Dear Partners,
Beyond the Federal Reserve’s rate increases, 2022 will be remembered as the year that crypto’s centralized finance integrations broke. The fraud and defaults committed by trusted parties overshadowed what should have been a very strong year for the industry, due to its significantly improved product offerings. We did not trust FTX, Genesis, or any of the other financial institutions who have collapsed, but failed to recognize the risk they had imbued onto the system. Nonetheless, we remain as convicted as ever in the future adoption, both technological and macroeconomic, of our portfolio.
10/1/2022 - 12/31/2022 (Fourth Quarter):
| Bizantine | -3.6% |
|---|---|
| Dow Jones | +15.4% |
| S&P 500 | +7.1% |
| Hang Seng | +1.7% |
| Nasdaq | -1.0% |
| BTC | -14.8% |
1/1/2022 - 12/31/2022 (2022):
| Bizantine | -25.0% |
|---|---|
| Hang Seng | -2.2% |
| Dow Jones | -8.8% |
| S&P 500 | -19.4% |
| Nasdaq | -35.9% |
| BTC | -65.3% |
1/1/2022 - 12/31/2022 (Inception):
| Total Return | |
|---|---|
| Bizantine | -25.0% |
| Apple | -26.8% |
| -38.7% | |
| -64.2% | |
| Ark Innovation ETF | -66.9% |
| ETH | -68.8% |
| Tesla | -69.2% |
致所有Bizantine的投资人们：
2022年是我们Bizantine Multisig正式成立的第一年， 我们坚信在熊市里，保证对行业的敏感度，“多看少动”是最合适的。在我们行业，有个理 论“一年牛市挣四年的钱，剩下三年尽量少亏”， 在整个2022年，我们25%的净值亏损（包含2%的管理费后），主要是对主流币，即BTC 和ETH的逐步抄底的浮亏所致。一方面，以2022年12月31日汇报日比特币价格16500，以 太坊价格1200来作为基准，相当于我们平均仓位成本约为比特币价格22000，以太坊1600 （简单计算）；另一方面，我们重点参与的Refi（Regenerative Finance）赛道项目Toucan Protocol (代币名BCT)，相对而言面临相对更大幅度的亏损。 2022年对于整个crypto行业来说，可以称得上“退潮才知道谁真正在裸泳”，知名基金遭受 巨额亏损的比比皆是—— 例如，2021年公认业内的六大顶尖基金：A16Z、Pantera、Paradigm、Polychain、Three errows、Multicoin：Pantera损失了71%，Multicoin损失90%，Three errows则是完全破产，剩余三家净值回撤也至少达到了50%，基本上吐出了整个2021年的 收益。而Bizantine Multisig在2021年7月1日“预成立”后，在整个下半年的收益达到了+60%，以2021全年来比 较，Bizantine Fund I的收益超过了+300%，或许我们在2021年的收益并算不上行业最顶尖的level，但是将202 1、2022两年回报率加总，我们完全有信心，超过全行业95%的基金管理人。 我们也认真搜寻了为数不多，其他有着多期可追溯业绩的crypto fund们的回报率情况，可以看到，几乎没有哪一家从4- 5年的长期角度来看能跑赢以太坊。
