Fear currently consumes investors worldwide as a result of Russian-Ukraine geopolitical tensions and impending US monetary policy adjustments. The expectation of US interest rate hikes in March coupled with sanctions against Russia, inflation, and broad market drawdowns may cause risk-averse investors to switch to more stable growth alternatives.
Zooming in on the Ukraine-Russian conflict, a full-scale invasion could have devastating effects through global markets. The financial sector should be prepared to implement the use of appropriate risk management and business continuity policies to minimise the impact. Severe sanctions have been implemented to slow Russia’s economy, although Western leaders have been hesitant in taking immediate action. The list of sanctions can be found here. Russia is projected to fall into a deep recession, with the ruble already hitting record lows, with no rebound on the horizon after S&P’s downgrade of Russian credit to junk status. Russia’s response has been to increase interest rates from 9.5% to 20% to support the currency’s value. Lastly, there have also been talks that Russia will use a digital ruble that is currently under development to trade directly with countries willing to accept it without converting it into US dollars.
Bitcoin has traditionally been thought of as a way to hedge against inflation and risks of broader financial collapse. Currently, this narrative is actually incorrect. The correlation between the leading indicator of crypto (Bitcoin) and the broad equity market has increased to 61% and has a beta of 4. Due to the volatility displayed in the crypto market over February and a positive historical correlation between equities and BTC, a further decrease in the price of Bitcoin has been anticipated. BTC has only experienced a 1% overall drawdown over the last 30 days. BTC’s horizontal trend could be due to various reasons, answers include having been oversold over December and January in the wake of the Fed’s hawkish shift, and the lack of a decisive catalyst for the crypto markets — such as greater regulatory clarity or the much-hoped-for approval of a spot US Bitcoin ETF. As usual, there is no clear way to predict the next move.
Invictus Capital offers a solution to those looking for stable returns during this uncertainty, the Invictus Margin Lending fund (IML). The IML fund operates like a variable interest rate bank account — lending the fund’s assets to overcollateralized traders looking to utilize leverage. Proprietary automation software ensures the best available rates are locked in across thousands of individual loans, and there is no anticipated risk of drawdown. Smart contracts facilitate the investment and redemption processes (with IML tokens issued to investors), which the fund managers verify.
The IML fund has averaged an 11.7% annual dollar return, net of fees, since 2019. Margin lending works similar to a bond, posting collateralised loans that yield interest returns at rates determined at the loan’s inception. The borrowers are traders looking to open leveraged positions, where rates spike together with price fluctuations in the market. Zero drawdowns are expected, ensured through safe lending partnerships for the underlying assets, liquidating loans before any losses are realized. Additionally, as market demand for USD and USD equivalents slowly return to average market rates, the Invictus Capital team continues to enhance the fund’s performance through private lending and market-neutral strategies. These measures allow for even greater diversification and offer superior risk-adjusted returns, alleviating the time and knowledge constraints of investors looking to create these positions themselves.
Investments and redemptions into IML, in either USDt or BUSD (both Ethereum and Binance Smart Chain assets are supported), are processed at 11:00 UTC. Investors never have to wait more than a day to invest or redeem. For those looking to earn competitive yield while preserving their capital during the upcoming months of market fear and uncertainty, the stable growth offered by IML is an attractive proposition. Click here to invest now or book an appointment with our Fund Solutions team today!