ALTERNATIVE MARKETS UPDATE - END AUGUST 2023

​The current economy remains under pressure and recession talks mostly vary based on their expected impact and when they occur. In the US, interest rates remain high at 5.25% with moderate inflation at 3.2%. While inflation seems to normalize, it rose compared to June 2023, which led to another hawkish view of the Fed and further rate hikes are not unlikely. The yield curve inversion of 2Y-10Y yields is especially worrying, as the inversion has persisted for about a year now and economists expected an elevated likelihood of a small to medium recession. In Europe, the situation is more tense, as present headwinds, such as energy and the war in Ukraine, do not seem to evaporate quickly. As a consequence, inflation is coming down more slowly than in the US. In the EU, inflation remains at 6.1% and 6.8% in the UK with interest rates at 4.25% for the EU and 5.25% in the UK. Figure 1 summarizes the development of interest rates and inflation in the US, the EU, and the UK. In Europe, the economic growth is concerning, as the estimated GDP growth in the EU is only 0.6% in Q2 2023. In the UK, the situation is more dire, as the economy has remained close to flat since Q2 2022.

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RESEARCH PERSPECTIVE VOL. 210 August 2023 Alternative Markets August 2023 The current economy remains under pressure and recession talks mostly vary based on their expected impact and when they occur. In the US, interest rates remain high at 5.25% with moderate inflation at 3.2%. While inflation seems to normalize, it rose compared to June 2023, which led to another hawkish view of the Fed and further rate hikes are not unlikely. The yield curve inversion of 2Y-10Y yields is especially worrying, as the inversion has persisted for about a year now and economists expected an elevated likelihood of a small to medium recession. In Europe, the situation is more tense, as present headwinds, such as energy and the war in Ukraine, do not seem to evaporate quickly. As a consequence, inflation is coming down more slowly than in the US. In the EU, inflation remains at 6.1% and 6.8% in the UK with interest rates at 4.25% for the EU and 5.25% in the UK. Figure 1 summarizes the development of interest rates and inflation in the US, the EU, and the UK. In Europe, the economic growth is concerning, as the estimated GDP growth in the EU is only 0.6% in Q2 2023. In the UK, the situation is more dire, as the economy has remained close to flat since Q2 2022. Figure 1: Inflation and Interest Rate Development from January 2022 to July 2023, Sources: Stone Mountain Capital Research & Trading Economics, August 2023 Cryptocurrencies have not done too well since July 2023 when Bitcoin (BTC) was trading close to the $30k mark until mid-August 2023. On 17th August 2023, BTC dropped to $25k following a combination of factors that did not benefit the ecosystem. Most notably, the rise in US bond yields and regulatory uncertainty caused an initial decline, which was amplified by technical factors contributing to its decline that day. BTC remained at around $25k and $26k until the end of August. On 29th August 2023, BTC gained around 7% and soared above $28k. The development of the price of BTC during 2023 is shown in Figure 2. This can be traced to a US court’s ruling of the SEC to block the first spot Bitcoin ETF by Grayscale. This was a huge win for the crypto ecosystem in terms of mainstream adoption of the asset class. As of the time of writing, there are eleven Bitcoin ETFs outstanding for approval by the SEC. Figure 3 shows a more detailed view on these outstanding applications. Figure 2: Bitcoin Price Development in 2023, Source: CoinMarketCap, August 2023 Figure 3: Companies That Filed for Bitcoin Exchange-Traded Funds in the US, Sources: Bloomberg Intelligence & SEC, August 2023 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 19th May 2023, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 61.2 billion. 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