Make-it Capital Edition #26

THE WORLD AS WE SAW IT IN OCTOBER 2022

The World of Cryptocurrencies

October saw a welcome revival in the crypto markets, which had been badly battered over the past 11 months.?The total market capitalization rose by $66 billion to retest the $1 trillion mark.?

Ethereum?(ETH) outpaced?bitcoin?(BTC) substantially partially driven by ETH having had its first deflationary month since its landmark move to proof-of-stake consensus (PoS)?in September. The bitcoin?hashrate?keeps on hitting new all-time-highs (ATHs) which is especially remarkable given the double-whammy of?beaten down prices for bitcoin and record high rates for electricity. The hashrate has increased some?+52.95%?ytd with no end in sight. Although a higher hashrate makes life more difficult?for miners, it is genuinely positive for the overall security of proof-of-work (PoW) consensus?systems.

Albeit losing some $14 billion over the year, much discussed?stablecoins?have doubled their market share in the crypto space from 7.3% to currently 14%. And despite losing $80 billion in total-value-locked (TvL)?decentralized finance?(DeFi) protocols are holding their respective market share steady at 7%.

According to?Glassnode?on-chain data, crypto exchanges hold an all-time-low of bitcoin to be traded. There are quite simply fewer and fewer investors wishing to part with their bitcoin. Pair that with ever increasing institutional involvement (Visa,?Mastercard,?Citadel,?Charles Schwab,?Fidelity, and?Blackrock?to name but a few making crypto inroads this month), and we have the recipe for a sustainable bull run. As such, we do expect the market to reach its previous highs once hawks transform?into doves releasing pressure on interest rates.?After all, applying a little?Oracle of Omaha?wisdom: "Interest rates are to asset prices what gravity is to the apple."

The World of Commodities

Gold?and?Silver?were flat during October, with both being down significantly for the year with declines of?-10.5%?and?-18%, respectively.?

Historically, precious metals fared well during inflationary times. Maybe this time it is really different as we don't deal with?an inflation induced by a weakening currency as during the last major inflationary cycle following?Richard Nixon's abolishment of the gold peg in 1971. Here the US Dollar Index fell from 120 to 83 in 1978, or roughly?-31%.

In 2022 we face an utterly different situation.?as the US Dollar Index keeps on rising exponentially (+24%?in 18 months). So, what might be the cause for?this inflationary cycle??

Well, adding to decade-long?economic and fiscal policy blunders,?the world is also facing major?supply chain disruptions?caused by COVID policies, wars, and fear,?with devastating world-wide repercussions.?

Will interest rate hikes help reducing inflation?in this totally different environment? Or said differently, can artificially induced?demand destruction heal the apparent supply chain wounds? We leave the answer to this question at the reader's discretion.

Anyhow, back to commodities.?Natural gas?prices continue to fall back, most prominently seen in Europe. After having started?the year at 65, prices climbed to?Olympic heights of 352 on August 26th, only to now come back down to?95 again.

Brent oil?surged 8% over the month and 20% for the year. President?Joe Biden's?Walk to Canossa?(in this case?Saudi Arabia) only resulted in the exact opposite of what was intended:?OPEC's reduced its daily output by?2 million barrels instead of increasing it. As Saudi Arabia also hinted at further production cuts should its archenemy?Iran?increase its oil exports to the Western world, higher oil prices seem to become the new normal for the time being.?

Overview of best and worst?performing commodities YoY:

Energy

Coal:?+129.50%?/?Propane:?-36.57%

Metals

Lithium:?+194.34%??/?Hot-Rolled Coil (HRT) Steel:?-62.13%

Agricultural

Orange Juice:?+79.13%?/?Oat:?-48.73%

Industrial

Bitumen:?+47,03%?/?Tin:?-51.47%

The Rest ...

Stock markets in the Western hemisphere saw another bear?market rally this month. Nevertheless, markets are still in the doldrums with negative ytd returns of?-19%?and?-30%?for the S&P500 and Nasdaq, respectively.?According to?Bloomberg?data, roughly $15 trillion has been lopped off U.S. stocks so far in this bear. As a side note, what sets this bear market apart is the curiosity that bond prices have lost even more than the S&P500. That is a novum.

