Crypto Long & Short: What Does Dogecoin Have to Do With Government Bans?

Dogecoin is not a cryptocurrency you would expect to read about much in this column since it is not exactly an “institutional grade” asset. It has a market cap of over $8 billion at time of writing (less than 1/100th of bitcoin’s), no unique use case and no lively derivatives market.

But bear with me while I explain why it embodies two key themes impacting institutional interest in crypto assets: the role of “fundamentals,” and the likelihood of successful government bans. 

You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. You can subscribe here.

The power of enthusiasm

At time of writing, Dogecoin (DOGE) is up almost 1,350% so far this year. Last week, rapper Snoop Dogg temporarily rechristened himself Snoop Doge. Kiss frontman Gene Simmons topped that with a “God of Dogecoin” tweet. Kevin Jonas of the Jonas Brothers joined in. Elon Musk has inspired so many Doge memes that it would be impossible to list them all here. This is getting fun in a wacky “whatever” kind of way.

But should “fun” drive value?

Why not? As we saw with the GameStop drama, the market’s understanding of “value” is shifting. The relentless rise of the stock market despite record uncertainty and risk, and the relatively new phenomenon of day-trader media stars, show that performance is increasingly a matter of message in a world where messages are coming at us thick, fast and everywhere.

Bloomberg columnist Matt Levine summed it up perfectly:

“Money and value are coordination games; what we use for money depends on the channels that we use to coordinate social activity. Once society was mediated by governments, and we used fiat currency. Now society is mediated by Twitter and Reddit and Elon Musk, so, sure, Dogecoin.”

The Dogecoin phenomenon may be a flash in the pan, and our attention may shift to something else tomorrow.

Or maybe not. The cryptocurrency’s co-founder Billy Markus told Bloomberg this week that he was “baffled” by the coin’s continued success, more than seven years after launch. The other co-founder Jackson Palmer said last year that it “makes no sense for people to have this devotion to it.” But here’s the thing: neither co-founder can do anything about it. Dogecoin runs on a public, decentralized blockchain that no one controls. It may dwindle into insignificance as people move on to the next shiny thing. But as long as there are fans who enjoy the silliness, it will have value.

Stop the tide

Which brings us to India and Nigeria (still with me?), which this week seemed to forget how public blockchains work.

In January, we reported the Indian Parliament was considering a government-sponsored bill that would ban cryptocurrencies. Needless to say, the community jumped into action with the #IndiaWantsBitcoin campaign, rallying citizens to email their government representatives to ask for progressive legislation.

Among the many arguments against the ban is the damage it would do to a lively ecosystem that includes 10-20 million cryptocurrency users, 340 startups and 50,000 employees. The full contents of the bill are not yet public, but it seems to be intent on clearing the field for a government-backed digital rupee.

Hopefully the Indian government will learn from Nigeria.

Last week, Nigeria’s central bank (CBN) ordered banks to close the accounts of cryptocurrency users. In response to the ensuing outcry, the CBN issued a press statement reminding the public that the rule was not new, and that it was for their own good.

The notable thing here is that the CBN felt the need to respond to social protest. This is possibly because of the still-fresh memory of the #EndSARS movement which rocked the country late last year, in which mass protests combined with global online support achieved the dissolution of a federal police unit with a reputation for fierce brutality.

This week, a court ordered the CBN to unblock the accounts of 20 people who had been involved in the movement. The fact that the accounts were frozen in the first place is one of the many reasons seizure-resistant cryptocurrencies are rapidly gaining in popularity amongst Nigeria’s young.

Another reason is the country’s reputation as Africa’s “Silicon Valley.” Lagos is the largest city in the continent, with a rapidly growing tech community. It is also a country with inflation of over 12% and almost 30% unemployment, where the young account for 70% of the workforce and where trading crypto assets is a way of life for many. A report this week showed that almost a third of Nigerians say they own cryptocurrency, making it the most invested country in Statista’s Global Consumer Survey. 

The CBN’s actions are being presented on social media as a generational call to arms where the young, tech-savvy army has new tools in its arsenal and a deepening disrespect for institutions. Sound familiar? 

They’re also not giving up on crypto. Exchanges such as Binance have been affected because local payment partners are no longer willing to deal with them due to the directive. But sources confirm that trading is moving to peer-to-peer channels.

What’s more, the #EndSARS movement has not gone away even after its victory. It is now attacking what it sees as repression more broadly, and could end up uniting with the #WeWantOurCryptoBack movement to push for – and probably achieve – radical change in Africa’s largest democracy.

The politicians have noticed. The Nigerian senate has invited the governor of the central bank and the director general of the securities regulator to testify on the matter, with one senator coming out as “strongly against” the ban.

Other countries thinking of banning bitcoin will no doubt be watching how this plays out. They will also be taking note that rules can make it harder to transact in cryptocurrencies, and could certainly dampen investor enthusiasm, but – just as the Dogecoin community could not care less about what the network’s founders think – they can’t make it go away.

And the very act of attempting to repress cryptocurrency’s use could light a fire under a generational understanding of why it’s necessary.

The rear guard

What does this have to do with institutional investment in cryptocurrencies?

One of the main risks to bitcoin is overly repressive regulation. Some believe that, as the network becomes more powerful, governments will see it as a threat and decide to intervene. It has been a suggested that national security issues might come into play as Iran, North Korea and Russia ramp up their bitcoin mining.

So, investors – and probably some western regulators – should be paying attention to the developments in India and Nigeria, to see whether an attempt to ban cryptocurrencies could be successful.

Only, now it’s about much more than pushing consumers to public protest and unregulated peer-to-peer platforms. Now the institutions are involved.

Even just looking at the U.S., this week BNY Mellon, the world’s largest custodian bank, announced that it was planning to roll out a digital custody unit later this year. Goldman Sachs, JPMorgan and Citi are rumored to also be looking at crypto custody. Payments giants are stepping up: this week Mastercard revealed it is planning to give merchants the option to receive payments in cryptocurrency later this year. Last week we saw Visa unveil cryptocurrency plans. Cryptocurrency buying and selling appears to be growing into an increasingly significant part of PayPal’s activity. This list is just scratching the surface of public announcements; there is plenty of institutional work going on behind closed doors, as well.

Furthermore, cryptocurrencies now play a significant role in regulated markets in North America and elsewhere. From listed assets to indices to data businesses, traditional markets and crypto markets are becoming inextricably intertwined.

And there is considerable retail support. A study released last summer showed that around 15% of Americans own cryptocurrency, most of whom invested for the first time in the first half of 2020. If that rate of growth is even only partially accurate, the percentage is significantly higher today.

Would any government focused on repairing public trust have the stomach to take on a retail army as well as invested institutions?

As Dogecoin has demonstrated, cryptocurrency holders can be vocal and passionate. It’s not just about love for memes, nor is it just about profit. It’s about innovation, choice, freedom of expression and changing what seems to be broken. With social tension on a slow boil that sometimes spills over, the retail market’s enthusiasm for cryptocurrencies and what they represent – supported by growing institutional investment and market infrastructure relevance – should be enough to make any government interested in maintaining its influence wary of measures that could ignite a problem that just might be harder to control.

And as we watch crypto communities flex their collective muscle, as we accept that markets have changed, as we root for the young workers of tomorrow in developing regions, as we applaud the U.S. President’s nominations of individuals knowledgeable about crypto assets to positions of regulatory influence – we are also watching the risk of overly repressive regulation in large, developed economies recede into the distance.

Tesla’s big bet

The week started with a bang, in the form of the announcement that Tesla has invested $1.5 billion in bitcoin. The fact that Tesla has invested isn’t what’s startling – it would have been surprising if it did not get involved. It’s the size of the investment. This is very much a “go big or go home” statement, enough to make anyone sit up and take notice.

The size is also significant in that it reminds us the market is now capable of absorbing such large orders. We don’t know how it was executed, whether via an OTC desk, using a prime broker or directly on exchanges. We also don’t know when. But in late December, Musk was seen on Twitter asking Michael Saylor – yes, he of the very large corporate treasury purchases – if buys of $100 billion were even possible. And the SEC filing says that Tesla updated its policy in January 2021, and made the investment after that.

So, we can conclude that the buys most likely occurred over a few days in January.

You may recall that the beginning of January we saw a strong run-up in the BTC price, from $28,000 at Dec. 31 close to $40,000 on Jan. 9, an increase of over 40%.

The price increase coincided, not surprisingly, with a jump in trading volumes on leading fiat exchanges.


Was Tesla buying then? Is that what pushed the price up? As yet, we have no way of knowing. But we have seen that a market that now regularly trades billions of dollars a day has the capacity and the infrastructure to absorb seriously large orders.


Investors talking:

“We see fundamental reasons to believe that — regardless of where the price of bitcoin goes next — cryptocurrencies are here to stay as a serious asset class. One is growing distrust in fiat currencies, thanks to massive money printing by central banks. Another is generational: younger people hear the “crypto” in cryptocurrency as new and improved, an exciting digital advance over metal coins.” – Morgan Stanley Investment Management

“Every treasurer should be going to boards of directors and saying, ‘Should we put a small portion of our cash in bitcoin?’” – Jim Cramer


BNY Mellon, the world’s largest custodian bank, revealed plans to launch a new digital custody unit later this year. TAKEAWAY: This is a very big deal. A couple of years ago, when we first started hearing about the “wall of institutional money” that was poised to flood the crypto markets, some of us natural skeptics thought “hmm, not until Goldman Sachs and BNY Mellon offer crypto services.” We assumed that big traditional funds would rather wait for familiar names that they already work with, than trust startups in a new industry. If the reports about Goldman Sachs are correct, this year will see both of those boxes checked off, as well as many other blue-chip names that are either already involved or are poised to reveal projects they have been working on behind closed doors.

Deutsche Bank is also planning to launch crypto services such as custody, trading, lending, staking, valuation services and fund administration, according to a WEF report. TAKEAWAY: Deutsche Bank is the largest bank in Germany (Europe’s largest economy) and the sixth largest in the EU, ranked by total assets. Its entry into crypto services is likely to make a difference to asset managers considering alternative investments, in that they will be able to do so with a familiar name and with Deutsche Bank’s “blue-chip” reputation validating crypto as an investable asset class. Corporate interest in putting bitcoin on the balance sheet continues to spread. Twitter’s CFO Ned Segal said in an interview on CNBC that the company is considering adding bitcoin to its company reserves, and is looking into bitcoin payment options. TAKEAWAY: This is an interesting twist to the corporate treasury debate, which Tesla brought to light when it revealed its buy and tentative plans to accept bitcoin for customer purchases. It makes more sense to hold some reserves in a currency your company will use in some way.

On Monday, the Chicago Mercantile Exchange (CME) launched ether futures. TAKEAWAY: The move is significant, as it gives traditional institutional investors – who probably already trade on the CME – access to a hedging and liquidity tool that could encourage more to take a look at the second largest cryptocurrency in terms of market cap. ETH futures volumes on the CME are still tiny ($40 million on Thursday compared with $6 billion on Binance, according to, but it’s early days yet.

The Purpose Bitcoin ETF received approval from the Ontario Securities Commission to list on the Toronto Stock Exchange (TSX). TAKEAWAY: This will be the first bitcoin ETF in North America. No doubt its inflows will be monitored by the big securities regulator to the south. They could even accelerate approval of a bitcoin ETF by the U.S. Securities and Exchange Commission, as it is relatively easy for U.S. investors to trade on the TSX.

San Francisco-based crypto trading platform Apifiny is planning to go public by the end of the year. TAKEAWAY: So far, all of the planned and rumored public listings for this year that I know of are for companies building and running crypto market infrastructure. This gives investors of all types another way to invest in crypto markets, beyond a direct position in the assets – if asset prices do well, there will be more investor interest and more revenue for market infrastructure firms, which will help their share prices.

JPMorgan has added Signature Bank, one of the few financial institutions in the U.S. to service crypto companies, to its “focus list” of recommended stocks, saying the bank is “positioned to ride the crypto wave.” TAKEAWAY: Just because planned listings seem to be in market infrastructure, there are other ways to bet on crypto market expansion – through the companies that support the companies that support the markets. Oh, and JPMorgan seems to think there’s a “crypto wave” coming.

Crypto lender BlockFi launched its bitcoin trust for accredited investors, with 1.75% management fee (0.25% lower than market leader GBTC). The trust will not list on the OTC markets for another 6-12 months. TAKEAWAY: The competition to market leader Grayscale’s funds (Grayscale is owned by DCG, also parent of CoinDesk) continues to grow, as BlockFi’s trust now joins those run by Bitwise and Osprey. The emerging competition could be one of the reasons the premium retail investors have traditionally been willing to pay on popular trusts such as GBTC has been falling.

Canadian bitcoin mining firm Bitfarms (BITF) has entered into a CAD$40 million ($31 million) agreement to sell 11.5 million common shares, plus an option to buy another tranche for the same number of common shares, to institutional investors. TAKEAWAY: This is the firm’s third financing sale in a month, and reflects the growing investor interest in listed crypto mining companies as a proxy play on the bitcoin price. Over the past three months, BITF’s share price has increased by almost 700% – it’s not surprising they’re taking advantage of the opportunity to shore up the balance sheet while they can.

Source: Google

Mastercard is planning to give merchants the option to receive payments in cryptocurrency later this year. TAKEAWAY: This is another big step forward for the use of cryptocurrencies in payments. It’s not clear which cryptocurrencies Mastercard is thinking of including in this service. Whether it includes bitcoin or not (it’s more likely to focus on stablecoins), it will be a big boost for mainstream use of cryptocurrencies and could trigger a wave of innovation in related point-of-sale and working capital management services.



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Crypto Long & Short: Could Scalable Payments for Bitcoin Undermine Its Value?

With the wild journey that is bitcoin price swings so far this year, you might have missed the accelerating rhythm of companies announcing services to support bitcoin for payments.

We’re not talking about small idealistic startups, either.

