$2 Trillion Market Cap
12 Apr 2021
Digital asset market achieved a $2tn total market cap milestone, fuelled by rallies in alt-coins. Bitcoin dominance fell to multiyear lows and now stands at 54.2% (Chart 1) as Bitcoin price remained rangebound.
This week saw good rally for exchange tokens ($BNB, +50%; $FTT, +25%) as we head towards Coinbase IPO on Wednesday and for last cycle’s top alt-coins ($XRP, +115%; $LTC, +26%; $XLM, +37%; $BCH, +23%).
Market continued to see convergence of traditional finance with digital assets. Digital asset investment products saw record quarter inflows in Q1’21 ($4.5bn) vs. $3.9bn in Q4’20 led by inflows in Purpose Investment’s Bitcoin ETF and ETC Issuance’s Physical Bitcoin ETC (Chart 2);
Morgan Stanley filed with the SEC to allow Bitcoin exposure to 12 of its investment funds in the form of either cash-settled futures or GBTC; Tudor Family Fund II acquired direct exposure to Bitcoin through custodians Coinbase and Bakkt, and MicroStrategy bought 253 additional bitcoins, bringing its total holdings to 91,579. This cycle has definitely seen expansion of digital assets offerings, and increased institutional participation across both digital assets and their ecosystem. Coinbase’s IPO ($COIN) this Wednesday would further be a good gauge of institutional interest and sentiment towards digital assets. Although forward guidance and growth expectations would affect the valuation multiple greatly, market chatters of $70bn+ valuation (currently trades at $130bn valuation on FTX); $COIN would be a good opportunity for investors to get exposure to broader crypto adoption without taking on crypto market risk.
The outperformance in alts and resurgence of Kimchi premium (Chart 3) have resulted in some market participants wondering whether this is the beginning of the end.
However compared to previous cycles, digital assets enjoy stronger institutional participation and thus are more systematically important. Hence, we are not too worried about those two developments, and if anything, hope to profit from trading them.
On the macro side, it was a rather quiet week as market followed the path of least resistance; major benchmarks moved higher towed by the economic recovery outlook and positive jobs report (NFP +916k vs. Est. 660k), with S&P 500 finishing at 4,128 and posting a 2.7% gain for the week, and 10% gain YTD. This number already exceeds the average 4,099 year-end price target amongst 11 surveyed Wall Street strategist. Q1’21 earnings season start next week, and with strong year-on-year earnings expected next week, and treasury yields relatively under control, we could see another leg higher in risk assets.
What is Happening?
Grayscale Investments announced its intention to convert Grayscale Bitcoin Trust (GBTC) into an ETF. GBTC is currently the largest BTC investment product in the world with $37bn AUM, and has been a popular vehicle for institutions to gain bitcoin exposure without touching the physical underlying. However, GBTC has been trading at a discount to its NAV since March due to bitcoin’s range-bound price and bitcoin ETF approvals in Canada. We believe Grayscale products could prove a systemic risk to broader bitcoin price given the popularity and size of Grayscale arbitrage trades; bulk of GBTC unlock starts this week (4/14) for around 3 months (7/20) and Satori Research continues to closely observe the impact of the unlock on spot and funding market.
Fidelity, Square, Coinbase launched Crypto Council for Innovation, a bitcoin trade group that aims to shape the way bitcoin and other cryptocurrencies are regulated. The organization will lobby policy makers, take up research projects, and serve as the industry’s voice in championing the economic benefits of digital currencies and related technologies.
Q2’21 kicked off with a positive note for digital assets and risk assets in general. Buoyed by favorable seasonality and price action on our tailwind, we continue to trade from the bullish side. Most major crypto technically looking very BULLISH. However, we are a bit wary of the short-term overstretched nature of exchange tokens (specifically BNB, last at 570) We maintain our bullish view but warrant some technical profit-taking, perhaps after Coinbase IPO this Wednesday.