Alternative Markets Update – End FEBRUARY 2024

Cryptocurrencies started phenomenally in the year 2024. To date, Bitcoin (BTC) is up almost 50% in 2024 after soaring around 160% in 2023 already. On 28th February 2024, BTC managed to surpass the $60k mark and peaked at nearly $64k. With the Halving on the horizon, BTC will likely surpass its previous record high of $68k set in November 2021. Ethereum (ETH) and other altcoins are following the price development of BTC after the most recent hype around the BTC ETF approval showed a relatively small impact on other coins. ETH is also up almost 50% in 2024, at the time of writing. ETH is currently trading at $3,385, levels last seen in early 2022. While BTC is already relatively close to its record high from 2021, ETH is still quite far away from its record high of $4.8k from November 2021. The growth of Solana (SOL) has slowed in 2024, gaining only 16%. Nonetheless, the current level of $118 was last seen in early 2022, when the token crashed substantially amid the general crypto crash and reliability issues of the network. Although the growth over the past two months has not been exceptional, this is more than compensated by the 10x return in 2023. While BTC and ETH show a tendency for a new record level soon, SOL still needs to grow substantially to overtake its previous record high of $260 in November 2021. Figure 1 shows the price development of the three coins from the end of 2021 to February 2024. The most recent surge in prices also resulted in the market capitalization of cryptocurrencies rising above $2tn for the first time since early 2022. Currently, the market cap of the industry lies at $2.33tn.
Cryptocurrencies started phenomenally in the year 2024. To date, Bitcoin (BTC) is up almost 50% in 2024 after soaring around 160% in 2023 already. On 28th February 2024, BTC managed to surpass the $60k mark and peaked at nearly $64k. With the Halving on the horizon, BTC will likely surpass its previous record high of $68k set in November 2021. Ethereum (ETH) and other altcoins are following the price development of BTC after the most recent hype around the BTC ETF approval showed a relatively small impact on other coins. ETH is also up almost 50% in 2024, at the time of writing. ETH is currently trading at $3,385, levels last seen in early 2022. While BTC is already relatively close to its record high from 2021, ETH is still quite far away from its record high of $4.8k from November 2021. The growth of Solana (SOL) has slowed in 2024, gaining only 16%. Nonetheless, the current level of $118 was last seen in early 2022, when the token crashed substantially amid the general crypto crash and reliability issues of the network. Although the growth over the past two months has not been exceptional, this is more than compensated by the 10x return in 2023. While BTC and ETH show a tendency for a new record level soon, SOL still needs to grow substantially to overtake its previous record high of $260 in November 2021. Figure 1 shows the price development of the three coins from the end of 2021 to February 2024. The most recent surge in prices also resulted in the market capitalization of cryptocurrencies rising above $2tn for the first time since early 2022. Currently, the market cap of the industry lies at $2.33tn. 

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RESEARCH PERSPECTIVE VOL. 222 February 2024 Alternative Markets Update Cryptocurrencies started phenomenally in the year 2024. To date, Bitcoin (BTC) is up almost 50% in 2024 after soaring around 160% in 2023 already. On 28th February 2024, BTC managed to surpass the $60k mark and peaked at nearly $64k. With the Halving on the horizon, BTC will likely surpass its previous record high of $68k set in November 2021. Ethereum (ETH) and other altcoins are following the price development of BTC after the most recent hype around the BTC ETF approval showed a relatively small impact on other coins. ETH is also up almost 50% in 2024, at the time of writing. ETH is currently trading at $3,385, levels last seen in early 2022. While BTC is already relatively close to its record high from 2021, ETH is still quite far away from its record high of $4.8k from November 2021. The growth of Solana (SOL) has slowed in 2024, gaining only 16%. Nonetheless, the current level of $118 was last seen in early 2022, when the token crashed substantially amid the general crypto crash and reliability issues of the network. Although the growth over the past two months has not been exceptional, this is more than compensated by the 10x return in 2023. While BTC and ETH show a tendency for a new record level soon, SOL still needs to grow substantially to overtake its previous record high of $260 in November 2021. Figure 1 shows the price development of the three coins