A week ago, on Visa’s Q1 earnings call, CEO Al Kelly said the company may add cryptocurrencies to its payments network. He acknowledged that bitcoin is “not used as a form of payment in a significant way at this point,” but went on to discuss a strategy to “enable users to purchase these currencies using their Visa credentials or to cash out onto our Visa credential to make a fiat purchase at any of the 70 million merchants where Visa is accepted globally.”

You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. You can subscribe here.

Visa also currently provides credit card infrastructure for 35 crypto companies, with the aim of making it easier for users to pay with bitcoin.

In PayPal’s Q4 earnings call this week, the first since the company started allowing the purchase and sale of a handful of cryptocurrencies via their PayPal account, the company revealed that it was planning to start allowing customers to use their crypto balances to pay for goods and services at any of the approximately 29 million merchants on the network, and that it was “significantly investing” in the crypto business unit.

Large crypto companies are also moving into payments. Last month, crypto exchange and custodian Gemini launched a credit card with a 3% reward on purchases. In December, crypto lender BlockFi announced that it would launch a similar product in early 2021.

This is just scratching the surface. Binance, Coinbase, Paxful and BitPanda are just some of the crypto exchanges that over the past few months have introduced crypto debit cards for retail spending. This week, crypto platform Uphold announced the acquisition of card issuer Optimus Cards U.K.

Also this week, Binance, the largest cryptocurrency exchange in the world in terms of volume, announced the launch of a payments system called Binance Pay, aimed at encouraging the use of crypto in cross-border payments. Binance CEO and founder Changpeng “CZ” Zhao said: “We think that payments is one of the most obvious use cases for crypto.”

Not so fast

Is he right?

Obviously “crypto” encompasses a range of assets, but let’s focus on Bitcoin for a moment.

The white paper that introduced Bitcoin to the world in 2008 opens with:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

Whether Satoshi Nakamoto, the pseudonymous writer of the paper, meant for payments to be the main use case or not (this is a point of contention, as he* also wrote elsewhere about its potential role as a store of value), over the years it became clear that scaling limitations inherent in the protocol design made the network impractical for high transaction volumes.

(*I am not assuming Satoshi is a he, but I am using this pronoun to avoid linguistic clutter.)

Another critique of Bitcoin-as-a-payments rail is its relative lack of speed, although this can be misleading. A bitcoin payment will take around 10 minutes on average, and up to an hour for assumed settlement finality. Credit card and contactless payments are faster, but they usually don’t have settlement finality until days later. And data gathered in electronic transactions removes any financial privacy. Cash, on the other hand, is instantaneous and private, but you need to be physically present.

What’s more, bitcoin transactions are relatively expensive. This week the average fee reached its highest point since January 2018.

Solutions such as the Lightning Network aim to solve  for these barriers by offering fast and cheap throughput on a transaction layer that anchors to the Bitcoin blockchain at certain intervals.  Adoption of this technology is growing, but is still in its early stages. 

The existential question

Then again, most of those that complain that Bitcoin doesn’t work for payments have access to other mechanisms that work well. That’s not the case for much of the world. Some jurisdictions have strict capital controls that block payments to other regions. Some countries don’t have sophisticated payment rails that make even simple internal transfers easy. Even some demographic groups in developed countries don’t have access to online payments and are still largely dependent on bank relationships.

For many, bitcoin is a tool for freedom in that it facilitates online payments where previously they were inaccessible. For others, using bitcoin is a way to support the network by giving the asset a broader utility.

This raises an important question: should bitcoin be encouraged to be both a store of value and a payments mechanism? 

Some reasons why it should:

It can be argued that bitcoin’s worth as a store of value depends on its utility. The more there is residual demand for bitcoin as a payment token, regardless of its price, the more investors will believe that demand for it will rise in a sustainable way.

It can also be argued that it is essential for the health of the network that bitcoin’s use as a medium of exchange be encouraged. As successive halvings reduce the block subsidy (in which miners get new bitcoin as compensation for the work expended in successfully processing blocks of transactions), miner incentives will increasingly rely on transaction fees.

And current demand for this use case is not insignificant. Binance Research this week published the results of a survey of 16,000 crypto users across 178 regions, which found that 38% see bitcoin as a medium of exchange. In December, Susquehanna Financial Group revealed a survey of PayPal customers that showed 53% would use bitcoin to pay for goods, if they owned it.

Some reasons why it shouldn’t:

There is a not totally unfounded concern that, if bitcoin becomes seen by governments as a widely used payment token and a potential threat to fiat currencies, they may decide to act, and not in bitcoin’s favor.

While it may seem that governments care more about markets and asset prices, it’s payments that matter for monetary policy, consumption and wages – all things that get you votes. Investments sit there (and hopefully grow) while payments move, and both animal and regulatory instinct is to focus more on things that move.

In addition, you have the theory that if bitcoin is seen as a store of value, it will not be spent. Gresham’s Law dictates that bad money crowds out the good – if bitcoin is “good” money, people are more likely to hold onto it, and use other assets with less potential value.

The endgame?

This segues into what is perhaps the endgame of many of the crypto payments providers.

It’s perhaps not about Bitcoin at all.

Bitcoin is the crypto asset with the least regulatory uncertainty at the moment. Even stablecoins are not totally out of the regulatory woods yet. (The OCC’s letter that said banks could handle stablecoins could be walked back under a new chief.)

So, maybe Bitcoin is the safe starting point for these new rails. Ethereum will probably come next, and where Ethereum goes, so do stablecoins.

Maybe the banks and payment companies working on bringing crypto payments services mainstream have their eyes on a potentially bigger pie – that of tomorrow’s payments, the bulk of which could run on blockchains that handle a range of assets. Maybe the forward-thinking institutions are preparing for a day when we hold cryptocurrencies in our digital wallet right along with our private stablecoins and our digital dollars and our tokenized GameStop shares.

Maybe they’re all looking at a financial landscape where the user has more choice.

The crypto payment functions today serve their purpose. They offer a useful service to many, nudge along the sophistication of market infrastructure, and set the scene for mainstream adoption of a range of assets with a range of utilities.

And with more choice, it is more likely that the market will decide whether Bitcoin is a good payment rail or not. With each new service, we experiment with market adoption, and we learn more about what today’s and tomorrow’s users will value. I’m all for bringing on more experimentation.


Investors talking:

This interview, in which MicroStrategy CEO Michael Saylor interviews NYDIG CEO Ross Stevens, is a must-see. 

Chief economist and managing director of CME Group Bluford Putnam said that his firm has begun to notice gold’s waning appeal as a hedge against global political risk, and that he believes bitcoin is an “emerging competitor” to gold.


Visa is piloting a suite of APIs that will allow banks to offer bitcoin services such as buying, selling and custody, with a view to extending the service to include other cryptocurrencies and stablecoins. TAKEAWAY: Initiatives like this (last month, NYDIG made a similar announcement) are a step towards mainstream adoption of cryptocurrencies. The “endorsement” of traditional banks, while far from the original ethos of the industry, will go a long way toward encouraging trust in the concept from mainstream clients. This could encourage new investment in the space, both from investors and small savers as well as from startups working on improving market and payment infrastructures.

New York-based crypto exchange and custodian Gemini is now offering deposit accounts with a 7.4% APY, via a partnership with Genesis Capital (owned by DCG, also parent of CoinDesk). TAKEAWAY: The “bankification” of crypto exchange platforms is gathering steam. Gemini is a crypto asset trading platform, stablecoin issuer, credit card issuer and now also an interest-bearing deposit taker. The yield offered is sufficiently higher than traditional deposit yields and so should attract attention, perhaps even serving as an onramp into crypto asset markets.

Bitwise Asset Management has applied to publicly trade shares of its bitcoin fund on the OTCQX marketplace. TAKEAWAY: The fund aims to compete with market leader GBTC (managed by Grayscale Investments, owned by CoinDesk parent DCG), which quotes on the same exchange. GBTC’s premium to underlying value has dropped over the past few days to around 10%, from a three-month high of around 40% in mid-December. More competition should keep the premium down, giving retail investors a better deal as well as more choice. GBTC’s $24 billion market leadership position will be hard to assail, however.

We saw above in THE BRIEFING that BTC transaction fees are increasing. ETH transaction fees are spiking even more. TAKEAWAY: This reflects the ETH price increase as well as growing demand for stablecoins and decentralized finance tokens. In spite of increasing fees, transaction volume also continues to rise. (For background on Ethereum’s gas costs, see our recent metrics report.)

Cryptocurrency investment firm Arcane Crypto (ARCANE) is now listed on Sweden’s Nasdaq First North following a reverse takeover of Vertical Ventures AB. TAKEAWAY: With this, Arcane joins the growing roster of listed crypto companies, and is one of the few broad industry plays (as opposed to pure funds or market infrastructure plays) to have a transparent market valuation (approximately $200 million at listing). 

CalPERS, the largest public pension fund in the U.S., increased its stake in bitcoin miner Riot Blockchain (RIOT) nearly sevenfold over the last quarter, to $1.9 million at year-end price. TAKEAWAY: This highlights that direct ownership is not the only way to play BTC exposure. RIOT’s share price has moved up with BTC, but since Sept 30, 2020, has produced a return of over 750% vs BTC’s 250%. 

The total balance of BTC held in “accumulation addresses,” which have at least two incoming transfers over the past seven years and have never spent funds, has reached a 3.5-year high of over 15% of the total circulating supply. TAKEAWAY: As more investors buy to hold, more bitcoin is removed from circulation, which supports further price rises as new demand comes in. This type of detail is one of my favorite things about crypto asset metrics – imagine if we had this level of insight into investor behavior with traditional assets.


The amount of stablecoin USDC held on exchanges has soared since the beginning of the year, hinting at institutional intention to buy. TAKEAWAY: The balance of stablecoins on crypto exchanges is watched as a signal for investor intent. It does not, however, indicate which asset(s) the buyers will favor, nor is it a reliable indicator of institutional interest as many institutions prefer to (or have to) use fiat to invest in crypto assets.




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Crypto Long & Short: GameStop, Dogecoin y un nuevo paradigma de mercado

Es difícil ser justo con el significado e importancia que ha tenido el escándalo de Reddit-Robinhood-GameStop ocurrido la semana pasada. 

Con esto no quiero decir que no haya sido sobreestimado en algunos lugares. He oído comparaciones con los disturbios del Capitolio. Y no es lo mismo: aquello se trató de una sedición; esto es rebelión, algo muy diferente. He visto peticiones para que los reguladores intervinieran y cerraran las plataformas de trading minorista, a pesar de que no haya sido clarificado si un delito fue cometido. Y he leído críticas que trataron a los líderes de este movimiento como “inadaptados”. Esa condescendencia es en sí misma parte del problema.

Los protagonistas no son unos inadaptados: son inversores minoristas que hacen uso de su fuerza colectiva, la misma que el “establishment” alimentó.

Estás leyendo Crypto Long & Short, un newsletter en inglés que analiza detalladamente las tendencias de los mercados de criptomonedas. Escrito por la jefa de investigación de CoinDesk, Noelle Acheson, se publica todos los domingos y ofrece un resumen de la semana —con ideas y análisis— desde el punto de vista de un inversor profesional. Puedes suscribirte aquí.

Se les animó a invertir sus ahorros en el mercado de acciones, se les ofrecieron aplicaciones móviles que lo facilitaban. Se les bombardeó con consejos e ideas desde los medios de comunicación dominantes. Se les dio dinero para gastar. Y los bajos rendimientos les impulsaron a subir la curva de riesgo.

To read this in English, click here.

Abriendo camino

Aunque la atención se ha centrado en un puñado de acciones que han registrado retornos astronómicos por el entusiasmo de inversores minoristas, el origen y el resultado —sea el que sea— de este fenómeno están estrechamente relacionados con los mercados de criptomonedas.

No pretendemos quitarle el protagonismo a nadie. El canal de WallStreetBets que movilizó a las masas y lideró la avanzada no dio la bienvenida a los traders de criptomonedas. Sus motivaciones no son la descentralización ni el acceso justo, sino el malestar y el disfrute de su nuevo poder. 

El enojo es profundo. La posición corta del 139% contra GameStop reveló una fuerte participación de los fondos de cobertura —en inglés, hedge funds—, pero se trataba de una consecuencia, no una causa. Tal rebelión parece una expresión de frustración reprimida ante las reglas sesgadas de los mercados de capitales que afianzan el poder de una “élite”, sumada al resentimiento residual por los rescates de 2008, la falta de transparencia del mercado y una larga lista de agravios generacionales. Una dinámica similar de “viejo” contra “nuevo” que también impulsa a los mercados de criptomonedas.

Muchos de nosotros nos sentimos atraídos por bitcoin debido a nuestra preocupación por el impacto que decisiones en defensa de intereses concentrados tienen en nuestra prosperidad. Otros se han sentido atraídos ante la concepción de las finanzas descentralizadas como antídoto contra el daño potencial del poder consolidado. Y existe un fuerte voto a favor de la soberanía financiera y la libertad comercial.

Todos nosotros advertimos cómo las finanzas tradicionales rechazaron inicialmente la idea de que un token programable pudiera tener valor o que el código pudiera producir rendimientos. El éxito de los mercados de criptomonedas ha obligado a gran parte de la “vieja guardia” a reconocer gradualmente que las cosas están cambiando. Los acontecimientos de la semana pasada, sin duda, harán que este mensaje sea entendido. 

Aún hay más: las mismas plataformas que se vendían a sí mismas como democratizadoras de las finanzas finalmente restringieron el acceso de usuarios a ciertas operaciones durante la semana pasada, mientras el mercado se encontraba en plena actividad. ¿Podría existir una llamada de atención más notoria sobre las vulnerabilidades de la infraestructura actual del mercado? Google Trends muestra que las búsquedas de “defi” (NdT: abreviatura en inglés del término ‘finanzas descentralizadas’) están aumentando. 

Existe el riesgo de que la nueva administración de Biden en Estados Unidos utilice la rebelión de los inversores minoristas como excusa para aplicar una sobrerregulación. Sin embargo, la opinión pública parece estar con los rebeldes, algo de lo que los legisladores están al tanto (no recuerdo haber visto antes al senador republicano de Texas Ted Cruz de acuerdo con la representante demócrata de Nueva York Alexandria Ocasio-Cortez).

