Fund update: R-co Thematic Blockchain Global Equity — October 2023

“Next generation for markets is tokenisation” Larry Fink, Blackrock CEO

September FOMC meeting relatively hawkish tone supported higher yields and US dollar strength and kept markets away from risk assets.

Digital assets equity products witnessed a deceleration of investment outflows, now equalizing investment inflows into this asset class year-to-date⁽¹⁾. Blockchain related investments by financial institutions continued to show good strength, with Citi, ABN Amro and UBS announcing projects across the board. Citi focuses on cross border payment while ABN Amro and UBS announced tokenization related projects. This resonates with BlackRock CEO Larry Fink viewing tokenization as “the next generation for markets”. Investments into real world assets by cash rich blockchain players kept increasing, for the likes of Maker DAO treasury diversification into treasury bills. Consolidation of the blockchain infrastructure industry kept moving on, with, for instance, Tether's investment into Northern Data, coming in with the purchase of highly demanded NVIDIA H100 GPUs pods for the data center company.

On the portfolio management side, the transportation and logistics bucket showed as most defensive in September, as market is starting to anticipate sequential freight volume recovery. Web3/Metaverse and Digital assets/Fintech portfolio buckets also showed relative outperformance, while blockchain infrastructure players and audit trail/industrial applications were the most impacted this month, drawn down by market expectations of higher cost of capital in a higher interest rate environment. At the company level, BC Technology Group contributed the most to portfolio performance. The Hong Kong based digital assets exchange is one of the only two players holding the required license necessary for digital assets retail trading offering. Palantir also strongly outperformed, as the US data company signed a US$250m Defense contract for its AI services. Blockchain infrastructure companies Cleanspark and Hut 8 were the worst performers this month, partially erasing their strong outperformance year-to-date.

We started an investment into PayPal. The payment company has recently been accelerating its blockchain strategy with the launch of stablecoin PYUSD and digital assets off-ramps to US dollars and welcomed on September 27th Small-and-Medium-Enterprises-oriented new CEO Alex Chriss – supporting market hopes of an awaited net take rate stabilization strategy. Stablecoins applications, namely on the cross-border payment segment, are expected to accrete on margins on both cross-border related fee expenses and revenue sides longer term. On this front, Coinbase also completed an investment into stablecoin leader Circle. The digital assets exchange also got a Major Payment Institution license from the Monetary Authority of Singapore. At month-end, fund’s equity exposure was 99.9%⁽²⁾.

Industry news to watch:

Announcements made this month by established companies of blockchain based innovations continued to pertain to various sectors of the economy and enterprise use-cases. Among many others:

• Citigroup Debuts Token Services. Digital tokens will be used for customers deposits and cross border transactions.
• US Fed published a discussion paper on Tokenization and highlights potential benefits and financial stability implications.
• South-East Asian mobility and delivery leader Grab pilot Web3 experiences in Singapore. NFT will be used for highly used reward programs.
• Paris Saint-Germain distributes NFT posters generated by AI. This initiative is part of the Parisian soccer Club's fan community management.