from the end of 2021 to February 2024. The most recent surge in prices also resulted in the market capitalization of cryptocurrencies rising above $2tn for the first time since early 2022. Currently, the market cap of the industry lies at $2.33tn. Figure 1: Performance of Bitcoin, Ethereum, and Solana Indexed to its Value at the End of 2021 until End of February 2024, Source: Stone Mountain Capital Research & CoinMarketCap, February 2024 For investors who have been invested in the cryptocurrency market, the crash towards the end of 2021 and subsequently disappointing 2022 is nothing new. Thus far, these low points and the subsequent price increases steadily occurred around the Bitcoin Halving. This event takes place every four years and halves the reward of Bitcoin mining. The cycle around the Bitcoin Halving can typically be split into three phases, which last around 16 months. When the Halving takes place, BTC shows the strongest rally. Likely, this is historically the case, as the coin gained more interest from new parties, which is further exacerbated by the strong gains following the event. Then, crypto markets usually crash, as people become skeptical of this unsustainable growth or realize their profits. Importantly, in the past “Halving cycles”, the lows during this crisis have never fallen previous cycles’ lows. The sharpest declines typically occur at the beginning of the crash followed by a steady decline, until tokens start to rebound. This (weaker) bull run is characterized by the “buying low” mentality and the anticipation for the upcoming Halving. Figure 2 shows the multiples achieved by BTC in the pre- and post-Halving rallies in the past. Additionally, if the most recent cycle should follow its history, BTC could reach heights of around $150 by mid-2025. Figure 2: Bitcoin Halving Rallies from 2011 to 2025 (Expected), Source: Pantera Capital, February 2024 The current dominance of BTC in the cryptocurrency market is also quite common. Similar to the Halving cycles from above, the overall crypto market performance in bull runs is initially driven by BTC. This is intuitive, as the space is highly volatile and BTC tends to be the “safest” asset in the space (excluding stablecoins). Hence, when the market is crashing, BTC is the token of choice to mitigate further strong downside movements (e.g., see BTC vs. SOL drawdown in Figure 1). Once the market is surging, investors tend to invest in other assets with higher upside than BTC. BTC usually continues to grow strongly, but altcoins substantially outpace it in terms of growth. Figures 3 and 4 show this dynamic in terms of the total market capitalization of altcoins and a growth comparison of BTC vs. altcoins over the two phases, where the first phase is dominated by BTC and the second by altcoins. Figure 3: Altcoin Market Share Through Bull Cycles from 2014 to 2023, Source: Pantera Capital, February 2024 Figure 4: Growth Through Bull Cycle of Bitcoin and Altcoin Distinguished by the Two Phases, Source: Pantera Capital, February 2024 Similarly to the crypto market, equities also enjoyed the year 2024 thus far. The Nasdaq Composite Index and the S&P 500 already gained 8% and 7% respectively in 2024. The Dow Jones Industrial Average yielded slightly less with 3% so far. Nonetheless, all of these key indices reached key milestones. The S&P 500 and DJIA reached new all-time highs. Notably, the S&P 500 surpassed the 5k mark for the first time, while the DJIA soared beyond 39k for the first time. Only the Nasdaq Composite has not overtaken its prior record high from 2021. Nonetheless, the index missed the mark by 0.1% and is currently above 16k, despite nearly falling below the 10k mark during 2022. While these are strong results for the US equity market, the impact of the Magnificent 7 (Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia, and Tesla) cannot be understated. In 2023, these few stocks carried nearly the entire gains of the S&P 500 which soared nearly 25% in 2023. Figure 5 shows the growth of previously mentioned indices in comparison to the Magnificent 7 over the past year. Figure 5: Indexed Performance of the S&P 500, Nasdaq Composite, Dow Jones Industrial Average, and the Magnificent 7 from April 2023 to February 2024, Sources: Stone Mountain Capital Research, Standard & Poors, Nasdaq, Dow Jones, Roundhill Magnificent Seven ETF, February 2024 Alphabet (GOOG) started the year 2024 flat after returning 58% in 2023. The company strengthened its ad revenue, as the economy improved and marketing budgets increased. Another key contributor is Alphabet’s involvement in AI, despite the shortcomings of its chatbot Bard at launch. Although the company beat estimates in its latest financial report, the stock declined. Given the high levels of these stocks, they need to beat their