2023 Q3 Update – Black Mountain Investment Group

As illustrated in the chart above, Bitcoin moves cyclically off its underlying mathematics. The monetary (reward) policy changes every 4 years and cuts the daily issuance of Bitcoin in half, reducing the amount of Bitcoin in circulation, causing a supply shock to miners and exchanges. Because of the cyclical nature and hard-coded monetary policy, this makes the coin very predictable on a longer time frame.

From what I’ve been noticing in the global cryptocurrency markets, the longer-term holders that have tenure in the industry are remaining composed, while the speculators that joined us during the 2021 cycle are either long gone, liquidated, or losing their minds through this capitulation phase. The reason why I’m not losing sleep over some moves down this cycle is because we’re in the accumulation phase and this is my 4th rodeo (Bitcoin cycle).

During the 2014-2017 cycle, I purchased many of my current holdings in 2016 at the tail end of the accumulation phase. I bought more Ethereum at the bottom of the accumulation phase in 2019 and we have been doing the same thing during the current accumulation phase. History doesn’t always repeat itself, but it often rhymes and although there is always a probability of this time being different, I envision the same trade playing out for The Jupiter Fund (and other crypto bulls) this cycle.  

During this bear market, It almost seems like a broken record of purveyors telling others to “build in the bear.” Unironically, this is exactly what I’ve been spending most of my time doing. As prices have already fallen significantly, I’m confident that what we’re going through now is time-based capitulation.  

When the price of an investment is falling, investor interest and faith starts to wane, in many cases causing them to sell (price-based capitulation). In time-based capitulation, investors surrender after a long and exhausting struggle as their interests (and/or liquidity needs) shift to other things.

Many have heard the John D. Rockefeller saying, “When the shoeshiner starts giving investment tips, it’s time to exit the market,” but how do you know when is a good time to enter the market?

To us, what’s happening right now is a clear distinction between price-based capitulation and time-based capitulation. These two operate in tandem to test the investor’s loyalty, patience, and belief in their own narrative.

Great investors understand this and make strategic investments during the storm, coming out smarter and stronger than when they entered. A good example of price capitulation in the cryptocurrency market was the 2017 bear market after Bitcoin’s peak of reaching almost $20,000 per coin. The ending of this price-based capitulation was also the start of the time-based capitulation, as many investors who did not leave the market in the price capitulation down from $20,000 to $6,000 eventually did so during the next 2 years due to a lack of movement to the upside.

The FTX disaster created the crypto market cycle bottom (price capitulation). That brings us to where the market stands now, in time-based capitulation.

For our fund, it’s more beneficial to weather the storm of the bear market and to not make any sudden changes to our investment thesis (which we frequently and thoroughly discuss), as time in the market outweighs the benefits of timing the market. Our investment horizon is 4-5 years or more, and bear markets in the cryptocurrency landscape have historically lasted 2 years. While it might be brutal now, we believe the tides will soon change.

It’s one thing when both retail and institutions lose interest in an asset class, it’s a different story when, while retail loses interest, the world’s biggest and best institutions start gearing up for an asset class to significantly grow, like we are seeing now throughout the entire financial services industry. Crypto is here to stay and the world’s biggest and best institutions (and regulators) know that.  

On this most recent August liquidation event, we added onto our existing positions with more dry powder. The Jupiter Fund is weathering this time-based capitulation relatively unscathed, outperforming the market (both ETH and the SPY since inception), and just like the exponential growth that’s going to be seen in our core holdings, I’m expecting exponential growth for the fund in the coming years.

Despite the macroeconomic headwinds and regulatory hurdles currently hindering cryptocurrencies, Blockchain Capital, Polychain Capital, and Coinfund recently raised a collective $930M, demonstrating the continued interest and resilience of cryptocurrency investors and the broader blockchain venture capital landscape.

As we inch closer towards the next Bitcoin halving cycle, I expect to see more inflows of new capital into the cryptocurrency sector that will ultimately propel new growth and innovation for the leaders of the new, decentralized internet.  

We realize there’s a long way for us to go, but we are ready and excited for it.

“The summit is what drives us, but the climb itself is the best part of the journey.”

Best,  

The Black Mountain Team