Por su parte, la nominación de Gary Gensler — conocedor y en general a favor de los mercados de criptomonedas— para el puesto de presidente de la Comisión de Valores de Estados Unidos podría significar el comienzo de una reforma estructural en pos de un acceso más “democrático”.

Esto también podría modificar la concepción que inversores tienen sobre algunas de las cualidades subyacentes de activos que funcionan en blockchain y sus mercados. Es cierto que el acceso a estos mercados presenta algunos obstáculos, como la jurisdicción y la familiaridad con la tecnología. No obstante, la libertad de elección para los inversores y la experiencia de los usuarios nunca han sido mejores; y continuarán desarrollándose, con algunos grandes actores de la infraestructura de mercado buscando salir a bolsa durante este año. 

Volver a las bases

Tras los eventos de la semana pasada no solo se volverá a examinar la estructura del mercado, sino también su comprensión necesitará ser replanteada. Esto también se encuentra en estrecha relación con las criptomonedas. 

A lo largo de la semana pasada he perdido la cuenta del número de comentaristas que se han mofado acerca de los “fundamentals” y de cómo el precio no debería moverse en gran manera dado que la situación de GameStop (GME) no ha cambiado. Se equivocan: ya sea que las acciones estén sobrevaloradas o no (no tengo opinión al respecto), la situación de la empresa y sus fundamentos sí han cambiado.

En primer lugar, se debe tomar en cuenta la publicidad masiva. Dos: además de los posibles ingresos futuros por la venta de juegos, probablemente exista una oportunidad de merchandising mediante la venta de tazas y horquillas de marca. Y, en tercer lugar, hay un movimiento de apoyo al precio de las acciones, sólo que esto no se considera tradicionalmente relevante a la hora de evaluar activos. Debería serlo.

Investopedia define a los fundamentals del negocio como la “información sobre rentabilidad, ingresos, activos, pasivos y potencial de crecimiento”. Yo añadiría a esa lista “el apoyo del público”. Sí, los críticos de esta idea dirán que el sentimiento es efímero, difícil de ser estimado y, por tanto, imposible de ser valorado, mientras que los fundamentos tradicionales son tangibles y pueden descontarse.

Sin embargo, en la actualidad incluso los tangibles son meras estimaciones, las cuales —como hemos visto— pueden variar salvajemente y ser obsoletas a causa de acontecimientos imprevistos. También hemos notado cómo los sentimientos mueven a los mercados, y no sólo a corto plazo. Ningún analista puede ignorar razonablemente su poder; e insistir en que las decisiones de cartera “se limiten a lo básico” es suponer que las cosas volverán a ser como hace 50 años, cuando los inversores mantenían su dinero en títulos seguros y se olvidaban de ellos hasta la jubilación.  

A los más veteranos, la fuerza desatada la semana pasada puede traernos a memoria al año 1999, cuando la fiebre del mercado alcanzó su punto álgido antes de estrellarse. Pero en ese entonces no teníamos el poder de las redes sociales, una generación todo el tiempo en su casa y el dinero de helicóptero del gobierno federal (NdT: referencia a la política monetaria a través de la cual las distintas administraciones distribuyeron dinero directamente a la población ante la pandemia). Tampoco nos enfrentábamos a un nivel sin precedentes de conflicto social, pérdida de confianza en las instituciones y una creciente confianza en la fuerza de la comunidad. Los mercados de hoy en día pueden dar un vuelco en cualquier momento y, cuando lo hagan, es probable que sea desagradable. No obstante, a diferencia de lo que ocurría a principios de siglo, es poco probable que la participación de los pequeños inversores desaparezca: este cambio cultural va más allá de ganar dinero.

El nuevo poder de los inversores individuales ha demostrado que el sentimiento no sólo está por encima de las previsiones de ganancias, sino que también puede influir en ellas. Los mismos inversores que invierten en las acciones pertenecen al mismo grupo demográfico al que se dirigirá el futuro negocio de GameStop. El poder colectivo demostró que el estado de ánimo de los mercados es una característica fundamental de estos, ahora más que nunca. Los fondos de cobertura, que entienden este fenómeno y colocaron órdenes de compra en consecuencia, pudieron haber impulsado algunos de los saltos de precios de la semana pasada. 

Aunque es probable que la volatilidad acabe por calmarse y el análisis de los negocios desempeñe un papel importante en las decisiones de inversión, ya no podemos negar que el sentimiento no es un componente fundamental en las perspectivas de precios de un activo.

Esto es especialmente relevante en los criptoactivos. Los críticos han acusado a menudo a bitcoin de no tener “valor intrínseco”; es decir, de no tener flujo de caja, balance o crecimiento potencial de sus ganancias. Es cierto que no posee estas cualidades, pero sí cuenta con una creencia generalizada en su utilidad, política monetaria y eventual adopción por una comunidad aún más amplia. Eso debería considerarse una característica fundamental, ya que es obvio que impulsa la apreciación de precios.

Bitcoin no es el único ejemplo claro de ello. La semana pasada, el precio de dogecoin se multiplicó por diez en un momento dado (hasta un 500%  al momento de escribir este artículo), lo que hizo que la criptomoneda entrara brevemente en la lista de los 10 principales criptoactivos por capitalización de mercado. DOGE no hace nada especial. Tiene un bonito perro como isologotipo. Su fundador renegó del proyecto hace años. Algunas personas lo han publicitado como una broma, la cual luego se convirtió en parte de su narrativa. O dicho de otra manera: su falta de fundamentos se ha convertido en parte de su valor. Podemos burlarnos de la gente que invierte en un activo impulsado puramente por el sentimiento, pero ese sentimiento ha mantenido vivo a DOGE durante más de seis años y ha atraído a un puñado de seguidores de alto perfil. 

Un nuevo idioma

Como analista formada en las técnicas de valuación y asignación de carteras de la “vieja escuela”, comprendo la reticencia a abandonar la cómoda heurística; personalmente, echo de menos los flujos de caja descontados, tan agradables y limpios. Pero como los componentes y los participantes del mercado cambian, también debe hacerlo el análisis del mercado. ¿Alguien siquiera recuerda cuándo fue la última vez que los value stocks fueron favorables?

Los mercados de criptomonedas llevan algún tiempo ampliando los límites de lo que significa la palabra “valor”. La nueva generación de inversores nos está mostrando que las viejas reglas deben ser reevaluadas. 

También están permanentemente difuminando los límites entre el “dinero inteligente” institucional y el “dinero tonto” individual. No solo eso: están demostrando que la reforma puede ser iniciada por aquellos que antes tenían poca influencia en la forma de obtener beneficios.

Este es el origen y el ethos del mercado de criptomonedas, en pocas palabras: nuevas reglas para un nuevo tipo de inversor. El mercado de criptoactivos nació en el mundo minorista y se alimentó desde la base. Atrae a los inversores que buscan una alternativa al sistema tradicional. Ha dado lugar a nuevas métricas y paradigmas de valuación.

Quienes trabajamos en este sector hemos observado el cambio de poder ocurrido la semana pasada con la sensación de que lo que esperábamos, finalmente, comenzó a suceder: un nuevo tipo de inversor insistiendo en nuevas reglas y en un nuevo lenguaje, y los mercados principales empezando a tomar nota de ello. Este nuevo tipo de inversor —ya sea enfadado con las élites y las reglas desiguales, fascinado por la aparición de un nuevo tipo de activo; o ambas cosas— obligará a reescribir algunas reglas de inversión establecidas tiempo atrás; y, al hacerlo, empujará al término “valor” hacia una definición más flexible para nuestros cambiantes tiempos. 


Los inversores hablan. 

Ray Dalio, fundador de Bridgewater Associates, el mayor fondo de cobertura del mundo, publicó un documento en el que expone su opinión sobre bitcoin. Es algo llamativo, dado que no hace mucho tiempo atrás expresó públicamente su escepticismo de que tuviera éxito.

Algunos extractos:

  • “Creo que el Bitcoin es un gran invento”.
  • “No hay muchos activos alternativos similares al oro en este momento de creciente necesidad de ellos”.
  • “Creo que el Bitcoin ha conseguido cruzar la línea de ser una idea altamente especulativa, que bien podría desaparecer en poco tiempo, a estar probablemente presente y poseer algún valor en el futuro”.
  • “El nuevo paradigma en el que vivimos — donde muchos bonos del Estado ya no ofrecen las mismas características de rentabilidad o diversificación, y donde las divisas se enfrentan a un mayor riesgo de depreciación — podría impulsar el desarrollo de depósitos alternativos de riqueza más rápidamente de lo que podría haber ocurrido en otras circunstancias”. 
  • “Hasta ahora, la capacidad de Bitcoin de ofrecer alguna ventaja de diversificación parece más teórica que real”. 

Elon Musk escribió “bitcoin” y su logotipo en su biografía de Twitter, y lo señaló con este tuit: “En retrospectiva, era inevitable”.  

Scott Minerd, director de inversiones de Guggenheim Partners, declaró la semana pasada al canal de televisión Bloomberg que no cree que la base de inversores institucionales de bitcoin sea “lo suficientemente grande” o “profunda” como para justificar su valor actual.

En una entrevista con Yahoo Finanzas, la directora general de ARK Investment Management, Cathie Wood, reveló que las recientes conversaciones con grandes empresas le llevan a creer que más firmas seguirán el ejemplo de Square (SQ) y asignarán una parte de sus fondos a bitcoin. También dijo en el evento ETF Big Ideas de la semana pasada que duda de que se apruebe un fondo de inversión cotizado en bitcoin hasta que la capitalización de mercado del activo alcance los USD 2 billones. 

El Banco de Singapur, brazo de banca privada del OCBC Bank —el segundo banco más grande del sudeste asiático por activos totales—, afirmó en una publicación de research que las criptomonedas tienen el potencial de sustituir parcialmente al oro como depósito de valor si logran superar los obstáculos de alta volatilidad, el riesgo de reputación y la falta de aceptación regulatoria.


Según fuentes, algunos de los fondos de dotaciónendowment funds, en inglés — de las universidades más grandes de Estados Unidos —como Harvard, Yale, Brown y la Universidad de Michigan— han comprado sigilosamente criptomonedas desde 2019. Conclusión: esto es importante, dado el perfil inversor tradicionalmente conservador de los endowments. Lo más probable es que las asignaciones sean relativamente pequeñas, pero aun así los activos bajo gestión de los endowments universitarios son de cientos de miles de millones de dólares; lo pequeño puede llegar muy lejos. También vale la pena mirar de cerca esta actividad: algunas universidades, especialmente Harvard, han sido criticadas por sus inversiones en empresas de combustibles fósiles. La (malinterpretada) reputación del Bitcoin como algo malo para el medio ambiente podría atraer su atención.

Según el último informe trimestral de Genesis Capital, su volumen total de préstamos activos en circulación aumentó más de 80% en el cuarto trimestre, hasta llegar a los USD 3.8 billones. Las originaciones de préstamos aumentaron un 46%, hasta los USD 7.6 billones; el tamaño promedio de los préstamos se duplicó, pasando de USD 2 millones a USD 4 millones; y el promedio de los préstamos para primeros prestamistas aumentó de USD 0.6 millón a USD 3.2 millones. Conclusión: estas cifras de crecimiento ponen de relieve la creciente atención entre los inversores institucionales de los potenciales rendimientos de los criptopréstamos. Y mientras los rendimientos continúen siendo bajos en los mercados tradicionales, el aumento debería seguir siendo fuerte. Esto apoya una liquidez saludable en los mercados de criptomonedas, que a su vez debería contribuir a fortalecer la infraestructura del mercado y podría mitigar gradualmente la volatilidad de los activos. (Nota: Genesis Capital es propiedad de DCG, relacionado con CoinDesk).

En la última presentación de resultados de la empresa de business intelligence MicroStrategy (MSTR), su director general, Michael Saylor, se comprometió a seguir invirtiendo el exceso de caja de la compañía en bitcoin y dijo a los inversores que su equipo también “explorará varios enfoques” para realizar compras adicionales. Conclusión: realmente están trabajando para convertirse en un ETF de bitcoin (un fondo de inversión cotizado o Exchange Trade Fund, en inglés). 

La empresa de minería de criptomonedas Marathon Patent Group (MARA) compró USD 150 millones en Bitcoin durante la reciente caída del precio de esta criptomoneda. Conclusión: aquí tenemos a una empresa minera de bitcoin comprando BTC en el mercado con el fin de convertirse aún más en un jugador especializado en el activo. Sin embargo, un fondo de inversión cotizado

en bitcoin es aún considerado demasiado arriesgado. 

La ciudad de Miami publicó el miércoles una copia del libro blanco de Bitcoin en su sitio web, y se unió así a la creciente masa de gobiernos y empresas que ya lo hicieron. Conclusión: un sitio web del gobierno municipal de Estados Unidos alberga el libro blanco de Bitcoin. Deja que esto cale hondo. 

En los últimos meses, Grayscale Investments (propiedad de DCG, grupo relacionado con CoinDesk) ha solicitado el registro de más de 10 nuevos fideicomisos basados en criptoactivos de menor capitalización como aave, chainlink, polkadot y otros. Conclusión: Grayscale gestiona actualmente un conjunto de fideicomisos líderes en el mercado, incluyendo GBTC (bitcoin) y ETHE (ethereum), así como algunos más pequeños sobre horizen, litecoin, stellar y otros. Si bien Grayscale no está necesariamente revelando una intención de actuar en estas nuevas presentaciones, sí insinúa con una creciente amplitud de opciones para los inversores institucionales en los próximos meses.

El fondo de bitcoin de la empresa de inversión canadiense Ninepoint Partners (BITC.U y BITC.UN) comenzó a cotizar la semana pasada, tras completar una oferta pública inicial de 230 millones de dólares canadienses (USD 180 millones) en la Bolsa de Toronto. Conclusión: la considerable cantidad recaudada no sólo convierte a este fondo de criptomonedas en el más grande de Canadá y el segundo en dos meses en salir público (el CI Galaxy Bitcoin Fund comenzó a cotizar en la TSX tras levantar USD 72 millones en diciembre), sino que también apunta a una demanda significativa y creciente por parte de los inversores de ese país. 

