alternative markets update - end may 2022

​Although financial markets are struggling in general, cryptocurrencies are suffering most. After the collapse of the Terra stablecoin in mid-May 2022, cryptocurrencies barely recovered their losses. Even before this crash, the market was down substantially. This development may indicate another ‘crypto winter’ as it was the case in late 2017 and early 2018. After this crash, Bitcoin needed until 2020 and other cryptocurrencies until 2021 to recover. Although the current ecosystem is certainly not favourable, the situation is not equivalent to 2017. There are numerous reasons for this. Firstly, the investor base has changed massively with many more institutional investors in the market. This is likely to reduce the volatility of the asset slightly, as the majority of capital in the market is still retail-based. Secondly, the principle of blockchain and the applications are a lot better understood than back in 2017 when most people held coins for the profit only. Nowadays, assets are also held out of conviction which should further limit the downside potential. Thirdly, cryptocurrencies tend to crash the hardest at the beginning of a crisis but also tend to recover ahead of other asset classes. One of the best examples of this occurred at the beginning of Covid-19 when Bitcoin recovered quickly and soon rose to a new record high. Currently, Bitcoin is trading relatively stable at the $30k mark. The development of Bitcoin during 2022 is shown in Figure 1. Ethereum is trading consistently trading below the $2k mark since the crash.

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RESEARCH PERSPECTIVE VOL. 180 May 2022 Alternative Markets Update May 2022 Although financial markets are struggling in general, cryptocurrencies are suffering most. After the collapse of the Terra stablecoin in mid-May 2022, cryptocurrencies barely recovered their losses. Even before this crash, the market was down substantially. This development may indicate another ‘crypto winter’ as it was the case in late 2017 and early 2018. After this crash, Bitcoin needed until 2020 and other cryptocurrencies until 2021 to recover. Although the current ecosystem is certainly not favourable, the situation is not equivalent to 2017. There are numerous reasons for this. Firstly, the investor base has changed massively with many more institutional investors in the market. This is likely to reduce the volatility of the asset slightly, as the majority of capital in the market is still retail-based. Secondly, the principle of blockchain and the applications are a lot better understood than back in 2017 when most people held coins for the profit only. Nowadays, assets are also held out of conviction which should further limit the downside potential. Thirdly, cryptocurrencies tend to crash the hardest at the beginning of a crisis but also tend to recover ahead of other asset classes. One of the best examples of this occurred at the beginning of Covid-19 when Bitcoin recovered quickly and soon rose to a new record high. Currently, Bitcoin is trading relatively stable at the $30k mark. The development of Bitcoin during 2022 is shown in Figure 1. Ethereum is trading consistently trading below the $2k mark since the crash. Figure 1: The Price of Bitcoin in 2022, Source: CoinMarketCap, May 2022 The outlook for equities remains bleak. With rising interest rates, valuations will drop. Despite drops of well above 50% for some tech companies, their valuations still remain around their average of the past 20 years, which suggests that further drops are quite likely. This is also reflected in equity hedge fund returns as they are down between 7% and 22% for our strategies. Nonetheless, these substantial drops also promise good buying opportunities assuming some of previous investments have been dropped and capital is ready. By far the most successful hedge fund strategies focus on global macro. Figure 2 shows the annual percentage returns of systematic macro strategies. 2022 is looking to be most promising year on record, as the data for 2022 is only as of April 2022. These returns can likely be explained by relatively straightforward bets on rising interest rates and the enormous rally of commodities during the year so far. Not surprising, the most successful strategy this year is the Discretionary Global Macro strategies that is up already 181% in 2022 so far. Figure 2: Annual Percentage Returns of the HFRI Macro Systematic Diversified Index, Source: HFR & Financial Times, May 2022 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 16th February 2021, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 60.3 billion. 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