Despite the latest China FUD, BTC and ETH options indicate positive year-end, and early 2022 outlook

Press reports emerging this morning from China, however, could portend increased headwinds and volatility for digital assets markets in the near term. BTC and ETH options skews in the derivative markets show that longer-dated options are favoring bullish price action as call buyers pay a premium to go long in the December 2021 and March 2022 expirations. Unsurprisingly, shorter duration strikes show a more protective bias, as put volumes exceed calls volumes for monthly durations in September and October. It is times like this when Two Prime’s active risk-management and derivatives-overlay strategies truly come into their own.

BTC December 2021 options expiry skew (ratio of call to put options) Source:
BTC December 2021 options expiry skew (ratio of call to put options) Source:
ETH December 2021 options expiry skew (ratio of call to put options) Source:
ETH December 2021 options expiry skew (ratio of call to put options) Source:

Overview of Digital Assets Market Activity

Following the early summer sell-off, technical reversal signals emerged in mid-July as BTC and ETH bounced off credible support levels at $30k and $2K respectively as large buyers stepped in. August provided important upside confirmation for BTC and ETH as they continued to build on the July rebound. The broader rally in digital asset prices was primarily a function of deeply oversold conditions created by the China crackdown on Bitcoin mining operations and resulting in sharp declines in the network’s hash rate, which is subsequently starting to show signs of recovery.

Prior to this morning’s news out of China, digital asset price action in September had been somewhat two-sided with BTC and ETH encountering upside resistance levels around $50k and $4k respectively.

Notable alt-coin ecosystems like Solana have joined the main stage, rallying over 400% in recent months, and offering new opportunities for both DeFi exchanges and NFT creators to execute on a lightning-fast network with very low transaction costs. While Ethereum remains the dominant smart contract platform, there are several ecosystems in alt-coin markets that present highly asymmetric risk-reward opportunities. Two Prime will continue to monitor these market dynamics to evaluate suitable options for alt-coin investing.

Digital Assets Fund I – August 2021 Update

In August, the Digital Assets Fund returned 26.94% net of fees, significantly outpacing its benchmark, Bitcoin, which returned 12.35% for the month. Since the start of 2021, the Digital Assets Fund has delivered a 182.68% return, net of fees, and a 537.21% return, net of fees, over the trailing 12 months, compared to 61.86% and 313.28% raw return for BTC during the same time periods.

Starting January 1, 2022, the performance fee on new investment in the Digital Assets Fund will increase from 10% to 16%. The December 2021 subscription period will be the final opportunity for investors to deploy new capital into the fund and lock in a 10% performance fee for the lifetime of the investment. The deadline to invest in December 2021 subscription period is November 30th, 2021

Two Prime Liquid Yield Fund I – August 2021 Update

The Liquid Yield Fund is currently generating over 22% market-neutral APY as the impact of front-loaded fund start-up costs begins to normalize. The Liquid Yield Fund, which launched on June 1st, 2021, generated a 0.53% net of fees return in August 2021 and a 1.30% net of fees returns since its inception.

Our investment team has researched, tested, and deployed capital across carefully vetted, and market neutral DeFi stablecoin staking strategies delivering annualized yields between 20 – 30% going forward.

Two Prime has updated the Liquid Yield Fund fee structure to more closely align with that of its flagship, Digital Assets Fund. The Fund’s performance fee has been reduced from 50% to 20% and the previous 9% hurdle on the management fee has been removed. The management fee will remain unchanged at 1%.

Available on Demand: Two Prime’s Institutional DeFi Webinar, Slides, and Full Report

Webinar Slides Full Report

Two Prime Private Investor Dinner

San Francisco Bay Area
October 21, 2021

Two Prime’s Managing Partner, Alexander Blum, and Chief Investment Officer, Nathan Cox will be on the road next month, hosting a private dinner for investors on October 21st in the San Francisco bay area.

Let us know if you are in the area around that time and would like to meet in person.

More details on the dinner venue and location are to be announced soon and the opportunity to pre-register will begin next week.