而对于我们Bizantine，单独拿出2022年每个季度的表现来看，在2022年Q1、Q2和Q4，我 们都是显著跑赢了大盘，尤其是Q1，在大盘明显下行的大环境下，成功利用俄乌战争事 件驱动的策略反而获得了正收益；Q4在10月上旬我们把握住了ETH反弹冲高的机会实施 了动态减仓而再更低点买入，使得整个季度的回撤显著低于大盘回撤；只有Q3我们略有 不足，在BTC价格保持基本不变的情况下，我们在BTC和ETH之间的交易中，承受了一定 的亏损。 这就是我们Bizantine的核心thesis—— 长期主义，在单一年份中，牛市我们并不追求极限的收益回报，熊市我们并不追求极限的 风险回避，而是在每个时间点“知进退”，伴随着行业周期和大趋势的成长而成长。
2022，整个crypto，或者说blockchain行业，究竟有了多大的发展？ 如果从整个行业生态的发展来说，2022年大量web2进场在数据侧，在协议端，以我之见 ，并没有太多突破性进展。
在我看来，现在由于业内资金成分过于复杂，每家基金、每个人研究者对于行业发展的趋 势都有各自判断，而产生了很多噪音。
举个例子，很多人都对游戏行业NFT的应用非常看好，而众人皆知，web3 gaming的市场存在重大缺陷，已有的知名游戏几乎均集中于gamefi，其生命周期和内容质 量并无法长期满足市场要求。在2022年，我们看到大量基金，无论web2还是web3的机构 ，都大手笔投资于游戏项目，并希望他们能进军web3领域，拥有一席之地。然而在我看 来，大部分人都走了两个极端，一种是，寄希望于完全原生的web2 gaming studio，尤其是一些经常创作3A游戏的大厂商们，能够将他们制作游戏内容的能力放置在 区块链上，自己研发“区块链游戏”，通过内容给web3 gaming市场带来活力。另一种是，相信现有“游戏为名，赌博为实”的gamefi们，能自身进 化出一套新的玩法，或者干脆“能赚多少是多少”，让他们自己不断开发出新的“换汤不换 药”式的gamefi。而实际上，在我看来，这两种对web3 gaming的发展都不会有太大帮助，后者不必说，对于前者传统游戏厂商，大部分在乎的就 是销售额和客户收益转化率，只是因为被2021年web3的造富神话所吸引，来参与web3 gaming的创作，而无论他们的打法和资源关系，都离web3的行业规则相去甚远，也无法 获得核心用户的认可，更重要的是，它们对于web3和crypto没有信仰，在2022行业遇到寒 冬后，大部分就纷纷作鸟兽散，或者直接沿用web2的方式在区块链和NFT圈子“做销售”就 结束了。我们怎么能指望这样的公司给行业带来变革？就像2005年前后，马云在杭州宣传 淘宝时，总是被人问道，义乌小商品市场已经有几万家店铺和海量客户群体了，他们要是 自己做一个“淘宝”，那不是很容易就击败你们？当然，最后结果所有人都知道了，对于一 个创新的领域，基因可以说是至关重要的因素。
那未来web3 gaming的领军人物是谁？我提一个项目名字，Otherside。有兴趣的，我们可以再探讨。 另外，尽管我们策略之中尚不具备直接在币权一级市场进行投资的部分，（即项目方在早 期private sale进行融资，我们直接将资金交给项目方而非二级市场直接购买），但我们依旧在保持 对斯坦福web3创业圈的关注。因为Andrew和我曾经都在Stanford学习的缘故，在stanford blockchain club和stanford blockchain 5 accelerator这两处，我们有着相当好的关系网络，和早期项目（stanford这些项目都是pre seed stage甚至idea phase的阶段）deal sourcing的能力，在合适的时候，我们完全可以对他们进行币权的早期投资。
那么，2023年我们应该怎么做？ 简而言之，我认为现在算得上是很合适抄底的位置了。在2022年6月18日我朋友圈所发对 未来的预测，我提到了我认为这一轮值得“大手笔抄底”的价位在17000，当然，这是2022 年下半年全球宏观政经不再发生巨大变数的前提下，当时我的判断是，如果发生一些全球 系统性风险，比特币的极值应该能接近12000，否则在15000便是非常安全的大底部。最后 事实证明，2022年下半年全球经济局势逐渐缓和，美联储的货币政策也逐渐趋于温和，而 比特币最低也并未低于15000。因此，实际上经过最近这一轮的反弹，可以说这一轮周期 的“大底部”大概率已经过去，未来长期整体趋势相对过去的几个月来说，一定是向上的。
不过，在上一季度季报当中，我提到了对于未来几个季度可能趋势的理解和预测，2023年总体来看，市场不太会非常振奋人心，但是相对于2022年的绝对低点短期出现阶段性反弹，还是可以期待的。当然，我们做基金，不可能教条主义，只是静态的根据我们认为的行业低点和高点执行交易。所以，尽管我们在2022年初，对2022年的行业底部，悲观预计比特币可能会低于15000，以太坊会低于800，但是我们还是在行情下行的过程中逐步加仓，不会“一锤子买卖”，不等到我们所谓的低点就不做任何交易。另外，整个2022年，受以太坊2.0升级的基本面推动影响，以太坊的表现是要强于比特币的，在这方面，我们做的相对很成功。而在2022年末我们逐步买入，截止2022年12月31日，我们买入的总仓位已经接近70%，我们相信，这是一个“进退有据”的仓位比例，我们认为，在接下去的一段时间内，大概率不会再出现大跌的局面，而对于2023年，我们期待BTC的峰值价格会触达30000-40000美金，ETH峰值价格触达2500美金-3000美金，在达到这个峰值之前，我们会尽可能吃下所有收益，若如此，我们Bizantine在2023年将会有非常不错的收益。