El parlamento de la India está estudiando un proyecto de ley respaldado por el gobierno que prohibiría las criptodivisas “privadas” y proporcionaría un marco para crear una moneda digital oficial del Banco de la Reserva de la India. Conclusión: el impacto potencial del proyecto de ley propuesto aún no está claro. Por ejemplo, ¿qué se entiende por criptodivisa “privada”? Bitcoin y otras son criptomonedas públicas. Esto sentaría un precedente preocupante, aunque también sería un interesante caso de estudio sobre la eficacia de las prohibiciones gubernamentales sobre criptoactivos.

Si quieres tener una perspectiva rápida del rendimiento mensual del mercado, mi colega Shuai Hao ha elaborado esta tabla de rendimientos. Si prestas especial atención, podrás ver que los meses de verano son tradicionalmente más débiles y que el final del año suele ser más fuerte. Además, se puede advertir que la volatilidad ha disminuido un poco (menos colores oscuros de cualquier tono).

Source: Coin Metrics, CoinDesk Research

Traducido por Andrés Engler.



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Crypto Long & Short: GameStop, Dogecoin and a New Market Paradigm

It’s hard to do justice to the symbolism and significance of the Reddit-Robinhood-GameStop drama of this past week.

That’s not to say it hasn’t been overblown in some quarters. I’ve heard it compared to the Capitol riots – no, that was sedition, this is rebellion, very different. I’ve seen calls for the regulators to step in and shut down retail trading platforms, even though it’s not clear a crime has been committed. And I’ve read takes painting the leaders of this charge as “misfits.” That condescension itself is part of the problem.

The protagonists are not misfits – they are retail investors flexing their collective muscle, the very same muscle the “establishment” encouraged them to develop.

You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. You can subscribe here.

Retail investors were encouraged to invest their savings in the stock market. They were offered mobile apps that made it easy. They were bombarded with advice and ideas from mainstream media. They were given money to spend. And low yields pushed them up the risk curve.

Making way

While the attention has been focused on a handful of stocks that have seen astronomical gains on the back of retail enthusiasm, the origin and the result (whatever that ends up being) have a lot to do with the crypto markets.

We’re not trying to steal anyone’s thunder. The WallStreetBets channel that galvanized the troops and led the charge did not welcome crypto traders or even chatter. Their drivers are not decentralization or fair access – rather, they seem motivated by glee at their newfound power, and anger.

The anger runs deep. The 139% short position against GameStop signaled heavy hedge fund involvement – but this was a trigger, not a cause. This rebellion feels like an expression of pent-up frustration at the skewed rules of capital markets that entrench the power of the “elite,” combined with residual resentment over the 2008 bailouts, the lack of market transparency and a long list of generational grievances.  

A similar “old” vs “new” mindset drives the crypto markets.

Many of us were drawn to bitcoin out of concern for the impact on individual prosperity from defensive decisions taken by entrenched interests. Others were attracted to the concept of decentralized finance as an antidote to the potential damage done by consolidated power. And there’s the strong vote for financial sovereignty and commercial freedom.

All of us watched how traditional finance initially rejected the notion that a programmable token could ever have value or that code could produce yield. The success of crypto markets has forced much of the “old guard” to gradually recognize that things are changing. The events of this week will no doubt drive home that message.

What’s more, the very same platforms that sold themselves on the democratization of finance ended up restricting users’ access to certain trades this week, with the market in full swing. Can you think of a more public spotlight on the vulnerabilities inherent in the current market infrastructure? Google Trends shows that searches for “defi” (short for decentralized finance) are growing.

There is a risk that the new administration will use the retail investor rebellion as an excuse to over-regulate. Yet popular sentiment seems to be with the rebels, as legislators are no doubt aware (I don’t recall ever seeing Ted Cruz agree with Alexandria Ocasio-Cortez before).

What’s more, the nomination of Gary Gensler, who is both knowledgeable and generally supportive of crypto markets, to the post of Chairman of the U.S. Securities and Exchange Commission could hint at the beginning of structural reform in favor of more “democratic” access.

It could also move the needle on investor understanding of some of the underlying qualities of blockchain-based assets and their markets. True, access to these markets has some hurdles, such as jurisdiction and familiarity with technology. But investor choice and user experience has never been better, and, with some large market infrastructure players intending to go public this year, will continue to improve.

Back to basics

It’s not just market structure that is likely to be re-examined as a result of this week’s events. Market understanding needs a rethink, too. This also has a lot to do with crypto assets.

I lost count this week of the number of mainstream commentators that spluttered about “fundamentals,” and how the price shouldn’t move so much when GameStop’s situation hasn’t changed. They’re wrong – whether the stock is currently overvalued or not (I have no opinion on that), the company’s situation and fundamentals have changed.

One, there’s the massive publicity. Two, aside from the potential future revenue from selling games, there is probably a merchandising opportunity through branded mugs and pitchforks. Three, there’s a groundswell of support for the share price – only this is not traditionally considered worthy of consideration in asset evaluation. It should be.

Investopedia defines business fundamentals as “information such as profitability, revenue, assets, liabilities, and growth potential.” I would add to that list “public support.” Critics of this idea will say that sentiment is ephemeral, impractical to estimate and therefore impossible to value, while traditional fundamentals are tangible and can be discounted.

These days, though, even the tangible ones are mere estimates, which – as we have seen – can vary wildly and be rendered useless by unforeseen events. We have also seen how sentiment moves markets, and not just on a short-term basis. No analyst can reasonably ignore its power, and insisting that portfolio decisions “stick to the basics” is assuming that things will go back to the way they were 50 years ago when investors parked their money in safe securities and forgot about them until retirement.  

The power unleashed this week may remind some of us oldies of 1999, when market fever crested before crashing. But back then we didn’t have the power of social media, a generation stuck indoors and helicopter money from the government. We also weren’t looking at an unprecedented level of social dislocation, loss of trust in institutions and belief in the strength of community. Today’s markets may turn south at any moment, and when they do, it is likely to be ugly. But, in contrast to the turn of the century, retail participation is unlikely to fade – this cultural shift is about more than making money.

The new-found power of retail investors has showed that sentiment not only trumps earnings forecasts, it can impact them. The very same investors piling into the stock are the same demographic that GameStop’s future business will target. The collective power showed that market mood is a fundamental characteristic of markets, now more than ever. Some of the price jumps this week may have been driven by hedge funds who understand this and were placing buy orders accordingly.

While volatility is likely to eventually quieten down and business analysis should always have a significant role in investment decisions, we can no longer say that sentiment isn’t a fundamental component of an asset’s price outlook.

This is especially relevant with crypto assets. Critics have often accused bitcoin of having no “fundamental value,” by which they mean no cash flow, balance sheet or potential earnings growth. True, it doesn’t have these things, but it does have widespread belief in its utility, monetary policy and eventual adoption by an even broader community. That faith should be considered a fundamental characteristic, as it is now obvious it drives price appreciation.

Bitcoin is not the only clear example of that. This week saw the price of Dogecoin (DOGE) at one stage surge ten-fold (up 500% at time of writing), briefly pushing the cryptocurrency into the list of top 10 crypto assets by market capitalization. DOGE doesn’t do anything special. It has a cute dog as its logo. Its founder disavowed the project ages ago. Some people have hyped it as a joke which then became part of its narrative – in other words, its unpretentious lack of fundamentals has become part of its value. We may deride people who put savings into a purely sentiment-driven asset – but that sentiment has kept DOGE alive for over six years now, and has attracted a smattering of high-profile followers.

New language

As an analyst trained in “old school” valuations and portfolio allocation techniques, I understand the reluctance to let go of comfortable heuristics – personally, I miss discounted cash flows, so nice and clean. But as market components and participants change, so must market analysis. Does anyone even remember when last “value stocks” were in favor?

Crypto markets have for some time been pushing the boundaries of what “value” means. The new generation of investors is showing us that old rules need re-examining.

They are also permanently blurring the boundaries between institutional “smart money” and retail “dumb money.” What’s more, they are showing that reform can be initiated by those that previously have had little influence on how profits are made.

This is the crypto market origin and ethos in a nutshell: new rules for a new type of investor. The crypto asset market was born in the retail world and cultivated from the ground up. It attracts investors looking for an alternative to the traditional system. It has given birth to new metrics and valuation paradigms.

All of us who work in this industry have watched this week’s power shift with the feeling that what we’ve been expecting is finally starting to happen: a new type of investor is insisting on new rules and a new language, and mainstream markets are starting to take note. This new type of investor – be they angry at elites and unequal rules, fascinated by the emergence of a new type of asset, or both – will force a rewrite of some long-established rules of investment, and in so doing, push the philosophy behind the term “value” towards a more flexible definition for our changing times.


Investors talking:

Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, published a document laying out his thoughts on bitcoin. This is remarkable, given that not long ago he publicly expressed skepticism that it would succeed.

Some excerpts:

  • “I believe Bitcoin is one hell of an invention.”

  • “There aren’t many alternative gold-like assets at this time of rising need for them.”

  • “It seems to me that Bitcoin has succeeded in crossing the line from being a highly speculative idea that could well not be around in short order to probably being around and probably having some value in the future.”
  • “The new paradigm that we are living in, with many government bonds no longer offering the same return or diversification characteristics and currencies facing greater risk of depreciation, could propel development of alternative storeholds of wealth faster than might otherwise have been the case.”
  • “So far, Bitcoin’s ability to offer some diversification benefit seems more theoretical than realized.”

Elon Musk now has “bitcoin” and its logo in his Twitter bio, and flagged this with the tweet: “In retrospect, it was inevitable.”  

Scott Minerd, chief investment officer of Guggenheim Partners, told Bloomberg television this week that he does not believe that bitcoin’s institutional investor base is “big enough” or “deep enough” to justify its current valuation.

In an interview with Yahoo Finance, ARK Investment Management CEO Cathie Wood revealed that recent conversations with large companies leads her to believe that more will follow Square’s lead and allocate a portion of their treasury to bitcoin. She also said at this week’s ETF Big Ideas Event that she doubts that a bitcoin ETF will be approved until the asset’s market cap hits $2 trillion.

Bank of Singapore, a private banking arm of OCBC Bank (the second largest bank in Southest Asia by total assets), said in a research note that cryptocurrencies have the potential to partially replace gold as a store of value if they can overcome the hurdles high volatility, reputational risk and lack of regulatory acceptance.


According to sources, some of the largest university endowment funds in the U.S., including Harvard, Yale, Brown and the University of Michigan, have been quietly buying cryptocurrency since 2019. TAKEAWAY: This is notable, given endowments’ traditionally conservative investor profile. The allocations are most likely relatively small, but even so, the AUM of college endowments is in the hundreds of billions of dollars – small can go a long way. It will also be worth keeping an eye on endowment activism – some universities, especially Harvard, have come under criticism for their investment in fossil fuel companies. Bitcoin’s (misconstrued) reputation as bad for the climate might attract their attention.

According to Genesis Capital’s latest quarterly report, its total volume of active loans outstanding increased by over 80% in Q4, to $3.8 billion. Loan originations increased by 46% to $7.6 billion, the average loan size doubled from $2 million to $4 million, and the average loan size for first-time lenders increased from $0.6 million to $3.2 million. TAKEAWAY: These growth figures highlight the growing awareness amongst institutional investors of the yields possible in crypto lending, and as long as yields remain low in traditional markets, growth should continue to be strong. This supports healthy liquidity in crypto markets, which in turn should help strengthen market infrastructure and could gradually mitigate asset volatility. (Note: Genesis Capital is owned by DCG, also parent of CoinDesk.)

On business intelligence company MicroStrategy’s (MSTR) latest earnings call, CEO Michael Saylor pledged to keep pouring the business intelligence company’s excess cash into bitcoin, telling investors his team will also “explore various approaches” for additional buys. TAKEAWAY: They really are working on becoming a bitcoin ETF.

Cryptocurrency mining company Marathon Patent Group (MARA) bought $150 million in bitcoin during the crypto asset’s recent price rout. TAKEAWAY: Here we have a bitcoin mining company buying BTC on the open market in order to become even more of a “pure play” for the asset. And yet a bitcoin ETF is still deemed too risky.

The city of Miami on Wednesday uploaded a copy of the Bitcoin white paper to its website, joining a growing chorus of governments and companies now hosting bitcoin’s original blueprint. TAKEAWAY: A U.S. municipal government website is hosting the Bitcoin white paper. Let that sink in.

Over the past few months Grayscale Investments (owned by DCG, also parent of CoinDesk) has filed to register over 10 new trusts based on smaller cap crypto assets such as aave, chainlink, polkadot and others. TAKEAWAY: Grayscale currently manages a suite of market-leading trusts, including GBTC (bitcoin) and ETHE (ethereum), as well as some smaller ones based on horizen, litecoin, stellar and others. While Grayscale is not necessarily signaling intention to act on these new filings, they do hint at a growing breadth of choice for institutional investors in the months ahead.

Canadian investment firm Ninepoint Partners’ bitcoin fund (BITC.U and BITC.UN) started trading this week, having completed a C$230 million (US$180 million) initial public offering on the Toronto Stock Exchange. TAKEAWAY: The considerable amount raised not only makes this Canada’s largest new crypto fund and the second in two months (the CI Galaxy Bitcoin Fund started trading on the TSX after a $72 million public raise in December), it also points to significant and growing demand from Canadian investors.

India’s parliament is considering a government-backed bill that would ban “private” cryptocurrencies and provide a framework for creating an official Reserve Bank of India digital currency. TAKEAWAY: The potential impact of the proposed bill is as yet unclear – for instance, what does it mean by “private” cryptocurrency? Bitcoin and others are public cryptocurrencies. Nevertheless, this would set a worrying precedent. It would also be an interesting case study on how effective government bans of crypto assets are.

