Henrik Andersson, the chief investment officer with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares his weekly take on what’s happening in the fast-changing and volatile cryptocurrency space.

Bitcoin is coming off its second-worst month since 2011, losing 35.3 per cent of its value — and sophisticated investors are treating it as a buying opportunity, says Henrik Andersson.

“What we have seen is really interesting — and I think it mirrors what we’re seeing globally — we have seen record inflows to our funds in May for both our funds.”

Apollo has experienced inflows both from existing investors and new investors who didn’t want to buy at all-time highs.

“They’re been watching the market, they’re interested in crypto, they believe there is a future in crypto and have been waiting for this kind of opportunity get involved — so record inflows at the end of May.

“And speaking to the other funds, globally, I think that’s what others are seeing as well. There’s a lot of money on the sidelines that are looking to enter the market in the coming days and weeks.”

Andersson thinks the market is most likely finding a bottom — words that will likely reassure fearful crypto investors — and there’s a lot of capital that will deployed into the market in the coming days and weeks.

He thinks it’ll go into the defi (decentralised finance) verticals where Apollo is heavily invested — but maybe not Bitcoin as much.

Less excitement about BTC

After leading the crypto market in the latter past of 2020, Bitcoin has been a laggard lately. It was trading at US$36,741 on Friday evening, up just 26 per cent for the year. Among non-stablecoins in the top 100, it has only beaten Bitcoin SV and NEM (XEM).

Ethereum on the other hand was trading at US$2,630, up 255 per cent year-to-date.

“Less excitement about Bitcoin, that’s the sense I’m getting,” Andersson said.

“There’s been some worries about environmental impact, Elon (Musk) has been back and forth, some news out of China as well.”

The market’s focus is more on Ethereum and defi, and less on Bitcoin, he said.

Among Ethereum competitors, Apollo has exposure to Solana and Binance Coin, Andersson said, as well as Ethereum scaling solution Polygon (MATIC).

Polygon last week overtook Binance Smart Chain as far as total value locked on the platform, he added. BSC projects have suffered a number of hacks recently.

Can anything beat ETH?

Asked about other layer 1 Ethereum competitors like Tezos and Algorand, Andersson said Apollo is particularly bullish on projects that are compatible with the Ethereum Virtual Machine, Ethereum’s runtime environment for smart contracts.

Neither platform is, meaning developers have to learn a whole new system and can’t easily port over a project.

“I think it has been very hard for other chains to gain traction, being non-EVM compatible, it’s very hard to build a community,” he said.

One of the reasons that Polygon and BSC have taken off so much is that they are EVM compatible, Andersson said.

Solana isn’t, but the high-performance platform has still managed to attract developers.

“We’ve seen some activity on Solana, but looking at the others I think it will be fairly tough for them. There’s a lot of competition on layer 1 space, you really have to have something that is outstanding.”

Once Ethereum scaling solutions Arbitrum and Optimistic are fully live, then some of the activity on BSC and Polygon might move back to Ethereum, Andersson said.

“And it will be very tough for other chains to compete – Solana might be one of the exceptions.”

The fund also has a position in Gavin Wood’s Polkadot, which a number of projects in China are looking to launch on. But Polkadot isn’t fully live yet.

Coin of the week: Liquidity (LQTY)

Apollo’s token for the week is Liquidity (LQTY), the governance token of an algorithmic stablecoin founded by Robert Lauko, a former developer at Dfinity. It’s the No. 377 crypto with a market cap of US$70 million.

LUSD stablecoins are based on the Ethereum network and are backed solely by Ethereum, similar to what the MakerDAO project was initially.

“MakerDAO has moved to a multicollateral model, which means are backed by USDC, by wrapped BTC as collateral, which essentially means they have exposure to centralisation.”

With LUSD coins only backed by Eth, it’s a trustless solution, Andersson said. (In other words, there’s no counterparty risk, such as the chance that something happens the firms issuing USDC).

Ethereum holders can borrow LUSD stablecoins at 0 per cent interest.

“It’s an interesting model, they’ve had a lot of traction, they have $3.3 billion locked already,” he said.

Apollo has been staking its LQTY tokens and earning 150 per cent annualised yield, Andersson said, in part because of economic interest coming to stakeholders from liquidations on the platform.