那从更遥远的长期，我们应该怎么面对市场？ 在可预见的下个周期内，我们还是会遵循β策略，即更多选择以太坊进行配置。而在这之后，当以太坊市值超过比特币后，我们可能会以另一种不同的策略审视市场。也就是我曾经预测的—— 当以太坊市值超过比特币后，整个行业最大的基本面不再是比特币的兴衰，而是变为更多依靠行业应用价值捕获而对应的以太坊价格波动，由此行业周期或许不再以四年的“天时”而驱动，而更多是根据区块链和web3对各细分行业的产业变革之“地利”而驱动，那么届时，可以想见行业很难再出现一年比特币涨10倍的大牛市，而是更多需要通过α来获得超额收益，我们BizantineCapital 的策略就会大幅度向投资于热门细分产业的币权项目而转移，以寻求更多α。
2022年，我们的业绩说不上惊艳，但是在业内横向比较，也绝对算是水准以上。 2022年，我们犯过一些错误，但是对于一支年轻的基金和GP团队，犯错但不是致命错误，勇于承担错误，并且积极改正，并且给我们对未来更深的洞见，这也是我们的宝贵财富。 感谢大家在过去一年，以及多年来对我们的支持，2023年，相信我们，一定能做的更好！
The best is yet to come.
A Misuse of Trust
Over the past two years, an environment in which everyone was a winner, both existing and new entrants ignored these core features of crypto. 1 These parties trusted unregulated financial services applications, whose lending and borrowing contracts existed not on a blockchain but on disperse, private databases. 2 With their unaudited power, these applications lent a substantial portion of their customers’ assets to crypto trading desks around the world, most of which borrowed against collateral of very correlated assets,3 leaving them vulnerable in the case of a default.4 Even more idiotically, several large, highly-levered trading desks invested heavily into Luna, an on-chain ponzi scheme which had grown to become Ethereum’s top competitor as a non-sovereign computing technology.
The entire event, from Luna’s collapse to FTX’s and DCG’s this quarter, took place from May to December.5 It truly was the story of crypto’s year, completely unrelated to the efficiency improvements that crypto affords the world both technologically and macroeconomically. The event itself was a hallmark advertisement for decentralized applications, but specifically those on Ethereum, whose fundamentals continued to grow as its competitors faltered alongside the institutions who fueled their adoption. The theses underlying our portfolio continue to hold true.
