding the level of financial creativity. With this macro framework, we’re always on the lookout for new financial innovation in crypto, especially when there are past real-world examples and especially when it involves leverage. One example from our list is Liquid Restaked Tokens, or LRTs, similar in TradFi to ABS or CDOs. With this new innovation for crypto, very soon holders of the over $100 billion in staked tokens will be able to access their liquidity and restake a 2nd, 3rd, etc. collecting an additional yield with each staking. This could lead to a large increase in liquidity in the form of leverage building in and around these LRT protocols.
Financial Innovation
We believe a maturing development from last cycle is the alt coin sector displaying lottery like dynamics combined with sports team enthusiasm and sports betting.
Global lottery market $300 Billion 2021
Global sports betting $83 Billion 2022
DeFi market cap is $51 Million currently
If these low cap altcoins capture a fraction of these industries it could create outsized moves.
Lottery Like Dynamics
Other sectors of interest: ETH competitors, AI, Chinese coins, GambleFi, RWA, and many more.
Others
Who this is for
Well suited for US based individual investors that already have crypto exposure or are interested in crypto exposure. A portion of your crypto portfolio could be well served in a high risk/high growth strategy such as the Altitude Fund.
Individual Investors
Fund of Funds that already have compliance and regulatory guidelines for investing in US based crypto funds could find this strategy a good fit for a portion of their crypto exposure.