The Calm before the Storm

Hartmann Capital July 2020 Update

To Investors and Colleagues,

As predicted in our last market update titled Breaking Out - The 4th Epoch of Crypto”, we saw the long awaited breakout of crypto assets, leaving behind one of the longest winters in the industry. Capitalizing on this move, we recorded our second best month in the fund’s two year history, and are already off to another fantastic start in August. We are now back on track to closing the year on triple digit returns.

While some digital assets have seen mind-numbing growth (1000%+ returns on a few small cap decentralized finance projects), we recognize that we are still in the first quarter of this cycle. Below the fold we’ll put this recent growth into perspective and set some benchmarks for both bitcoin and the decentralized finance space.

We believe that no investment offers the same asymmetric returns as the digital asset space, and failing to be allocated is a bigger portfolio risk than being allocated.

In a time of contraction, we believe in expansion. As the markets are off to new levels we are expanding the team in order to be the best digital asset hedge fund in the industry.

The world is in for a rollercoaster, socially, politically, and economically. We hope that our analysis can give you some guidance in order to be well prepared and protected.


Felix Hartmann, Managing Partner

‘DeFi’ng Gravity

Since early 2019 we’ve been vocal proponents of the decentralized finance (DeFi) sector. While Bitcoin serves as sound money, decentralized finance protocols aim to solve all the other financial services that banks offer, ranging from lending, to trading, to insurance and more. All the undesirable parts of banking, the lack of transparency, the slow speed, the cost, the discriminatory practices, the bureaucracy, etc. are all replaced with public, transparent, incorruptible code and smart contracts.

Since the goal is going bankless, these projects fill a critical niche and use case.

While these projects initially suffered a slow bleed all throughout crypto winter, the sector is finally having its moment. The charts above seem reminiscent of the 2017 ICO mania, but in reality are just the starting shot to what may be one of the biggest digital asset bull markets we have seen to date.

To put it in perspective take a look at the following graphics:

That red sliver you can see in the center? That is the entire market capitalization of all digital assets including bitcoin, when compared to the other major asset classes.

Clearly whether bitcoin replaces gold or the money supply, it is unmistakably clear that we are STILL incredibly early.

When you think that our 2022 bitcoin target at $200,000 is a pipe dream, remember that the red sliver would merely grow to 1/3rd the size of gold’s slice at such a price.

Now what about decentralized finance?

The crypto native audience reading this may call it a bubble.

The non-crypto natives have likely never even heard of DeFi and are scratching their heads.

It’s not until strangers from the second group start trying to give me unsolicited DeFi picks that the first group is right.

Anecdotes aside here is another break down:

As you can see, the red-hot DeFi sector is a sliver of a sliver.

DeFi projects in 2020 are at the market size of buying Bitcoin in 2013.

We are incredibly early, but there’s flashing signs like the user adoption growth (see below) that signals that we are at the beginning of a massive trend.

Another reason for sustainability in the alt coin market is the emergence of earnings.

In 2017 some ‘coins’ (an unfortunate misnomer for nearly every digital asset) like Iota achieved market capitalizations north of $10 billion with nothing but a white-paper. Today the sector has matured a lot and finally appears to put weight on proper fundamental analysis that focuses on value accrual. Something we shine at.

Warren Buffet once said that he does not like crypto-currencies because they do not produce anything. Little does he know that the DeFi sector is already raking in tens of millions of dollars a year in earnings, producing PE ratios that even he would consider a ‘deal’.

While there may only ever be 1-3 sound crypto monies (BTC, ETH, and ZEC), other digital assets are positioned to be the next wave of multi-billion dollar tech plays.

In a world where we print trillions a month, and money hemorrhaging companies like Uber are worth $60 billion, Nikola, a truck company with $0 revenue is worth $16 billion, and something as ‘groundbreaking’ as video chat via Zoom is worth $70 billion, it’s fair to say that profitable new technologies that can disrupt the entire finance sector easily deserve 8-9 figure market capitalizations per protocol.

DeFi at a $5 billion and bitcoin at a $200 billion market cap in 2020 amidst global monetary easing will be looked back to as the no-brainer investment that you wish you had allocated to.

Iceberg Ahead

Before we close this months update, I wanted to leave you with one graphic.

What you are looking at is not the currency of Lebanon, Zimbabwe, or Venezuela.

It is the US Dollar.

Since its March peak it has dropped 10%.

Three years ago I received some accusations of wearing a tin foil hat when publishing an article discussing the fraudulent nature of MMT and the US dollar as we know it today. While unpopular then, it is now the biggest narrative on Wall Street.

The US dollar is weakening in front of our eyes, and with another $1-3 Trillion in stimulus, this trend is likely to continue.

While the liquidity crisis in March shocked many, causing them to cling to cash, be careful of being over exposed to any fiat currency in the current monetary policy climate. There are better ways to hedge yourself or achieve diversification.

In the famous words of Ray Dalio, manager of the world’s biggest hedge fund:

“Cash is trash!”

To a bright decentralized future,

Felix Hartmann, Managing Partner

TIMESTAMP 08/10/2020:

DJI - $27,791

S&P - $3,360

BTC - $11,700

For questions reply via email or write me on twitter @felixohartmann

BTC: 33nf4wqwxpS6i3Zwu3toUXxirVj2gWEzi8

ETH: 0x618Ac2930aBd91a486C672f42066190532cFE850


This is not an offering. This is not financial advice. Always do your own research.

Our discussion may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.