On Macro
A bet on crypto is a two-fold bet: it is both a bet on the growth of public blockchain technology as a computing technology and cryptocurrency as a non-sovereign store of value. The first is dependent on technological adoption, while the second is dependent on macroeconomic conditions. Macroeconomic conditions did not pose well for crypto in 2022, as the Federal Reserve’s interest rate hikes attracted capital globally away from risk assets and into societallyagreed safe havens.6
While the Federal Reserve may attempt to hold rates as high as possible for as long as possible, there are two barriers that they will inevitably face. First, foreign demand for US dollars will continue to、 fall,7 as 1) the United States has no viable path to a trade surplus;8 and 2) the majority of the global economy either faces their own debt problems or views the U.S. as a geopolitical rival.9 Second, the U.S. cannot end its deficit spending, with it likely maintaining at 4% USGDP, thus requiring new purchases of US government debt.10 These two forces render that the capital invested to finance America’s government’s operations will have to come from the American economy itself, consequently acting as a significant deflationary force on it.11 The contraction has already begun in America’s manufacturing sector, declining to its lowest usage in December since May of 2020.12
Geopolitical Tensions
As the global economy restructures its debt, both through defaults and resultant money printing, the Federal Reserve’s monetization efforts will become increasingly difficult. There will be continued momentum to restructure each country’s power held in the global financial system.13 In times of widespread currency and debt crises, every actor in the global economy has easily illustratable evidence that the last world order’s financial system failed. The resultant geopolitical tensions, between rising Eastern and incumbent Western powers, continued to escalate in the fourth quarter, as they have all year.14 We do not expect these tensions to subside anytime soon, as the current global financial system remains both over-levered and misrepresentative of the two leading world powers’ economic output.15 Both of the current global economy’s malfeatures—excess leverage and per-country misrepresentation—must be corrected for tensions to subside.
Crypto remains perfectly positioned in this environment, even though the market did not reflect that in 2022.16 Significant macroeconomic changes happen slowly, due to the large network effects of the current system—everyone in the world participates in the macroeconomy. However, like all systems predicated on network effects, when their network effects end, they do so incredibly quickly. We would much rather be early than late in that scenario.17
We do not know when the Federal Reserve will pivot, but the pressure it will soon face from the global economy will be immense. Domestically, American manufacturing experienced a contraction in the fourth quarter for the first time since May of 2020, while America’s trade deficit continues to increase. As the American economy continues to contract, the American economy will still require deficit spending to operate. Foreigners are very likely to continue to be net sellers of US Treasuries, thus leaving the American economy as the buyer of America’s debt. However, requiring American citizens to buy further US government debt removes capital from the private American economy, and thus worsens America’s economic contraction at a time of domestically and globally high debt burdens. The Federal Reserve will have no choice but to resume debt monetization, if it wishes to survive as an institution.18
Greeting to 2023! We had expected the crypto markets in 2022 to be more range-bound in price action, but we drastically underestimated the magnitude of the broader market meltdown and related crypto contingencies. The most important thing that our team took going into 2022 was the mindset that the markets were not going to be as growth orientated as 2020-2021. This thesis exceeded our original expectations, for our focus on profit protection enabled us to outperform both ETH and BTC for the year. There are still many positives to be taken away in the crypto landscape for the year, including the resiliency of major stablecoins and the successful transition of Ethereum to Proof of Stake. The writings on the wall include major percentage increases y/y in stablecoin settlements, as well as the growing Layer 2 (L2) economy that is designed around the Ethereum protocol. My thoughts today in this annual report will reflect a lot about this latter trend of environment consciousness, where crypto (specifically Ethereum) now truly has a precedent in an ESG driven investment mandate. I truly believe that the next wave of crypto innovation will happen in the form of sustainable yields, where the strongest use case will come in the form of Regenerative Finance (ReFi).
Building real product and value in bear markets is the age old saying that truly resonates now. With the “noise” essentially gone in market conditions today, we are seeing the next generation of builders and developers consolidate themselves around crypto. I am seeing a new class of quality emerge in crypto known as ReFi, which seeks to turn the flow of value from extractive to regenerative. ReFi saw significant traction growth in 2022, where top tier projects such as Celo raised around 70 million USD in new funding. Andreesen Horowitz led a 70million USD + round for Flowcarbon. It is estimated that the ecosystem raised around $120 to $160 million in funding capacity.
