alternative markets update Mid-April 2021

​The interventions of central banks have been a major topic over the last year, aside from the surging stock markets and Covid-19. This is certainly justified, as the scale of the interventions are enormous. The common measure of lowering interest rates was not sufficient, and quantitative easing in form of money printing and purchases of treasuries went way further than the during the GFC. Figure 1 shows the liquidity injections of central banks across the world. These injections were certainly one of the core reasons why the stock markets surged to that extent. Figure 2 shows the extent of the liquidity provision of the FED during the outbreak of Covid-19 from March 1st to April 20th in 2020. Within almost a month, the FED bought bonds worth almost $2tn. These interventions caused the FED to now being the largest holder US Treasuries. As emphasized before, this development applies to many other countries, albeit to a lesser extent. In Figure 3, it shows the holders of UK gilts over the last 30 years. Starting in 2008, BoE started buying UK gilts and is now as well the largest holders of them.

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RESEARCH PERSPECTIVE VOL. 153 April 2021 Alternative Markets Update April 2021 The interventions of central banks have been a major topic over the last year, aside from the surging stock markets and Covid-19. This is certainly justified, as the scale of the interventions are enormous. The common measure of lowering interest rates was not sufficient, and quantitative easing in form of money printing and purchases of treasuries went way further than the during the GFC. Figure 1 shows the liquidity injections of central banks across the world. These injections were certainly one of the core reasons why the stock markets surged to that extent. Figure 2 shows the extent of the liquidity provision of the FED during the outbreak of Covid-19 from March 1st to April 20th in 2020. Within almost a month, the FED bought bonds worth almost $2tn. These interventions caused the FED to now being the largest holder US Treasuries. As emphasized before, this development applies to many other countries, albeit to a lesser extent. In Figure 3, it shows the holders of UK gilts over the last 30 years. Starting in 2008, BoE started buying UK gilts and is now as well the largest holders of them. Figure 1: World Central Bank Liquidity Injections from 1975 to 2021, Source: Bloomberg Opinion, April 2021 Figure 2: The FED’s QE Bond Purchases, Source: Bloomberg Opinion & Bianco Research, April 2021 Figure 3: Bank of England Gilt Holdings Surge During Covid-19, Source: ONS & Financial Times, April 2021 This enormous surge in available capital in the market has led to massive increases in the stock market. Another reason were the extremely low yields obtainable by central bank bond buying, leaving equities with no other possibility than to rise. Theoretically, there were alternatives, such as gold (or other commodities) or even more niche assets like cryptocurrencies, but those assets could never have absorbed the entire available capital. Figure 4 shows the development of the S&P 500 over the last year. The S&P 500 has increased by almost 100% since its low in March 2020 and further emphasized how well equities have done, despite the massive impact Covid-19 had on businesses. The S&P 500 broke the 4,000 mark at the end of March 2021 and is currently slightly above 4,100. Equity markets are in an interesting state, as there is a lack of alternatives, but the gains of the last year are highly unsustainable. Furthermore, SPACs have increased tremendously in both 2020 and 2021, but to an unhealthy extent in 2021, as the amount of capital contributed to the IPO boom in the US stems largely from SPACs, which have surpassed their capital contribution of the last year by more than doubling it in a few months in 2021. However, this should be viewed with caution, as SPACs tend to occur frequently ahead of crises, as it was the case during the tech bubble in 2000. Hedge funds have had a great Q1 2021, as they reached their best Q1 performance in more than two decades since 2000. This positive development has been mostly overshadowed by the collapse Archegos, which took a lot of derivative and swap positions that eventually lead to its downfall. It was further in the news, as many large banks alongside clients of the respective banks had large positions in it. Many of them could exit with limited losses, but Credit Suisse missed this window and issued warnings that significant losses occurred exiting the position later on. Figure 4: S&P 500 Index over the Last Year, Source: The Wall Street Journal, April 2021 Figure 5: SPAC Boom Fuels M&A Volumes in the US, Source: Refinitiv, Financial Times & Andrews Gwynne, April 2021 The aforementioned alternative, gold, has performed very well since the crisis until August 2020, during which it reached its high of more than $2000 per ounce. Since then, it mostly lost value until early January 2021, when it recovered to some degree. However, after the tremendous surge of cryptocurrencies, which are viewed more and more as a direct alternative to gold, there were large shifts from allocation away from gold towards cryptocurrencies. Since March 2021, gold hovers around the $1700 mark. Cryptocurrencies on the other hand, have done very well throughout 2021 and have reached a market capitalization of more than $2tn. Bitcoin (BTC) remains in the price range of $52k and $62k for quite some time now. BTC is currently trading slightly above the $60k mark. Figure 6 shows the price development of BTC over the last year. BTC’s market capitalization accounts for more than half of the market capitalization of the entire cryptocurrency market and is at $1.1tn. Ethereum (ETH) managed to break the $2k mark in early April and is holding very well. As of the time of writing, ETH is trading at $2,150. ETH outperformed BTC by several 100% in 2020 and is on track to do the same in 2021. Figure 7 shows the price development of ETH over the last year. ETH is up 191% in 2021 so far, while BTC is up “only” 105%. ETH’s market capitalization is $246bn. Polkadot (DOT) is an interoperability platform that allows different blockchains to communicate with each other. DOT started being traded last August and is already the seventh largest cryptocurrency with a market capitalization of $37bn. DOT is currently trading at $40. Its price in August 2020 was only around $3, showing a growth of 1,259% in less than a year. Figure 8 shows the price development of DOT since August 2020. The most impactful development over the last two weeks was certainly the recent updates in the case Ripple (XRP) vs. the SEC. Ahead of the first announcement, XRP traded at $0.60. Even ahead of the announcement, XRP jumped to $1.02 within one day. XRP’s highest price during this rally was at around $1.44. Currently, it is slightly below this level at $1.37. This development is shown in Figure 9. Figure 6: BTC Price in the Last Year, Source: CoinMarketCap, April 2021 Figure 7: ETH Price in the Last Year, Source: CoinMarketCap, April 2021 Figure 8: DOT Price Since Its Launch in August 2020, Source: CoinMarketCap, April 2021 Figure 9: XRP Price in the Last Seven Days, Source: CoinMarketCap, April 2021 Real estate was hit hardest during the Covid-19 crisis and it suffered longer than most other asset classes. However, the impact on various types of real estate were different. In particular hotels were hit hard and to a lesser degree office and retail. However, some types also benefited, such as warehouses and residential. Warehouses fulfill an important purpose for online retailing, which has skyrocketed in 2020. Residential housing has benefited from working from home. This likely to stay, although not to extent, it is currently. However, this leads to an increased interest in a bigger house, if you spend more time there by working from home more frequently. Figure 10 shows the S&P Case-Shiller index over the last 20 years. Covid-19 has had barely impact on it, instead the index went up the most after Covid-19 than in the entire decade before. Figure 10: S&P Case-Shiller US National Home Price Index from January 2003 to January 2021, Source: Charlie Bilello & Compound, April 2021 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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