If you’re looking for some bird’s-eye perspective on monthly market performance, my colleague Shuai Hao put together this table of returns. If you squint, you can see that summer months are traditionally weaker, and the end of the year is usually stronger. Furthermore, we can see that volatility has declined a bit (fewer dark colors of either shade).



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Crypto Long & Short: No, Bitcoin Was Not a Response to the Financial Crisis

Maybe it’s just that winter is dragging on, but I find myself getting increasingly irritated with mainstream reports about Bitcoin that say it was a result of the financial crisis. 

It wasn’t, and that matters.

First, let’s look at why it wasn’t, and then I’ll explain why this misunderstanding bothers me.

Bitcoin’s pseudonymous creator Satoshi Nakamoto started working on the Bitcoin white paper in early 2007, over a year before the financial crisis hit mainstream markets.

In early 2007, the subprime mortgage industry was collapsing, but even lifelong finance insiders didn’t foresee the scale of what was to unfold. As Satoshi worked, bankruptcies and bank tremors would have been making the headlines, but there is no indication this added to his* urgency.

(*We don’t know that Satoshi was a “he,” but to avoid linguistic clutter I’ll use that pronoun throughout.)

By the time Satoshi uploaded the white paper to a cryptography mailing list in October 2008, the markets were in full meltdown, the U.S. government was taking over parts of the financial ecosystem, and central banks around the world were dropping interest rates and printing money.

The genesis block, mined by Satoshi in early January 2009, included the text of a headline from that day: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

Many have taken this as proof that Bitcoin was created in reaction to the crisis. This reveals a lack of understanding of how much work went into the design of Bitcoin, as well as the long history behind the idea of peer-to-peer finance.

History matters

The confusion is also potentially damaging to the Bitcoin narrative.

Why? Because it misrepresents the intentions of the army of cryptographers that had been working on a decentralized electronic cash solution for decades. It diminishes the bigger picture.  

Satoshi was not reacting to an event, just as those on whose shoulders he stood weren’t planning for a specific circumstance. They were all trying to solve the fundamental issue of financial sovereignty.

While we do not have (that I’m aware of) evidence of Satoshi’s thoughts on the financial system from before the publication of the Bitcoin white paper, shortly after the genesis block was mined, Satoshi wrote:

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”

Satoshi was not referencing the financial mess at the time, even though its fallout was loud and hard to ignore. He showed signs of bigger thinking.  

And as for the genesis block itself, maybe the timing and choice of embedded text was intentional, or maybe it was a coincidence – we’ll never know for sure. Either way, a point was made.

That point was a dig at how politically beholden the banking system had become. It highlighted the lack of solid financial structure and the diminishing trust in institutional solvency. It essentially represented the financial crisis that was unfolding. But it was an example rather than a smoking gun.

The financial crisis was not the reason for Bitcoin. It was a symptom of the reason for Bitcoin. And if we continue to hear claims that the crisis was the cause, we will start to believe that Bitcoin is a new solution to a relatively new problem.

It isn’t. It’s a long-awaited solution to a long-standing problem.

If we continue to think of Bitcoin solely in the context of financial crises, we could start to believe that the need for it will diminish as the painful adjustments recede into the mists of time.

It won’t – the technology can’t be put back into its bottle. Nor can the growing awareness of the vulnerabilities inherent in the financial system on which we all rely.

Bitcoin has managed to spread ideas that were previously the purview of an arcane mailing list, and in so doing, has changed the way we look at our financial rights, our data, even our identity. True, the timing of Bitcoin’s emergence helped with that spread, and the recent departure from traditional monetary policy has accelerated it. Financial privacy, seizure resistance and fiat debasement are just some of the concepts that the crypto market price swings have pushed into conversations that now reach even the hallowed halls of traditional finance.

But Bitcoin was not created to fix crises. It was created to give people a choice.

Let’s stop treating it as a reaction to a specific situation, and recognize that Bitcoin is a technological evolution of a process that started decades ago.

Let’s also give credit to a group of thinkers who realized from way back where centralization of finance and our economy could eventually lead.

Regime change

After a momentous week in which COVID-19 briefly stepped back from the headlines to give space for us spectators to appreciate hope, rhetoric and a peaceful transfer of power, it feels good to take a breather and contemplate the scope of potential change ahead.

It’s not just that market infrastructure and institutional interest are growing in leaps and bounds (more on that below). It’s also that many of the regulatory authorities that determine the framework of financial markets, custody and value transfer are changing guard.

Gary Gensler will be the next chairman of the U.S. Securities and Exchange Commission (SEC). This possibility was reported last week, and was flagged as potentially very good news for the crypto industry, as Gensler has not only researched and often spoken in public about crypto assets and blockchain technology – he also has taught a course on the subject at MIT.

Chris Brummer, a Georgetown University law professor who runs the annual D.C. Fintech Week conference, edited a book on crypto assets and hosts the excellent Fintech Beat podcast, which often features compelling crypto content, may be the next chair of the Commodity Futures Trading Commission (CFTC), according to Reuters.

According to the Wall Street Journal, Michael S. Barr, a former U.S. Treasury Department official and onetime member of Ripple’s board of advisers, is likely to become the next Comptroller of the Currency.

This almost seems like a crypto-savvy trifecta of financial regulators which, as my colleague Nik De hinted at in his new crypto regulation newsletter The State of Crypto, is almost too much to ask for. It doesn’t guarantee crypto-friendly legislation, but at least it means the discourse will be relatively well informed.


Investors talking:

· “While it is nigh on impossible to forecast an expected return for bitcoin, its volatility makes the asset almost ‘uninvestable’ from a portfolio perspective.” – Barclays Private Bank chief market strategist Gerald Moser, talking to Financial News. He goes on to claim that the current bull run has been driven by retail investors rather than institutional money, which is a bewildering interpretation of the data.

· Guggenheim Partners Chief Investment Officer Scott Minerd, who recently said that he thought bitcoin’s fair value could reach $400,000, has been looking at the BTC charts and now believes that the cryptocurrency could be in for a sell-off down to $20,000.

· Bill Miller featured bitcoin in his Q4 income strategy letter, and talks about his fund’s investment in the MicroStrategy convertible security. “The world is ruled by fat-tail events, or seemingly improbable occurrences that have an outsized impact, and all indicators so far point to Bitcoin being one.”

· “You know what, if you won the lottery – Yes, I’m gonna say it: 5% in bitcoin.” – Jim Cramer, host of the Mad Money program. Cramer apparently sees bitcoin as an “important new store of value.”


BlackRock, the world’s largest asset manager with $7.81 trillion under management, appears to have granted at least two of its funds (BlackRock Global Allocation Fund Inc. and BlackRock Funds V) the ability to invest in bitcoin futures, according to prospectus documents filed with the U.S. Securities and Exchange Commission. TAKEAWAY: For now, the funds will only be able to invest in cash-settled bitcoin futures, not actually hold bitcoin. And we shouldn’t assume that BlackRock will be betting on upside – it could use bitcoin futures to express bearish positions. But this move does echo comments made last month by CEO Larry Fink, when he said bitcoin could possibly “evolve” into a global market asset. And it is encouraging to see official acknowledgement that the world’s largest asset manager has invested resources in understanding the market.

If any of you heard some alarming chatter about a double-spend on the Bitcoin network (when a certain amount of BTC is spent twice, which in theory is impossible), here is an explanation of what really happened and how it’s nothing to worry about.

While bitcoin is still usually the first crypto investment for professional investors, due largely to its relative liquidity and range of onramps and services, Ethereum’s native token ether is starting to attract more institutional attention. A report from Fundstrat Global Advisors posits that the wide array of potential use cases for Ethereum gives ETH the best risk/reward scenario in the market, and believes that the asset could rally up to $10,500. TAKEAWAY: ETH has outperformed BTC for 8 of the past 12 months (and looks set to do the same for this one), yet it is currently below its all-time high (ATH), while BTC left its ATH in the dust three months and 52% ago (at time of writing). It is not easy to directly compare the two, however, since the underlying technology, use case outlook and risk profile are very different. We’ll be following this closely, so watch this space. (See our report on Eth 2.0 for more detail on its upcoming protocol shift.) 

chart by Shuai Hao

New U.S. Treasury secretary Janet Yellen got off on the wrong foot with the cryptocurrency community by claiming that bitcoin was mainly used for illicit financing. This happened on the same day that blockchain forensics firm Chainalysis published a report that shows that cryptocurrency-based criminal activity fell to 0.34% of total transaction volume, down from 2.1% in 2019. TAKEAWAY: That doesn’t look like “mainly” to me. Thankfully, she rectified shortly after in a written response to the Senate Finance Committee, stressing the need to “encourage their use for legitimate activities while curtailing their use for malign and illegal activities.” That sounds more reasonable.

London-based crypto liquidity provider Wintermute has raised $20 million in a Series B funding round, led by Lightspeed Venture Partners, with participation from Pantera Capital, Sino Global Capital, Kenetic Capital, Rockaway Blockchain Fund, Hack VC, DeFi Alliance and Fidelity-affiliated Avon Ventures. TAKEAWAY: Most of the meaningful raises we’ve seen recently have been for market infrastructure firms, which points to strong under-the-surface development and increasing sophistication from crypto markets, and expectations of significant growth in service demand.

Sen. Mike Flood (R) of Nebraska has introduced two bills that would allow the state’s banks to offer custodial services for digital assets. TAKEAWAY: Several states are likely to follow Wyoming’s lead in making their jurisdictions crypto asset-friendly. This will not just attract new businesses or retain existing ones in an industry with growth potential. It could also serve to attract investment funds, and enhance the opportunities for interstate crypto commerce and business deals.

Market research commissioned by trading platform eToro, which surveyed 25 large institutions in Q3, revealed that interest in crypto markets from pensions and endowments is increasing. TAKEAWAY: This would be a big shift if it materializes, as pensions and endowments are traditionally risk-averse investors. Crypto markets, as we were reminded this week, are not for the risk-averse. It’s a relatively small sample, and so can’t be taken as indicative of pending inflows, but it does hint at a shift in market perception.  

According to a Deutsche Bank survey of market professionals, over 50% believe that BTC is at a 10 on a 1-10 “bubble scale”, and is likely to halve in value over the next 12 months. TAKEAWAY: Is this a sign of the market getting tired? Or, a sign of growing awareness amongst people who have yet to do research?

JPMorgan strategists have said in a report that a bitcoin price breakout over $40,000 would require daily inflows into the Grayscale Bitcoin Trust (GBTC; Grayscale is owned by DCG, also parent of CoinDesk) of approximately $100 million. TAKEAWAY: So far, that does not look too farfetched: On Monday, the firm had its largest daily inflow ever, almost $700 million, bringing the daily average since it reopened for new investment last week to approximately $200 million.


Digital asset management firm CoinShares has launched an exchange-traded bitcoin product (ETP) on Swiss stock exchange SIX. TAKEAWAY: It is becoming increasingly obvious how much livelier in terms of variety the listed crypto product landscape is in Europe vs the US.

Valkyrie Digital Assets filed an application this week for a bitcoin exchange-traded fund (ETF), the Valkyrie Bitcoin Fund, which would be listed on the New York Stock Exchange. TAKEAWAY: This is the second bitcoin ETF filing we’ve seen in the past three weeks, and is probably the first of many in 2021. With Gary Gensler as nominated head of the U.S. Securities and Exchange Commission, expectations are rising that the industry will see a bitcoin ETF approved this year.  

Wall Street CFOs are more wary of putting company funds into bitcoin after last week’s 30% price plunge, according to Bloomberg. TAKEAWAY: As they should be. CFOs putting company reserves into BTC just for the headlines and possible share price bump are being irresponsible. BTC has a place on balance sheets, but it should be a cautious one. Microstrategy, the software company that kicked off this trend in August of last year, is placing conviction above caution, however, and revealed this week that it has added another $10 million worth of bitcoin during the dip.



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Crypto Long & Short: No, Bitcoin Is Not in a Bubble

To think that such a festive concept, one that evokes both sophistication and childlike wonder, could become so financially charged …

Last week, Bank of America Securities chief investment strategist Michael Hartnett said in a note that bitcoin looks like “the mother of all bubbles.”

Harnett seems to be using the strength and speed of bitcoin’s price rise as the base for his diagnosis, as if that is the main feature of a financial bubble. It isn’t.

Continuing the misuse of the word, in a note quoted on Bloomberg this week, investment management firm Man Group said: “Every time a bitcoin bubble bursts, another grows back to replace it … This very frequency makes the bitcoin narrative somewhat atypical relative to the great bubbles of the past.”

This is less irritating in that Man Group recognizes that bitcoin is “atypical” – but it also seems to believe that bitcoin is a bubble. It’s not.

Words matter

To see why, let’s pull out our financial dictionaries:  

Investopedia: “During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset’s intrinsic value (the price does not align with the fundamentals of the asset).”

Nasdaq: “A market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset.”

Wikipedia: “A situation in which asset prices appear to be based on implausible or inconsistent views about the future. It could also be described as [an asset that trades] at a price or price range that strongly exceeds the asset’s intrinsic value.”

Do you see the common thread? An asset is in a bubble when its price increase is unrelated to its intrinsic or fundamental value.

What is bitcoin’s intrinsic value? Nobody yet knows. We’re looking at a still young technology that is evolving alongside the demand for it. The technology’s future use cases are still unclear, as is its place in the financial ecosystem. And bitcoin’s unique investment characteristics and unfamiliar metrics make it impossible to apply traditional valuation techniques. Many have opinions as to its fundamental value, but you only need to look at the wide range to realize they are based on unestablished theories and untested logic.

So, anyone saying that bitcoin is in a “bubble” is making a judgement call on its intrinsic value. But they never (not that I’ve seen, anyway) share their calculations or even reveal the number that they’re thinking of.

Social concepts

Maybe these analysts and commentators are using the term “bubble” in the social sense?