Currently, carbon credits are the most effective method of environmental preservation through market incentives. The voluntary carbon markets (VCM) are considered the industry standards for broader carbon credit interactions and can be delegated as a web 2.0 framework registry. Verra stands as the most dominant player in the voluntary carbon markets where it has issued close to over 1 billion tonnes of carbon credits. A single carbon credit equates to one tonne of carbon that is sequestered or removed permanently from the atmosphere. To keep global warming below 1.5C, The World must remove around an additional 10 gigatons of carbon dioxide from the atmosphere each year by mid-century. What we are seeing in ReFi is the potential for web 3.0 technologies (on-chain bridging, on-chain credits, etc.) to better interact with web 2.0 logistics and transition in a more efficient flow of value. Toucan and KlimaDAO are the two most prominent companies in ReFi, as they kickstarted the ReFi movement on a global scale and for the first time showed these kind of market infrastructures are possible. That is, on-chain carbon credits are possible and potentially make for a more transparent and decentralized marketplace. Tokenization of these credits is creating a more liquid and transparent market for them. 500,000 tonnes have been retired, ensuring 107,725 car emissions are removed permanently from the atmosphere. At just a global volume of 1 billion USD in 2021, The voluntary carbon market (VCM) is growing rapidly and still has plenty of potential for growth. Yet, the VCM still only covers about 1% of global CO2 emissions, and there are multiple challenges in scaling and further user participation. ReFi has an extraordinary opportunity to better and expand this market.
I take this timeline from my friends at ReFi DAO, where I had the opportunity to write a weekly roundup that generates the best content and events happening in the space. We are seeing a renaissance in the creation of impact projects centered around blockchain/crypto. If investments can be made to initiate max impact on a global scale, then investments can also be designed to address potentially the biggest issue that society faces which is climate change. For ReFi to grow in 2023, we need key objective to happen such as the confirmation from traditional VCMs on the exact proceedings they like to take with on-chain carbon credits. Further guidance on this matter could see on-chain carbon trading larger than off-chain volumes in 2023. We also need to see continued narrative improvements for ReFi, where the message of sustainability and impact is actually practical in the capital markets. If blockchains can become the settlement layer of carbon credits, then ReFi will have won.
I am confident about the markets for the second half of 2023, particularly with the potential opening up of Asian markets which will likely provide strong growth opportunities. Our investment strategies will remain cautious but will be on the lookout for potential opportunities in the form of strong builders and high quality projects. The Ethereum ecosystem will continue to strengthen, as the Ethereum Virtual Machine (EVM) has proven to be the most popular choice for web 3.0 developers. Though retail participation has dropped in the crypto markets, the remaining investors are likely to be in it for the long haul.
It's possible that we could see the total market capitalization of crypto reach $2T again this year, although it might be too optimistic in the near term to expect new all-time highs. Regardless of cyclical market developments, our focus for this year will be on high-quality investments and careful analysis.
Sincerely,
The Federal Reserve raised interest rates 7 times in 2022 in order to tame inflation. This created a bear market environment for all risk assets including crypto and stocks. Inflation rose to a peak of 9.1% with the June 2022 data before consistently decreasing in the following months to the December rate of 6.5%.