estimates substantially to justify that investors keep believing in this abnormally high growth, which Alphabet’s results could not. Apple (AAPL) gained 48% in 2023, which marks the lowest return out of the Magnificent 7 in 2023. In 2024, the stock declined by 6%. Apple achieved these results mostly by providing solid financial results, although the company has recently faced issues in maintaining its revenue. In the last financial statement, the company finally managed to break the trend of falling revenue, despite slowing demand for smartphones. The company also released a new version of its augmented-reality glasses, which saw a lot of criticism. The more recent issues likely contributed to a slight decrease in the stock price of the company in 2024.   Amazon (AMZN) already gained 16% in 2024 thus far. The company also rose by 81% during 2023. Amazon managed to achieve strong growth in 2023 after the company faced some issues in 2022. The company could increase its margin in its e-commerce segment, especially in North America. Amazon’s cloud computing has become a major profit driver for the company. Although revenue growth is slowing, AI and the need for storage and operation are likely to boost growth. In the last financial report, the company managed to beat estimates and achieved significant revenue growth, which led to further stock gains. Meta Platforms (META) achieved the second-highest return in 2023 with 194% and is up another 39% in 2024. The company posted strong financial results throughout 2023. In combination with a stronger shift to AI, successful cost cutting, and its new app Threads, a Twitter competitor, was responsible for a strong 2023. The most recent surge in 2024 is due to its strong financial result, in which the company handily beat analyst estimates with a profit of $14bn in the last three months of 2023. Microsoft (MSFT) grew by 57% in 2023 and by another 12% in 2024. Recently, the company has been heavily involved in the AI movement. With its sizeable investment in OpenAI (ChatGPT) in early 2023, AI has truly become a widespread trend. Since then, Microsoft has been determined to be able to distribute AI at scale. Being a frontrunner in the AI movement in combination with strong financials, has resulted in a strong performance for its shareholders. Nvidia (NVDA) showed the strongest growth among the Magnificent 7 with a gain of 239% in 2023 and 60% in 2024. Nvidia’s success is built upon its dominance in the GPU market, which is a vital component of AI systems. With a strong interest in AI emerging in recent years, Nvidia is a key supplier of GPUs for those models. The most recent surge is largely due to the astonishing financial report in February 2024, when the company announced that revenue more than tripled and its further outlook. Lastly, Tesla (TSLA) doubled its value in 2023 but has lost nearly 20% since then. Most of the gains during 2023 can be attributed to the company’s strong performance in revenue growth and profitability. In 2024, Tesla dropped following a disappointing financial report, where the company missed the projected earnings. Tesla also stated that growth in vehicle volume may be substantially lower than in 2023, which also reduced investor sentiment around the company. Like cryptocurrencies and equities, fixed income yields are also rising. Yields have been rising consistently until October 2023, when it became relatively clear that the Fed is unlikely to hike further. The notion switched quickly, as market participants expected rate cuts quite soon after, which led to declining yield until the end of 2023. Since the beginning of 2024, yields have been on the rise again and are likely to continue, until the Fed is starting to cut interest rates. Given the last decision and its representative’s speech in January 2024, rate cuts are unlikely to occur in March 2024, which gives yields quite some time to rise further. Figure 6 shows the yields of several bonds since 2023. The 1-year US Treasury has reclaimed the 5% mark at the time of writing. In contrast, the 10-year US Treasury yield is still way below at around 4.25%, which still represents a strong inversion of the yield curve, which has been present since mid-2022. In the corporate yield space, the yield of Aaa-rated companies remains very close to the 1-year US Treasury yield. Baa-rated companies currently exhibit a premium of around 80bps and are pushing towards to the 6% mark. Figure 6: Bond Yields from January 2023 to February 2024, Source: Federal Reserve Bank of St. Louis, Moody’s, Board of Governors of the Federal Reserve System, February 2024 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 2nd February 2024, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 62.4 billion. 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