By Derek Rose
Marc Woodward, an investment partner with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s weekly take on what’s happening in the fast-changing and volatile cryptocurrency space.
“I think we’ve seen some of the wildest volatility in the crypto market since May of 2020,” Marc Woodward told Stockhead following Bitcoin’s drop to as low as US$32,000 on Wednesday night. The OG cryptocurrency subsequently rebounded to trade at just under US$40,000 on Friday afternoon, when Stockhead spoke to Woodward, then dropped again to US$310,000 on the weekend.
While Elon Musk’s announcement that Tesla Motors would halt accepting Bitcoin payments came out of nowhere and surprised the market, exuberant investors had also become dangerously over-leveraged as they bought into this narrative of expanded institutional adoption, Woodward said.
“There’s a lot of leverage available in crypto markets, a lot of platforms offering retail investors derivatives, and when the trade goes against them, they get automatically liquidated and this can lead to a cascade effect across several exchanges,” Woodward said.
“So I think that exacerbated the panic because people were being auto liquidated, not really understanding what was going on in the market.”
Musk’s tweets didn’t change the fundamentals driving Bitcoin, and neither did talk of a Chinese crypto ban — which, Woodward noted, is a story that seems to be trotted out every six or nine months or so, while never coming to fruition.
“We think as a firm, that the long term, the long-term bull thesis is still intact,” Woodward said.
“There’s record adoption, usage and ownership, and certainly awareness of crypto — that’s got to be at all-time highs.”
Apollo’s two funds had inflows during the pullback as investors worried they had missed the boat earlier took advantage of the buying opportunity, Woodward said.
Also, looking on the upside, decentralised exchanges handled the crash without significant problems, unlike during the March 2020 crash when Bitcoin dropped from US$9,000 to US$5,100. (Those exchanges, such as Uniswap and PancakeSwap, are essentially smart contracts rather than custodians of users’ funds. They rely on platforms such as Ethereum and Binance Smart Chain, and have their own cryptographic tokens, UNI and CAKE).
During that coronavirus-related crash, “they just couldn’t handle the volume, couldn’t handle the volatility. A number of things broke in the system, certain protocols went down due to their immaturity,” Woodward said.
This time, under “historic volatility and pressure,” decentralised exchanges proved their worth, although Ethereum fees were high, Woodward said. Meanwhile users of centralised exchanges like Binance, Coinbase, Crypto.com, Bitstamp and KuCoin reported outages.
“There’s only one or two centralised exchanges that didn’t have any problems,” Woodward said.
“It really shows the maturity of the defi (decentralised finance) space and the validity of our investment thesis at Apollo. We think defi is really going to change the world, it’s going to reshape the financial infrastructure of the future.”
Defi apps built on the Ethereum platform — like Maker, Compound, Aave and the aforementioned Uniswap — are reducing capital functions to software protocols. They let people borrow stablecoins, lend cryptocurrency in exchange for attractive interest rates, and exchange tokens against pools of liquidity, all without human middlemen.
Apollo has been investing in these decentralised finance projects before there was even the term “defi”, Woodward said.
“There’s real business models in defi, generating huge revenues, huge value for participants, huge value for tokenholders,” he said.
“Few understand just how deep this rabbit hole goes even now — the complexity of defi as it stands now, is really incredible.
“And this has all happened over the past 18 months or so. You can imagine what it’s going to look like and how big it’s going to be in the future.”
Woodward has worked as a software venture capitalist and entrepreneur, both in Silicon Valley and Sydney. “I always liken to this to, you’ve got the disruption in the innovation of software, which has basically been eating the world for the last 25 years, married with the velocity of capital, which seeks of yield and seeks to reduce inefficiencies in financial markets.
“So you’re marrying these two very powerful forces in crypto.”
All that brings us to Apollo’s coin for the week — Ethereum, the platform powering the majority of these defi projects.
“It’s 35 per cent off its high (as of Friday, May 21); it’s had a huge run, but there’s significant drivers of value coming up.”
Ethereum Improvement Protocol 1559, an upgrade to the network, is scheduled to go into effect in July, reducing mining fees and making Ethereum more rare.
Ethereum is also set to transition to a proof-of-stake network towards the end of the year, as well new defi projects starting up on platform.
“So we’re incredibly bullish on Ethereum, it’s a core position. It has a very strong community, a lot of true believers, a number of interesting upgrades through the balance of the year, and I think any doubts about Ethereum has been dispelled, given how strong the defi community is.”
Apollo is also a fan of Polygon (MATIC), an Ethereum scaling solution that’s exploded in value this year. It’s tough to recommend after such a big run, but Woodward suggests buying any weakness.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.