| FOMC Meeting Date | Rate Change (bps) | Federal Funds Rate |
|---|---|---|
| 14-Dec-22 | 50 | 4.25% to 4.50% |
| 2-Nov-22 | 75 | 3.75% to 4.00% |
| 21-Sep-22 | 75 | 3.00% to 3.25% |
| 27-Jul-22 | 75 | 2.25% to 2.5% |
| 16-Jun-22 | 75 | 1.5% to 1.75% |
| 5-May-22 | 50 | 0.75% to 1.00% |
| 17-Mar-22 | 25 | 0.25% to 0.50% |
We were able to navigate this environment relatively well by keeping capital away from long positions during the beginning of the year when markets were getting blitzed by the cycle of monumental rate hikes announced with worsening inflation data reported in between each hike. I believe that the main risks going forward are:
1. The possibility of inflation being more sustained then expected through the high rate environment
2. The productivity destruction occurring from tightening. (low GDP growth, possible recession)
3. Worsening geopolitical conflict which can contribute to the aforementioned inflation.
At the same time, I believe that there are some potential catalysts to markets in 2023:
1. Inflation has overall responded well to rate hikes, showing that the strategy can work and may result in a soft landing.
2. China reopening is positive for global economic health and can contribute to the easing of inflation worldwide, as China is arguably the most influential superpower in many global supply chains
3. Geopolitical conflict can be resolved in 2023. We are witnessing increased communication between China and the US, and the potential for China to be a peacebroker between Russia and the west.
Sincerely,
Yours Truly,
The Bizantine Team
Appendix
On Decentralized Science
Decentralized science is founded on the innovation of tokenizing intellectual property (IP), thus rendering a liquid, hyper-efficient asset class.19 It poses to disrupt the pharmaceutical industry to the same extent that decentralized finance disrupts the financial services industry, removing intermediaries wherever possible. Decentralized science connects patients directly with researchers through tokenized IP, driving the economic rent of all of the pharmaceutical industry’s middlemen to zero—from the technology transfer offices at universities, to clinical trial placement marketplaces, to the marketing spend of drug distributors. As healthcare is among the largest industries in the world, decentralized science’s widespread disruption poses to be extremely impactful on the global economy. We have not been this excited about a subsector of crypto since we first realized that decentralized finance would end the oligopoly of the financial services industry—from the commercial banks, to the payment processors, to the APIs built on top.
On Regenerative Finance
Regenerative finance is founded on the tokenization of Carbon credits, thus turning Carbon into a liquid commodity. ReFi saw significant growth in 2022, with projects in the ecosystem raising over $100 million in funding.20 2023’s growth will largely depend on the decisions of incumbent market players, as the incumbents hold the tokenized rights to the off-chain Carbon credits and thus determine the on-chain industry’s legitimacy. Should incumbents accept public blockchain technology as their technology stack, regenerative finance will likely experience a boom in 2023. Due to Ethereum’s successful upgrade of its consensus algorithm in September, Ethereum’s annualized Carbon emissions have dropped from 22mn to 8.8k tons, an over 99% reduction.21 Crypto-native projects, such as Polygon, RocketPool, and Celo, have already agreed to bring their projects’ emissions to zero using on-chain Carbon credits. As decentralized autonomous organizations and on-chain payments grow, tokenized Carbon credits should continue to as well, due to their demand from retail consumers. Additionally, crypto native energy projects—both singular Carbon capture projects and collective networks of those projects22 —pose to integrate on-chain Carbon as a revenue source. Regenerative finance has an extraordinary opportunity to create a unified, free market for Carbon, at a time where climate change poses extreme risks to the global economy.
Geopolitics in 2023
Those whose positions in the global financial system are significantly underrepresented, namely China, will continue to use the decline of the current financial system to create new trade deals that are denominated in their own currency.23Those whose currencies are overrepresented in the current financial system, namely the United States, will continue to utilize the overvaluation of their currencies to domesticate crucial features of the supply chain, attempting to simultaneously mitigate the demand for their competitors’ manufacturing.24 The result, regardless of who the winner is, is a continuation of the trend of the divide between the Eastern and Western economies and financial systems. Our vision for Bizantine as bridge between the United States and China remains more relevant than ever, as those with view into both countries’ economies maintain the best vantage point as actors in the global economy.
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