Economist Robert Schiller defines a speculative bubble as a “social epidemic whose contagion is mediated by price movements.” Those of us that spend time on Twitter or YouTube may be nodding in recognition. But Schiller specifies “epidemic” (an unfortunate metaphor in 2020-21), which implies mainstream participation. The cacophony of bitcoin maximalists and altcoin enthusiasts is far from mainstream.

AQR Capital Management co-founder Cliff Asness gets it. In a 2014 paper written for the CFA Institute, he said: “The word ‘bubble,’ even if you are not an efficient market fan (if you are, it should never be uttered outside the tub), is very overused.”

Suds aside, he goes on to add: “Whether a particular instance is a bubble will never be objective; we will always have disagreement ex ante and even ex post. But to have content, the term bubble should indicate a price that no reasonable future outcome can justify.” (my emphasis)

Most professional investors allocating part of their portfolios to bitcoin are doing so to hedge against the scenario of currency debasement, which seems less and less unreasonable. How do you put a price on that?

What is the “fundamental value” of a good that does not fall in value along with the underlying currency, that does not suffer the consequences of a weak economy, and that cannot be co-opted to provide profit for a select and powerful few? What is the “intrinsic value” of a technology that also allows for the auditable, immutable and censorship-resistant sharing of information? How do you assign a baseline price level to a cryptographic token that embodies all of this, and can also be used as a payment innovation as well as a seizure-resistant emergent store of value?

For bitcoin to be in a bubble, its price movements need to be unrelated to its underlying value. Given the astonishing increase in the global supply of dollars at a time of stagnating demand due to widespread pandemic-induced recessions, and the likely emergence of recovery-fueled inflation which will be difficult to control, it could be argued that bitcoin’s underlying value as a potential offset to the ensuing economic chaos is rapidly increasing. It could be argued that bitcoin’s price movements are catching up to its underlying value.

The anti-bubble

It could also be argued that bitcoin is the anti-bubble, that its price is going up because of bubbles elsewhere in the economy. Many investors are buying bitcoin in response to what they see as a massive sovereign bond bubble, which they believe the government will try to deflate by printing money.

And as for equities, the blistering market valuations of tech companies are to a large degree dependent on low interest rates which could head up fast should the bond bubble burst. This would make “alternatives” such as bitcoin even more attractive.

To get a feel for bitcoin’s anti-bubble nature, try to imagine what its “fundamental value” would be if we had central banks that did not print money, governments that kept balanced accounts and no fear at all of MMT, financial repression or any kind of populist uprisings. In this scenario, demand and price would be much lower than they are today.

So, before we accuse bitcoin of being in a bubble, before we imply that its current price in no way reflects its potential utility in a chaotic and increasingly uncertain world, let’s ask ourselves where we think the drivers of bitcoin’s utility are heading.

None of this means that bitcoin’s price won’t fall – it might, and if it does, it might do so quickly. The likelihood of that is for each investor to decide.

It does mean, however, that we need to examine more than just recent price movements. A strong return does not automatically deserve “bubble” designation. Bubbles are not about prices – they’re about price relative to value.

Labels matter, and what’s coming is going to be confusing enough without charged words misrepresenting new concepts.

– Noelle

Macro currents

When institutional investors praise the current macro environment as being “perfect” for bitcoin, we listen. After all, low rates, a declining dollar, and inflation fears cause investors to deploy low-yielding cash into higher-yielding assets such as gold and bitcoin. 

But do these investors go back to the drawing board when BTC plunges more than 20% just as the 10-year Treasury yield breaches 1%? I’m starting to question if the macro narrative of ongoing Fed support suppressing yields and boosting market speculation still holds.

Just like the Fed, investment managers care more about real yields (adjusted to remove the effects of inflation) rather than nominal yields. The fact that real yields are still negative means the inflation outlook is muted. The Fed will continue monetary easing until it sees a meaningful pickup in growth and inflation, which supports the base case for bitcoin as a speculative asset. 

And what about bitcoin as a hedge against inflation? 

Some might say there’s no evidence of inflation running wild just yet. But market participants would disagree as they position ahead of economic data. We can see this in breakeven rates (a market-based measure of inflation expectations) which exceeded 2% this week. 

Source: Federal Reserve Bank of St. Louis

(The above chart shows the US 10-year real yield struggling to chase inflation expectations higher, which should keep the Fed active – supporting the macro case for bitcoin. )

To be fair, volatility metrics such as Treasury swaption premiums show no hedging bias for a significant move higher or lower in rates. This means volatility in the rates market remains very low, suggesting that investors are not yet demanding greater reward for rising interest rate (or inflation) risk. 

So, where can investors find such a reward? Bitcoin. The cryptocurrency is attracting greater institutional flows because it yields high returns compared to traditional assets. Bitcoin’s high  relative return compensates investors for volatility and inflation risk. 

As long as the Fed keeps the punchbowl flowing, the speculative quest for high returns will continue. It’s a goldilocks environment for bitcoin as an asset class.

– Damanick

Chain Links

Investors talking:

· “We have been watching it for a longish time, and our judgement is that it is a unique beast as an emerging store of value, blending some of the benefits of technology and gold. Yes, it is a seemingly non-sensical asset – but one that makes absolute sense for how we see the world.” – excerpt from a beautifully written and thoughtful investor letter from Jonathan Ruffer, chairman of Ruffer Investment Company

· “Every time a Bitcoin bubble bursts, another grows back to replace it … This very frequency makes the Bitcoin narrative somewhat atypical relative to the great bubbles of the past.” – Man Group investment note

· “In our view, given their high volatility and the size of their past drawdowns, cryptocurrencies might be attractive to speculative investors, but they are neither a suitable alternative to safe-haven assets nor do they necessarily contribute to portfolio diversification.” – strategists at UBS Asset Management

· “I don’t even know enough to say this with confidence, but I will still say that I’m somewhat cynical that someone is going to come up with a really good valuation model for what the right price.” – Cliff Asness, co-founder of AQR Capital Management, in a Bloomberg interview

· Speaking on CNBC’s The Coin Rush on Tuesday, Goldman Sachs’ global head of commodities research, Jeff Currie, said the cryptocurrency market “is becoming more mature” but still has a way to go, and that he thought that approximately 1% of the current bitcoin market cap was attributable to institutional investors.

In his latest investor memo, Oak Tree Capital founder Howard Marks reveals that his son “thankfully owns a meaningful amount for our family.” He goes on to say: “In the case of cryptocurrencies, I probably allowed my pattern recognition around financial innovation and speculative market behavior – along with my natural conservatism – to produce my skeptical position. …  Thus, I’ve concluded (with Andrew’s help) that I’m not yet informed enough to form a firm view on cryptocurrencies.  In the spirit of open-mindedness, I’m striving to learn.”


According to sources, Goldman Sachs is considering launching a crypto custody service. TAKEAWAY: I remember back in the early days, we used to say that Goldman Sachs getting into the crypto business would be the tipping point for institutions. Years later, even with other significant legacy institutions already offering digital asset services, it would still be a very big deal, as it would be the strongest signal yet that Wall Street is interested. It would also trigger a scramble to catch up from other traditional financial institutions, and would incentivize professional fund managers to at least get better informed.  

This week, Reuters reported that the incoming Biden administration is expected to name Gary Gensler, a Washington and Wall Street veteran who has closely studied the cryptocurrency field, as chairman of the U.S. Securities and Exchange Commission. TAKEAWAY: This is very good news for the crypto industry. Gensler has experience in capital markets, academia and public administration. He served as chairman of the U.S. Commodity Futures Trading Commission (CFTC), as a key financial regulator for former President Obama, and in the Treasury Department during the Clinton administration. More recently, he taught a blockchain and crypto assets course at MIT, has spoken at several crypto conferences, and even penned an op-ed for us in 2019. Gensler sees blockchain as a “catalyst for change,” and seems to have a nuanced understanding of how crypto assets work and the impact they can have on capital markets. This nomination is likely to rekindle the market’s expectation that a bitcoin ETF will get approved this year.  (See former CFTC official Jeff Bandman’s take on the reported nomination here.)

Crypto custodian Anchorage has secured conditional approval for a national trust charter from the U.S. Office of the Comptroller of the Currency (OCC), making it the first national “digital asset bank” in the U.S. TAKEAWAY: The U.S. now has three crypto-native banks, up from precisely zero just a few months ago (crypto exchange Kraken was awarded a special purpose depository institution – SPDI – charter by the state of Wyoming last September, and crypto bank Avanti got one a month later). There are notable differences between the three that are worth pointing out. As a national trust, Anchorage cannot accept deposits, which means that it does not automatically get access to the Fed discount window and payment system. It does, however, make Anchorage a Qualified Custodian under U.S. Securities and Exchange Commission (SEC) rules, and adds another crypto piece to the regulated financial institution puzzle. The more “authorized” financial companies there are in the crypto industry, the greater the level of institutional trust.

New York-based crypto exchange Bakkt, backed by NYSE parent ICE, will become a publicly listed company via a merger with a special purpose acquisition company (SPAC) sponsored by Victory Park Capital. TAKEAWAY: The expected valuation is $2.1 billion, for a pre-product, pre-revenue business. According to a presentation by the Bakkt team to the SEC, the firm expects the size of the cryptocurrency market to reach $3 trillion in 2025 – in other words, it will more than triple in five years. 

Gemini Trust, the cryptocurrency exchange and custodian founded by twins Tyler and Cameron Winklevoss, could soon go public, according to a Bloomberg report. TAKEAWAY: It looks like 2020 will see a number of crypto market infrastructure companies go public. There’s Bakkt mentioned above, and other rumored possibilities are Coinbase, BlockFi, eToro, and I’m probably missing a couple. This is great news for us analysts, as we’re excited about getting a look at detailed financials for some of the largest platforms in the industry. It’s also good news for the industry, as these listings are likely to attract mainstream investor attention, as well as give investors an alternative path to cryptocurrency exposure.

Over $3 billion flowed into the products of crypto asset manager Grayscale Investments in Q4 2020, according to its latest report (Grayscale is owned by DCG, also the parent of CoinDesk). Over 90% of this came from institutional investors, mainly asset managers. TAKEAWAY: The report also showed that the Q4 inflows accounted for almost 60% of the year’s total, in spite of most of its funds being closed to new investment for the last 10 days of the year, which highlights the acceleration of institutional interest in crypto assets. Furthermore, the weight of institutional inflow in the mix was notably higher in Q4 vs. the year as a whole. Almost 90% of inflows went into the firm’s bitcoin trust GBTC.

Source: Grayscale Investments

Grayscale has reopened some of the funds it closed to new investment in December of last year, including the bitcoin trust (GBTC) and the digital large cap fund (GDLC). TAKEAWAY: Since Grayscale was responsible for much of the bitcoin purchases in the fourth quarter last year, the reopening could be taken as good news for the market – a buyer that had temporarily left is coming back in.


A prospectus for a new bitcoin exchange-traded fund (ETF) has been filed by Arxnovum Investments Inc. with the Ontario Securities Commission (OSC) in Canada. TAKEAWAY: With renewed attention on a potential bitcoin ETF approval in the U.S., the OSC’s actions here could set a precedent – a bitcoin ETF trading on a neighbouring stock exchange could kindle the competitive spirit and help the SEC realize that other jurisdictions are leading the way in financial innovation; on the other hand, a rejection by the OSC could send a signal to the SEC that there’s no hurry.

3iq Corp’s bitcoin fund, listed as QBTC.U on the Toronto Stock Exchange, has reached over CA$1 billion (US$785 million) in market capitalization. TAKEAWAY: This level of growth in an exchange-trade fund that was originally listed in Toronto in April of last year, and on the Gibraltar Stock Exchange in September, underscores the demand for listed bitcoin vehicles.

The bitcoin exchange-traded product BTCE, which started trading on Deutsche Börse’s Xetra exchange in June 2020, now also trades on Swiss stock exchange SIX. TAKEAWAY: The Financial Times reported this week that, BTCE’s daily trading volumes on Xetra averaged €57 million in the first 11 days of January, up from a daily average in December of €15.5 million, which points to surging demand in Europe for listed bitcoin products. The SIX listing takes the number of ETPs trading on the Swiss exchange up to 34, and, according to the exchange, turnover in cryptocurrency products reached CHF 1.1 billion ($1.24 billion) in 2020. This is still tiny in the overall picture (the exchange reported 2020 turnover of over CHF 1.7 trillion, or almost $2 trillion), but if BTCE’s trend on Xetra is anything to go by, that figure is likely to substantially higher in 2021.

The number of financial advisers allocating crypto to client portfolios reached almost 10% in 2020, an increase of almost 50% compared to 2019. TAKEAWAY: This is according to a recent survey carried out by crypto fund manager Bitwise and financial media site ETF Trends (you can see the full report on our Research Hub), which got input from almost 1,000 registered financial advisers. 81% of whom reported that they had received a question from a client about crypto in the past 12 months. This highlights the imperative for financial advisers to at least be able to answer questions about crypto assets – they are doing a disservice to their clients if they can’t, and dismissing something because it’s not easy to understand goes against the ethics of the profession.

Crypto trading platform CrossTower is launching a capital markets desk for institutional clients. TAKEAWAY: This encapsulates two trends we’ve been seeing build up over the past year: 1) the emergence of institutional-grade crypto market services, which widens choice and deepens the comfort level of institutional investors in the crypto markets, and 2) the bundling of crypto-related services and the gradual consolidation of the industry into a few firms that do many things, prime broker-style. Expanding from its spot exchange and over-the-counter (OTC) trading desk, CrossTower now offers digital asset lending, trade financing, structured products and trade execution across multiple venues.

Digital asset manager NYDIG – which earlier this week announced the acquisition of crypto data firm Digital Assets Data – is partnering with banking technology provider Moven to offer plugins for banks that want to launch bitcoin products. TAKEAWAY: This is yet another indication that traditional financial institutions are gearing up to enter the crypto asset market, either through custody services, trading platforms, payments or a combination thereof. In an online survey of more than 2,000 U.S. consumers shared exclusively with CoinDesk, NYDIG found that 80% of bitcoin holders would move their crypto to a bank if it had secure storage. Of those same holders, 71% would switch their primary bank account if a bank offered bitcoin-related products and 81% would be interested in buying bitcoin through their bank.