Since 1929, we faced 19 bear markets with an average peak-to-trough of?-37.4%.?The good news is that the average bear market since 1940 lasted 353 days (vs 1,456 days for bull markets). So, the worst appears to be in the rearview mirror. Then again, we clearly are not our of the woods, yet.

Moving over to China where?President?Xi Jingping's??reelection during the 20th Chinese Communist Party Congress caused another mudslide for Chinese stocks resulting in a monthly?loss of?-15%?for the?Hang Seng Index?(HSI) taking the ytd decline to?-37%. Will?China stick to its economy-crumbling zero-Covid policy? Hard to believe.

Another question garnering increased attention is whether we already are in a?recession, or when we are going to enter into one (as it is not a question of 'if' anymore).?Two key indicators are flashing strong recession inbound signals.?

First. the?inverted yield curve?that hit its lowest spread since 2000 at?-43bps. The 2 / 10 year?yield spread?first rolled into negative territory in July of this year. Usually, a recession hits after 6 - 24 months following the first inversion. As such, we might be officially entering a recession in January 2023.?

The second indicator is the?Conference Board Leading Economic Indicator?(LEI). When the LEI falls more than 1% or more over a year, a recession has always followed. As a matter of fact,?the LEI has decreased 2.8% in the last six months. Thus, according to?Ataman Ozyildirim,?Senior Director, Economics, at?The Conference Board:??the "persistent downward trajectory in recent months suggests a recession is increasingly likely before yearend".?

So, the two most reliable indicators are flashing warning signals. A recession is coming.?

To leave you on a more positive note, we have seen enormous cash accumulation by institutional investors. They know a recession is coming and they are eagerly awaiting the opportunity?to re-allocate all those funds.?

Recessions and bear markets are a natural?part of the investing world. Should investors rush out and sell every half-liquid asset they own now, be it crypto or conventual???

Fidelity?crunched the numbers?on what would have happened?to an investment in the S&P 500 from 1980 to 2018 if one missed some of the best days. By missing the best five days, returns would have shrunk?by 35%. By having missed?the 50 best days, returns would have been?cut by 91%.?The data is straight forward?– there is no point in trying to avoid a bad year when the opportunity cost of missing a good one is likely to be a lot more damaging to ones performance over the long term.?

MAKE-IT CAPITAL FUND (the Fund)

The Fund is operated by Make-It Singapore and managed by Make-It New Zealand. As a?unique hedge fund for a comprehensive blockchain / cryptocurrency portfolio, the Fund?empowers investors to participate in the complete ecosphere of the blockchain universe with just one investment. The Fund always trades at exactly NAV and is?open to institutional and accredited investors.

The main objective of the Fund is capital preservation by reducing risk and volatility. This is achieved by employing our proprietary 5-pillar strategy.

This Month's cover picture is taken out?of?a collection comprising 1,000?non-fungible-tokens?(NFTs) acting legend?Anthony Hopkins?put up for sale on NFT marketplace?Opensea?last month.?

NTFs once hyped beyond tulips are certainly not dead and out. They still form an essential part of the upcoming?Web3?ecosphere and will have applications beyond our current imagination. Pixelated ape pictures caught early investors' excitement, however, their prices have come back down to reality. Nevertheless, Anthony Hopkins sold the entire collection for $1.1 million or 830 ETH in a mind-boggling 7 minutes. There is so much more to come in this space.

The Fund has not partaken in the early NFT feeding frensy, however, the team is actively monitoring the market.?Once Web3 investments move into their second, more durable investment?wave, we might replace one of the current 5 pillars therewith.?

As in every other October since our start, the Fund finished in the month in the green. Despite recessionary fears, we remain steadfast in our positive mid-, to long-term outlook. Blockchain adoption is still at a level comparable to a?1995 internet. Current prices will be seen as?excellent entry points in hindsight.

Thank you for your time and attention.

Sincerely,

Philipp von Gottberg