Sigil - Q1 2022 letter to investors<br>

Sigil - Q1 2022 letter to investors

Dear Investors,

We are pleased to share with you the letter recapping the first quarter of 2022 and the performance of the Sigil fund over this period.

This quarter was a tough one for most crypto markets. The downtrend has not been limited to crypto markets as we have also seen drawdowns to many technology and growth stocks due to the global geopolitical risk and deteriorating macro conditions.

In these unstable times, the case for an independent financial system grows stronger. The first vindication for crypto natives was the Canadian government freezing the bank accounts of people linked to the protests in Ottawa.

The most impactful event in Q1 was the Russian invasion of Ukraine. Ukraine received over $100 million in cryptocurrency donations, to which Sigil fund co-founders have also contributed thanks to the borderless technology of crypto.

The scope of economic sanctions against the Russian Federation and its citizens is unprecedented and we may agree that these sanctions are justified, but we must be prepared for consequences. The Western world can't just cut off one of the biggest energy, food and raw materials exporters in the world from the market, shut down its financial infrastructure, and confiscate hundreds of billions of its assets without triggering unforeseen second order effects. We don't even dare to speculate what these may look like, but we must be ready for macroeconomic volatility and global geopolitical turbulence.

The bigger picture

Crypto is a very interesting piece of puzzle in this mess. We may argue that there is a need for credibly neutral independent financial infrastructure not only from the individual perspective but from a nation state perspective as well. Many global governments are now thinking long and hard about being too dependent on the SWIFT system and on USD as a reserve currency. Many innocent Russian citizens home and abroad are being deplatformed from financial services, with crypto providing a possible backup, at least to more tech savvy ones. At this point we don't believe crypto is big or robust enough to enable systemic evading of sanctions even if seriously tried, but it can help individuals and even entice some more progressive central banks to diversify some small % of their reserves into Bitcoin.

This global uncertainty and shaking of the world order may be inherently bullish for crypto, or at least Bitcoin. Slap increasing USD inflation on top and we may have an explosive mix (to the upside). That being said, in practice, crypto is more correlated to stock markets than ever before and any sort of real macroeconomic shock will probably send it lower together with other risk on assets, at least temporarily. Without a crystal ball it's hard to say anything with certainty, rather than - brace for volatility.

Changes to the Sigil portfolio

It's not our job to time the market, and our Core strategy will always remain long crypto, but we have decided to hold historically the highest amount of stablecoin reserves (around 30% of our portfolio).

On a lighter note, Sigil Core expanded its portfolio of NFTs, which is currently one of the fastest growing areas in crypto. We looked for more attractive opportunities outside the mainstream spotlight represented by Bored Ape Yacht Club or Cryptopunks. Thus, we bought one of the rarest NFT from Forgotten Runes Wizard's Cult metaverse associated with upcoming mini-series, comic book, and a video game.

Due to massive outperformance, Terra (LUNA) became the biggest position in our portfolio for Q1. In February Luna Foundation Guard raised $1 billion to create a bitcoin reserve for UST, which significantly derisks this position. Such reserves can act as a "release valve" for UST redemptions during downturns in crypto markets.

On the other hand we reduced our position in Solana (SOL) as we believe it is no longer undervalued compared to the rest of the market. On top of that, recent scaling issues and blackouts significantly affected the usability of the network. We remain cautiously bullish on Solana as blockchain with unique trade offs and qualities. But we also hold an opinion that monolithic blockchains such as Solana, while providing convenient composability, will inevitably fall victim to Jevons paradox. Modular and layered scaling solutions such as Cosmos zones, Avalanche subnets, NEAR sharding or Ethereum roll-ups will take longer to mature, but ultimately provide better architecture and a more decentralized and diverse crypto ecosystem.

That's why we leaned more heavily into positions within this thesis. We are very active in the Cosmos IBC ecosystem, both staking and providing liquidity for IBC based assets. We also acquired a larger position in NEAR as we believe it's a technologically superior solution with great developer infrastructure and solid scaling solution, that's relatively undervalued vs rest of the Layer1s.

Additionally, we doubled down on our AAVE and SNX positions. AAVE with its version 3 is becoming a true cross chain DeFi money market, while SNX is a bedrock for many innovative DeFi applications on top of Optimism. L2s such as Optimism and Arbitrum are slowly gaining traction, despite lack of token incentives, and we expect them to explode when (if) they introduce their native token.

Subsequently, we started consolidating our portfolio into ETH, as we are approaching the merger phase where we will see the blockchain transition from a proof-of-work to a proof-of-stake model. On the contrary, our BTC allocation is historically lowest, given the fact we no longer view it as asymmetric risk:reward bet, but rather mature and established crypto asset, which many investors can easily buy and hold on their own. Bitcoin also hasn't proven itself as particularly counter-cyclical amidst the macro uncertainty and seems to behave more like a large tech stock, while the native activity on Bitcoin blockchain seems to be miniscule compared to Ethereum. On the other hand, Bitcoin is still the leading and most liquid crypto asset with institutional and potentially nation state buyers, so it would be unwise to dismiss its potential as a reserve hard asset and hard to confiscate store of value. We will keep monitoring Bitcoin's performance and narrative in the future.

In March, Sigil fund got listed on the Bloomberg terminal. Sigil Core and Sigil Stable data are now accessible to a large number of financial professionals and decision-makers who use the tool to find the best performing investment opportunities. It also brings transparency to our performance and eases onboarding for potential customers such as private banks and institutional investors who rely on verified Bloomberg data.

Thanks to re-design of our website and automated investor onboarding process, we are seeing constant inflow of new investor subscription even amidst the uncertainty.

Sigil Core Net Performance vs EUR Q1 2022

Sigil Core recorded a performance of -8.59% vs EUR, -6.72% vs BTC in Q1 2022

Sigil Stable Net Performance vs EUR Q1 2022

Sigil Stable has been a dependable and consistent investment in this volatile period and achieved a performance of +4.57% vs EUR.

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