Asset management firm Arca has closed a $10 million Series A round of funding led by RRE Ventures. TAKEAWAY: Arca is one of the more innovative crypto fund managers in the industry. Not only does it manage its crypto fund, but it is also pushing the envelope in terms of financial products and fund management. In 2019, it filed a prospectus with the Securities and Exchange Commission (SEC) Friday for a bond fund whose shares would be tokenized on the ethereum blockchain. In 2020, it championed the concept of “tokenholder activism,” pushing decentralized exchange and prediction market platform Gnosis to stick to its original mission or return funds to investors. It will be interesting to see what it does with the funds raised in the latest round.

This report by Bloomberg on the Arctic’s first bitcoin mining facility not only has gorgeous photos; it also reminds us that bitcoin does not just exist in cyberspace, and it is not a pure technology play. It has an industrial side, too. TAKEAWAY: The report also reminds us that the heavy power consumption of bitcoin mining is not an industry-killer, as many early critics insisted it would be.

Speaking of mining, Minnesota-based Compute North and New York-based Foundry Digital (owned by DCG, also the parent of CoinDesk) have partnered to provide a “turnkey” hosted mining solution which allows investors to purchase hosted machines through either company. TAKEAWAY: This is a step towards turning bitcoin mining into an investment option with fewer barriers (such as finding a location, buying the machines, etc.). It could also serve as the basis for other types of financial products, such as mining-based collateral and hedging derivatives. Crypto investing is not just about buying an asset and watching the price move.

Babel Finance is letting bitcoin mining firms put up their machines as loan collateral in exchange for significantly better lending terms than those offered for crypto asset collateral. TAKEAWAY: This offers a glimpse at the growing sophistication of the mining industry in China, and the emergence of leveraged operations. On the one hand, more leverage means more risk. On the other hand, leverage will allow for faster industry growth, which leads to even more secure blockchain networks, which leads to more financial inflows, and so on in a virtuous circle.

The venture arm of U.S. cryptocurrency exchange Coinbase participated in the seed round of mining software and services company Titan, which in December announced what will reportedly be the first enterprise-grade bitcoin mining pool in North America. TAKEAWAY: This echoes the trend mentioned above of crypto mining facilities being packaged as investment opportunities, and Coinbase’s endorsement of the potential makes it an even more intriguing area to watch.

Las Vegas-based bitcoin mining company Marathon Patent Group (MARA) has entered into a securities purchase agreement with institutional investors for the registered offering of 12.5 million shares of common stock at $20 per share, to raise $250 million. TAKEAWAY: CEO Merrick Okamoto told CoinDesk in an email he intends to use the funds to, among other things, purchase more mining machines and expand facilities amid the ongoing “arms race” as manufacturers struggle to keep pace with demand. The increased activity in “mining as a business” is largely attributable to the rising bitcoin price, which directly affects mining profitability. It also has to do with the growing sophistication we mentioned above, with advances in mining technology that are impacting the economics, and with the growing global competition, which is good for the industry as a whole.

Panama-based crypto derivatives exchange Deribit, the largest options exchange in the industry, has already recorded approximately 25% of last year’s entire bitcoin options trading volume. TAKEAWAY: This is astonishing growth that underlines the market’s growing maturity. The growth is not limited to Deribit, although it is consolidating its position as segment leader. Open interest (OI) across all crypto options exchanges has exploded from just over $520 million a year ago (16% of the OI of bitcoin futures) to over $8.3 billion (66% of the OI of bitcoin futures!) today.


Bitcoin miners selling their holdings is often used to explain market dips, and this week was no different – but the data doesn’t support that theory. TAKEAWAY: The transparency of on-chain data allows us to track outflows from known bitcoin miner addresses to known exchange addresses. This shows that miner outflows to exchanges have been trending down. True, this doesn’t catch off-exchange activity, and the overall balance at mining addresses is down to early 2020 levels, according to the data. But accounts from mining pools support the conclusion that miners are more likely to be selling fewer BTC into the rally, rather than dumping and causing the price to fall.



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Crypto Long & Short: Traditional and Crypto Markets are Starting to Converge

One of the fun things about jigsaw puzzles, for those of you that haven’t tried them, is the satisfying snap of pieces fitting together to reveal part of a picture. Another is watching the whole picture emerge as more pieces join.

In July of last year, the U.S. Office of the Comptroller of the Currency (OCC) said that national banks could custody crypto assets. That was a pretty big deal, as, should national banks start to offer this service, investors could in theory ask their habitual institution to custody all their holdings, be they stocks, bonds or crypto. So much easier. A major barrier to crypto investment removed.

In September, the OCC said that they could provide services to stablecoin issuers, such as holding reserves. Banks had been doing this for some time, but in an uncertain regulatory environment. Now they had official approval to do so. Stablecoins backed one-to-one by fiat held in bank reserves are not deemed a risk in one of the most regulated industries in the U.S.

And then this week, the federal banking regulator published an interpretive letter saying that national banks and federal savings associations can use public blockchains to store and validate payments. It effectively awards blockchains the status of “payment network.”

Do you see the picture emerging? It’s not just about expanding the range of products banks can offer clients. It’s not just about offering better payment services. It’s about the convergence between traditional and crypto markets. It’s also about the role of the dollar in the economies of tomorrow.

Look closer

Let’s look at why this emerging picture is worth paying attention to:

  1. It is good news for crypto markets: a nudge to traditional banks to offer support for blockchain infrastructure and even facilitate crypto transactions. This makes crypto investments easier for traditional investors, which will bring more money into the industry, which will encourage more infrastructure development, and so on in a virtuous circle that will end up offering opportunity to an ever-wider user base. If investors can pay for crypto assets with stablecoins issued by their bank, through their bank, and have the assets automatically dropped into their bank custody account, then why not put part of your portfolio in a systemic hedge instrument? Barriers are removed.
  2. It is good for traditional markets, as it is likely to encourage the emergence of a new type of lower-cost and more transparent settlement system. In spite of substantial improvement over the past decade or so, traditional settlement is still hampered by reconciliation needs. Using stablecoins does not necessarily fix this (the issues are more legal than technological), but it does open the door to an alternative process which may be worth deeper investigation and which may tie in with a future market of tokenized traditional assets, new types of assets that we have not yet even begun to design, and everything in between.
  3. It is good for the banking sector, potentially opening the door to new types of financial products as well as payment and collateral services. With banking margins squeezed by ever-onerous compliance costs and low interest rates which are unlikely to increase any time soon, the need to diversify revenue streams and extract more value from existing clients is becoming increasingly imperative for a systemically important part of our economy.
  4. It is good for financial innovation. Banks can use stablecoins, but they can also issue them, potentially with bells and whistles and functionalities attached. JPM Coin, issued by investment bank JPMorgan, is now live and used to make global wholesale payments. Others will follow, each with its own functionality and target customer base. And if they become interoperable, we’ll have a swarm of programmable tokens that can boost liquidity in previously overlooked economic segments while lowering costs for, as well as encouraging, new types of transactions.
  5. It is good for liquidity. Apart from the potential diversity within and use cases for programmable stablecoins mentioned above, more crypto dollars sloshing around a system that allows for interchangeable settlement tokens is likely to allow for better optimization of capital.
  6. It is good for the global economy. More efficient cross-border settlements will be good for trade, lowering the costs of documentation and compliance and maybe finally giving blockchain supply chain and trade finance apps the transactional piece they’ve been missing. Better payment systems boost economic activity.
  7. It is good for the dollar. With the U.S. leading the charge on this, it is likely that dollar-backed stablecoins will become the de facto global settlement token, further consolidating the dollar’s hegemony. More dependence on the dollar could make the global economy more vulnerable, especially with a limitless supply of the currency flooding the market. But blockchain-based systems allow for the rapid iteration of payment token innovation, and human ingenuity is likely to find a way to compensate for weaknesses and vulnerabilities when necessary.

A quiet transformation

The jigsaw puzzle metaphor I introduced at the beginning reminds me of one of my favorite philosophies: “Just when you think you have life’s puzzle all figured out, someone hands you another piece.”

The crypto markets are like that. Just when you think you understand the potential impact of bitcoin and other decentralized value tokens, you find out that this story is not just about a new type of market. It’s also about traditional markets and how they evolve.

While there are many hurdles yet to overcome, and many more pieces of legislation and regulatory guidance needed, we are getting a glimpse of what the finance of tomorrow could look like. And blockchains and crypto assets play a meaningful role in the emerging picture, which depicts so much more than rising prices and portfolio allocations – it sketches a new way of transacting, something that eventually will affect all of us. 

Anyone know what’s going on yet?

Everyone knows that all bubbles pop when a needle appears on the scene. It’s hard to imagine anything as messy and noisy as an insurrection being compared to something as small and sharp as a needle, so let’s mix metaphors and go with the sudden appearance of a “bump in the road.”

But that didn’t happen – the main U.S. stock markets continued to go up, and call options saw their fourth highest volume day on record. So, either traditional U.S. markets are not in a bubble, or we have not yet had that bump.

Yet, if it’s not 10-year yields edging over 1% for the first time since March … If it’s not a greater likelihood of corporate tax increases or antitrust legislation … If it’s not, heck, the realization that political polarization has pushed faith in the democratic process to a generational low, then what will that bump look like? I shudder to think.

The optimist in me likes to think that the strength of the market in the face of greater political turmoil than I’ve ever seen, demonstrates unbending trust that the U.S. democratic institutions will hold, no matter what. That’s touching. But it doesn’t feel true.

To confuse things further, crypto assets also had an extraordinary week, with BTC and ETH throwing up returns of over 34% and 60% respectively.

(Yes, I know that all three columns in the above chart are the same – it’s the way the dates worked out. This coincidence is just yet another detail that makes this week particularly weird.)

What makes this confusing from a traditional investment point of view is that bitcoin is a good hedge against “crazy,” and things were definitely crazy this week. But the stock market is telling us that everything is fine.

And it’s not that crypto assets and stocks are becoming more correlated. The 30-day correlation (not useful from an investment point of view, but a handy narrative device) between BTC and the S&P 500 has turned negative for the first time since last February.

As I type, the BTC price is again flirting with $40,000, double what it was three weeks ago. Could this also be a bubble?

The difference between the movements in BTC and ETH is that they have strong fundamental drivers behind them. These include the multiple “bumps in the road” that we referred to above, and the growing awareness from institutional investors that these assets were designed to operate separately from the traditional economy, with different incentives and accounting mechanisms.

That said, a short-term correction from these levels would not be surprising (although demand may be such that it doesn’t happen). And if traditional markets crash, it is likely we will see crypto assets head down as well in the rush to liquidity. But, looking further ahead, the underlying fundamentals have never been stronger.

(Now is a good time to remind you that nothing in this newsletter is ever investment advice.)


Investors talking:

· The Stone Ridge investor letter is a must-read – one of the most eloquent and insightful (not to mention amusing and moving) pieces I’ve read in a long time, on the nature of money and why bitcoin matters.

· Investor Bill Miller, whose flagship mutual fund in 2020 beat the S&P 500 Index for the straight second year, said he believes bitcoin could replace cash and markets are underpricing inflation risk. And then there’s this: “Warren Buffett famously called bitcoin rat poison. He may well be right. Bitcoin could be rat poison, and the rat could be cash.”

· He also pointed out, in a separate interview, that bitcoin “gets less risky the higher it goes.”

· Skybridge Capital, the hedge-fund investing firm headed by Anthony Scaramucci, confirmed its launch of a new bitcoin fund Monday and said its exposure to bitcoin has already reached $310 million.

· According to Michael Sonnenshein, former Managing Director and now CEO of digital asset manager Grayscale Investments (owned by DCG, also the parent of CoinDesk), a broader range of institutional investors, including pensions and endowments, is starting to participate in the company’s crypto asset funds.

· This is the best quote I’ve seen on why even skeptics should be investing in bitcoin, via Lionel Laurent and Mark Gilbert in Bloomberg: “Bitcoin is the perfect vehicle for exploiting mankind’s infinite stupidity,” says Julian Rimmer, a sales trader at Investec Plc. “A small percentage of one’s portfolio must be held in this ‘asset’ because gullibility never goes out of fashion.”

· JPMorgan’s Global Markets Strategy team has published a note that puts a long-term theoretical price target on BTC of $146,000, assuming BTC’s volatility converges to that of gold.

· Merryn Somerset Webb, editor-in-chief of MoneyWeek, said in an op-ed for the Financial Times that she will put some money into bitcoin, but confesses that her “go-to inflation hedge will remain gold for the simple reason that it isn’t new.”


The CFA Institute Research Foundation, part of the global association for investment professionals, has published a 64-page guide to crypto asset investing. “Cryptoassets: The Guide to Bitcoin, Blockchain, and Cryptocurrency for Investment Professionals” was written by Matt Hougan and David Lawant, respectively CIO and analyst at crypto fund manager Bitwise. TAKEAWAY: This publication is significant since the CFA Institute is a respected source of continuing fund management education. Their promotion of a guide not only validates cryptocurrencies and tokens as worth considering for portfolios; it also puts a well-written and thorough information document in front of the association’s almost 200,000 members.

Cryptocurrency exchange Bakkt, backed by NYSE parent Intercontinental Exchange (ICE), is in advanced talks to go public via a merger with special purpose acquisition company (SPAC) VPC Impact Acquisition Holdings, according to Bloomberg. TAKEAWAY: That the first large crypto SPAC is an infrastructure play highlights the difference between now and 2017. Back then it was about shiny new tokens and “decentralized protocols.” Now infrastructure dominates new funding.

The Chicago Mercantile Exchange (CME) is now the largest bitcoin futures exchange in terms of open interest in the world. TAKEAWAY: This is indicative of the growth of institutional interest in crypto markets – the CME is one of the few U.S.-regulated crypto derivatives exchanges, and is therefore the venue for most U.S. institutional activity in bitcoin futures. The growth is spectacular, given that the exchange started Q4 in fifth place (see our Quarterly Review for more on this.)


