Apollo’s Alpha: ‘DeFi is still strong’ – Australia’s leading crypto funds manager reveals its FTX learnings
David Angliss, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s regular take on what’s happening in the fast-changing and volatile cryptocurrency space.
Given the current state of the crypto market and crypto contagion fears that continue to spread, we figured some of the best insights from Apollo Capital right now might regard the FTX implosion.
Did Apollo have any exposure to FTX and/or Alameda? The answer, says Angliss, is unfortunately yes, albeit relatively small.
“We had a loan on Clearpool with Alameda, and we also held some FTT on FTX, so that’s likely to be marked to zero,” noted the Apollo analyst, adding: “We had less than 2% exposure to FTT in our main fund, the Apollo Capital Fund and less than 5% FTT exposure in the Apollo Capital Frontier Fund. We were also exposed with a loan to Alameda in the Apollo Crypto Market Neutral Fund.”
The fund manager is certainly far from alone on this. Crypto firms and retail investors alike have been badly stung by an influential exchange that the vast majority of the crypto world believed was one of the most robust in the space.
FTX had a who’s who of institutional and famous backers, multimillion-dollar deals with huge sporting organisations all over the world, and a Super Bowl commercial starring Larry David. There were many more reasons to believe.
One of the most detrimental crashes in crypto history
Broadly speaking, says Angliss, the FTX black swan event and subsequent fallout has “reinforced the need for DeFi. And for non-custodial ownership of crypto assets”. That is, crypto assets that you control the keys for, and are not left on centralised exchanges.
“This is a lot larger, in US dollar values, than the Mt Gox hack, however, percentage of the market-wise Mt Gox had a larger impact. FTX will still go down as one of the most detrimental exchange crashes in the history of crypto,” notes the Apollo analyst.
Angliss talked us through a recent Apollo blog post, in which the firm assesses the aftermath for the industry, what it’s learned and how it’s re-strategising from here.
The main takeaways…
DeFi is still strong
“I think the market is finally starting to realise that the risk to return with utilising centralised lending platforms such as Celsius, BlockFi, FTX, even Coinbase, and now Genesis coming under fire… it’s probably just not worth it,” believes Angliss.
“If you’re seeking yield-bearing opportunities, it’s probably best to do it through DeFi, where you have custody of your own assets,” he added.
The way is paved for DeFi protocols to become “the favoured method of transacting and earning”, reads the blog post, which also notes that the DEX Uniswap has recently become the second-largest exchange for Ethereum, beating out Coinbase.
Solana divestment
As the Apollo blog notes, Solana (SOL) was a “core position” in Apollo’s Alternative Layer 1 Blockchain portfolio due to its strong developer activity, significant VC funding and high Total Value Locked (TVL).”
However, Apollo Capital has made the decision to divest from the Ethereum competitor, for at least three main reasons: continued outages on the network; decreasing developmental activity; growing competition from other blockchains, such as Avalanche and Aptos, not to mention the fund manager’s favoured blockchain ecosystem Ethereum and its layer 2-scaling protocols.
“Apollo Capital successfully exited Solana positions during September at prices of approximately US$30 and an ecosystem TVL of US$1.3B,” the firm explained.
“Today, Solana’s price sits at US$11, and TVL has collapsed to just US$290M. In hindsight, we can also see that FTX and Alameda were massive drivers of Solana’s success in 2021 and its recent demise in 2022.”
FTX fallout; further risks; allocating to Ethereum
Crypto investors are wondering if the worst might be over with regards to the FTX implosion fallout. But the problem is, the exchange’s tentacles spread so far, so wide across the industry.
As Apollo notes, one of the main market-roiling contagion fears is the very real threat of Genesis, one of the industry’s biggest lenders, becoming the next to collapse in an insolvent heap.
Known as the “Bank of Crypto”, writes Apollo, the Digital Currency Group (DCG) subsidiary has halted withdrawals on the platform halted as rumours of Genesis’s financial troubles intensify.
“If Genesis were to go under, then we could be looking at a peak capitulation situation from that,” Angliss told Stockhead. “If Ethereum falls to three figures from that, really anything below US$1,000, then we’ll strongly consider buying at those levels.
“And if the Genesis situation were to blow over,” he continued, “and the market starts making higher lows, then we’ll start looking to allocate to Ethereum as well.”
Bitcoin as well?
“Yes, but not as much as Ethereum. “We’re definitely ETH bulls and believers of the ETH-as-utility narrative. Bitcoin has its place, but relies more on its store-of-value thesis.
“We think Ethereum’s utility over time will become a more compelling tangible use case that offers more value, helped by its recent merge to proof of stake and the deflationary nature of its token supply.”
Where to next?
From speaking with Angliss on the phone, and also at the recent NFT Fest in Melbourne, the sense we get is that, while yes, Apollo’s funds had some small exposure to FTX, it’s been risk well managed through relatively conservative positions held all year.
Positions with high cash levels for the short term as the market and industry has been dealing with months of centralised-crypto-platform blow-ups and price-roiling contagious effects.
But, and as the firm’s blog writing notes as well, despite confidence in the space being rocked, Apollo remains steadfast in its long-term investment thesis, especially with regard to DeFi.
“We are actively engaging with our portfolio of early-stage projects to see where we can help them navigate these troubled waters, and are evaluating new and existing projects in order to deploy fresh capital opportunistically,” wrote the investment firm.