Bitwise Asset Management revealed that its AUM has increased five-fold to $500 million, up from $100 million reported in late Octobers. TAKEAWAY: More evidence, if any was needed, of growing institutional interest. Most of the increase came from the multi-asset fund, which shows that investors are starting to think beyond bitcoin.

Crypto custodian BitGo has expanded its Wrapped Bitcoin (WBTC) project, which converts bitcoin into an Ethereum-based token, to the Tron network. Previously only available on the Ethereum network, WBTC converts bitcoin into a bitcoin-backed token on a different blockchain. BitGo has also enabled Wrapped Ether (WETH) on Tron. TAKEAWAY: This expands the yield potential of BTC, as well as its potential attractiveness to professional investors. WBTC tracks the value of BTC, but can also be used in decentralized finance applications, some of which offer yields of over 10%.

The ban announced in October by the U.K’s Financial Conduct Authority (FCA) on the sale of derivatives and exchange-traded notes (ETNs) to retail investors went into effect this week. TAKEAWAY: This is unlikely to have a material impact initially as professional investors can still access these products, and retail investors can still buy crypto assets. It is a clear indication, however, of how much investment independence the FCA thinks retail investors should have, even with ample information.

The spread between the six-month implied volatility for ETH and BTC has risen to a record high of 46%. TAKEAWAY: This tells us that the market is expecting higher volatility for ETH relative to BTC, which in a bull market implies higher returns.


You might have seen that CoinDesk (yes, us) has acquired TradeBlock, the industry’s leading crypto index provider. TAKEAWAY: This gives us access to deeper data sets on market movements, as well as robust indices for crypto asset prices. It will also allow us to better serve the professional investor audience, combining information, insight and data.



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Crypto Long & Short: Bitcoin Is More Than a Hedge Against Inflation – It’s a Hedge Against ‘Crazy’

As the year that felt like a decade on speed starts to draw to a welcome close, some of us are starting to try to make sense of the timeline of narratives and events. Most of us (myself included) are failing. And that in itself is an intriguing narrative, that sheds light on bitcoin’s rally.

Bear with me while I try to explain.

On the one hand, we have a rapid rise in the bitcoin price, and coalescing institutional support from traditional investors and companies that see potential in crypto assets and markets.

On the other hand, we have conflicting economic and social trends. We have blind faith in the power of vaccines combined with rejection of the science of virus transmission; monetary policy designed to encourage lending combined with banks that are unwilling to do so; growing interest in the value of emerging markets combined with escalating risk of default; widening inequality combined with greater power of protest; I could go on …

These conflicting forces and the uncertainty swirling around them should encourage us to look closely at prevailing narratives. Yet those of us watching the growing institutional interest in bitcoin markets have accepted without question the assumption that bitcoin’s inflation hedge qualities are behind it.

Let’s pick that apart.

The deflation debate

First, let’s look at another pair of conflicting economic trends.

Most economists seem to believe that a resurgence of inflation is unlikely. Depressed consumption and excess supply, the continuing impact of technology and demographic shifts, the low velocity of money and the weak labor market are just some of the factors they point to. These have already led to deflation in some key economic areas.

The bond market, on the other hand, tells us that inflation concerns are real. The five-year breakeven rate, a proxy for inflation expectations calculated by taking the difference between five-year U.S. Treasurys and Treasury Inflation-Protected Securities, is close to its five-year high.

5-year breakeven inflation rate

Source: Federal Reserve of St. Louis

What’s more, the yield curve continues to steepen, signaling expectations of higher interest rates in the future as central banks tackle a looming inflation problem. Taking into account the damage rising interest rates would do to debt-laden economies, this is the bond market telling us that they see trouble ahead.

Yield curve (10-year minus 2-year Treasury yields)

Source: Federal Reserve of St. Louis

An inflation hedge

But does that really matter for bitcoin?

Bitcoin is seen as an inflation hedge mainly because of its limited supply, which is not influenced by its price, and because of its relative attractiveness when real yields head to zero or lower.

Yet when you buy bitcoin, you’re not just doing so to hedge inflation. You’re buying bitcoin to hedge all the other negative consequences that usually accompany it.

True, inflation is not always bad. “Good” inflation, a result of economic growth and low unemployment that helps to close the gap between supply and demand, encourages investment and even more economic growth.

Runaway inflation, however, exacerbates poverty, heightens uncertainty, demolishes trust in institutions and can lead to the breakdown of social order. This is not isolated to post-WWI Germany – we see it today in Venezuela, Zimbabwe, Lebanon and Argentina, to name just a few.

Bitcoin is also a hedge for unstable governments that close bank accounts, police states that want to seize private wealth, broken payments rails due to corrupted systems or outside cyber attack threats, paranoid leaders that want to disenfranchise opponents, export-protecting devaluations that trigger more inflation …

These are less likely in developed economies. But let’s not forget that tipping points lurk around unexpected corners, and that Venezuela was once one of the wealthiest countries in the world and one of the more stable democracies in Latin America.

Bitcoin is a hedge against inflation, but also against political instability and social disruption, which – if inflation comes roaring back – is not a ridiculous thing to prepare for.

A dollar debasement hedge

Bitcoin is also a hedge against a more gentle but just as pernicious debasement of currency through a loss of trust.

Traditionally, inflation moves in tandem with the strength of the local economy. But it can be triggered by currency weakness, which raises the prices of imported goods.

This is usually corrected when the central bank raises interest rates to combat rising inflation, which increases the attractiveness of the currency compared to others.

But in the current environment, an increase in interest rates may have the opposite effect, given the potentially catastrophic impact on debt-ridden economies. The U.S. bond market is telling us that it thinks interest rates will rise. The dollar continues to head lower, however, and could continue to do so even if those rate increases materialize, as faith in the capacity of the U.S. to employ traditional tools to good effect could be shaken.

And, most bitcoin trading is denominated in dollars. Therefore, if the dollar heads lower without a corresponding fall in the value of bitcoin (and since it’s unrelated to the economy, there’s no fundamental reason why it would), the BTC/USD ratio heads up.

Bitcoin is a hedge for not just the macroeconomic ills that we have been trained to watch out for. It can also provide ballast against the unforeseen problems waiting to be triggered.

The ‘crazy’ thesis

This highlights another hidden strength of bitcoin as an investment asset.

It is unlike any asset that we have seen before: programmatic supply, decentralized governance, fragmented market infrastructure that runs on technology developed by an unknown entity yet maintained by miners, developers and validators distributed across many geographies.

It doesn’t fit into standard economic thinking – and for that reason, it is perfect for our times.

In a world where you’ve gone from orthodox monetary policy to Keynesian economics to MMT in a few months, there is no longer any trust in the traditional recipes.

To paraphrase G. K. Chesterton, when you stop believing in traditional recipes, your mind is more open to new ones.

Bitcoin in portfolios represents more than a new recipe. It represents the need for a new recipe. It represents a safety play against a world in which old ideas are up in the air, and new ones have yet to take root.

It represents more than a hedge against inflation: it also represents an acceptance that politics and economics can get weird, and that untested ideas that are untethered to macroeconomic features and past assumptions are worth considering.

It represents a hedge against “crazy,” which is hopefully not what awaits us – but the risk of not preparing for that possibility is verging on irresponsible, and not even thinking about it is likely to end up being prohibitively expensive.

Anyone know what’s going on yet?

The outperformance of bitcoin in 2020 has to set up the asset for even more professional investor attention next year, even though we all know that past performance is not an indicator of future performance. Or is it? The momentum trade seems to be the predominant strategy this year, and given the amount of money sloshing around markets looking for a good return, there is no indication that will end soon.

Then again, all bull markets have to end some time, although the underlying fundamentals and investment theses of bitcoin do not get worse with vaccine disappointments and worse-than-expected economic figures – unlike with stock and bond markets.


Investors talking:

· Scott Minerd, CIO of fund manager Guggenheim Partners, which manages more than $230 billion worth of assets, told Bloomberg TV hosts this week that his firm’s fundamental analysis shows that bitcoin should be worth $400,000. This conclusion is based on the asset’s scarcity, and its relative value to gold as a percentage of gross domestic product. He also revealed that Guggenheim had started allocating to bitcoin when it was trading at around $10,000.

· U.K.-based fund manager Ruffer Investment Company has invested approximately $740 million in bitcoin, equivalent to around 2.7% of the firm’s assets under management. According to the company, the investment was “primarily a protective move for portfolios” to “act as a hedge” against “some of the risks that we see in a fragile monetary system and distorted financial markets.” Ruffer is known in investment circles as a conservative manager focused on capital preservation. It had the top-performing active fund in Europe for Jan-June 2020: the LF Ruffer Gold Fund produced a six-month performance of over 55%. And now it’s investing in bitcoin. Ruffer has spoken often in the past about its inflation concerns. This investment makes me want to check in on other active managers worried about inflation – their ranks are growing.

· One River Asset Management, a $1 billion hedge fund (as of April 2020) specializing in volatility plays, has invested $600 million in bitcoin and ether for institutional clients (including Ruffer, which owns a stake in the company) via its subsidiary One River Digital Asset Management. CEO Eric Peters told Bloomberg that One River Digital’s crypto holdings will cross $1 billion in early 2021. Brevan Howard Asset Management co-founder Alan Howard is taking an ownership stake in One River Digital and helping to provide the company with back-end trading services.

· Christopher Wood, global head of equity strategy at investment firm Jefferies, has trimmed the recommended exposure in his model global portfolio from 50% gold in favor of bitcoin. This is even more notable given that this particular portfolio is designed with U.S. pension funds in mind. What’s more, he has said that he plans to increase exposure to bitcoin should there be a correction.

· Jeff Currie, head of commodities research at Goldman Sachs, told Bloomberg that bitcoin was a “retail inflation hedge,” and a risk-on growth proxy.

· Not an endorsement, but an interesting and potentially useful thread prompted by tech investor Andrew Wilkinson, co-founder of Tiny Capital.

In market developments:

U.S.-based crypto asset exchange Coinbase has filed preliminary documents with the U.S. Securities and Exchange Commission (SEC) to go public. The Form S-1 is expected to become effective after the SEC completes its review process, subject to market and other conditions. TAKEAWAY: Here we go … This will create by far the largest listed company in the crypto industry, and has been rumored for some time. As well as attracting even more attention to crypto markets, it is likely to kick off a slate of crypto-related listings, especially given the recent price movements and the swelling of institutional interest. What I’m most excited about, apart from seeing how the market values a systemic crypto market infrastructure business, is getting a look at their balance sheet and P&L.

Cboe Global Markets will launch a suite of crypto market tools in 2021 in a licensing partnership with execution provider CoinRoutes, including cryptocurrency indexes, historical data and real-time ticks. TAKEAWAY: Cboe operates the largest options exchange in the U.S. Coming from a traditional market infrastructure player, this deal signals support for the nascent asset group, and points to the introduction of new crypto services and products over the coming years. S&P also recently revealed crypto index plans, and other market data providers are likely to join the race to capture crypto data market share.

The Chicago Mercantile Exchange (CME) will launch a futures contract on ether (ETH) in February 2021. TAKEAWAY: This goes a long way towards validating ETH as a potentially institutional-grade investment. The lack of liquid ETH derivatives for institutional investors has dampened hedging opportunities, and the removal of these barriers could encourage more professional investors to at least consider its merits.

Advisory company Evercore has named PayPal as its top payments stock, in part because it believes that the firm’s cryptocurrency services could be good for customer engagement and transaction margin. TAKEAWAY: This not only encourages investors to consider companies that are launching crypto asset services; it also encourages more companies to offer crypto asset services, because who doesn’t want investors looking at them?

Sovryn, a self-billed “decentralized platform for trading and lending Bitcoin,” has launched on the Bitcoin sidechain RSK, with $2.1 million in funding. TAKEAWAY: There’s a lot of debate about whether Bitcoin could ever be used for smart contracts. This is a reminder that the jury is still out, and technological progress is pretty good at showing that what many think is impossible is not that impossible after all. If the range of applications that can be built on Bitcoin broadens, that could boost its potential value.

SBI Financial Services, the subsidiary of Japanese tech conglomerate SBI Holdings, has acquired U.K.-based cryptocurrency OTC desk B2C2. TAKEAWAY: This is another example of legacy finance leveraging crypto asset services to broaden its client base, and to sell more to existing clients.

Banca Generali, an Italian private bank that focuses on wealth management for high net worth individuals, is leading a $14 million investment round in crypto wallet provider Conio, with an agreement to offer Conio’s services to the bank’s clients. TAKEAWAY: Yet another legacy bank gears up to offer crypto asset services to its clients. We will see a lot more of this in 2021.

You have banks building or buying crypto asset services, and you also have crypto firms trying to become banks. Crypto payments firm BitPay has filed to become a national bank in the U.S., headquartered in Georgia. TAKEAWAY: By becoming a national bank, BitPay will be able to operate in all U.S. states, while its non-bank competitors will need to get money transmitter licenses in each state they wish to operate in. This confers an operational advantage, and also a strategic advantage in that clients could prefer the additional scrutiny borne by national trust banks, compared to firms that don’t have a national bank license.

Speaking of crypto firms hoping to become banks, crypto asset platform Paxos (which last week filed to become a federally regulated bank) has raised $142 million in a Series C round. TAKEAWAY: Paxos is emerging as a key player in the developing crypto market infrastructure: as well as a crypto exchange itBit, it is building a full-stack infrastructure service that includes custody, tokenized securities, stablecoins and more. It powers PayPal’s new bitcoin offering, and also counts Credit Suisse, Société Générale and Revolut among its clients. (Paxos’ founder, Charles Cascarilla, was named one of CoinDesk’s Most Influential for 2020.) With this amount of funding, it will be interesting to see which of their many services they choose to build out more, or whether they will be adding new market tools to the mix.



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Bitcoin (BTC) $ 41,923.23 4.19%
Ethereum (ETH) $ 2,252.69 1.86%
Litecoin (LTC) $ 73.44 0.90%
Bitcoin Cash (BCH) $ 250.36 8.80%