08 Feb 2021
Digital assets market continued to consolidate, with consistent uptick from BTC towards the $40,000 resistance level, and new all-time highs in Ethereum, fuelled by DeFi and in anticipation of Monday’s CME ETH futures listing.
Crypto market capitalisation also breached the trillion dollar mark, and DeFi’s total value locked (“TLV”) increased to a new record high of US$ 35.2bn. With Bitcoin free float at just 13% of supply (lowest since 2014, Chart 1), low stablecoin supply ratio (ratio of total value of all bitcoins vs. stablecoins, Chart 2) despite high Bitcoin price, and Bitcoin and Ethereum inflows to exchanges lower, short term market conditions seem supportive. DeFi tokens’ outperformance does look bubbly and could weigh down on Ethereum if the sector turns bearish, but with healthy correction seen since last Thursday, we continue to stay bullish. Besides, anticipation of Coinbase IPO with projected valuation of US$ 50bn+ may be supporting DEX token prices (Chart 3).
Narrative also remains positive, with greater clarity in sovereign regulations in Switzerland and Singapore, and continued institutional interest. Switzerland’s so-called “blockchain law” came into effect on Monday, and now lets tokenized securities trade on a blockchain with the same legal standing as traditional assets. And in Singapore, SDAX (Singapore DigiAssets Exchange) received regulatory approval from MAS to launch tokenised asset exchange. Rather than trading digital assets in the form of crypto assets, SDAX aims to use blockchain technology to trade tokenised versions of traditional financial assets, such as “digitised debt, equity, and hybrid instruments”. Regulatory uncertainty has been one of main obstacles to growth of securitised tokens (“STOs”) and non-fungible tokens (“NFTs”), and now with such issues being resolved in progressive jurisdictions like Singapore and Switzerland, the next step would be to raise awareness of the product so as to increase adoption.
On the macro side, risk made a comeback with major US equity benchmarks reaching new record highs, as US$1.9 trillion fiscal stimulus plans and vaccine progress sparked optimism, and Gamestop-induced deleveraging stopped. Short squeeze in Reddit’s wallstreebet’s BANG stocks (Blackberry, AMC, Nokia, Gamestop) unwound and the stock prices made an Eiffel-tower-formation. Reflation continues to be the name of the game, with bear steepening of yield curve and 5-year breakeven rates at an 8-year high.
What is Happening?
Visa CEO revealed plans on cryptocurrencies across their payment network during earnings call, saying he wished to make them both easier to purchase and integrate them as a means of transaction across their payment network — albeit with the latter role seemingly reserved for stablecoins. Visa is currently conducting a digital asset pilot program and have partnered with Neobank First Boulevard and digital asset bank Anchorage.
Mayor of Miami is considering giving city employees the options to get paid in Bitcoin. In a bid to expand Miami’s bitcoin-friendly nature, he is reportedly considering 3 paths: 1. To give city employees the opportunity to receive their salaries in bitcoin, 2. To allow accepting of Bitcoin and other cryptocurrency payments for local fees and taxes, and 3. To allocate city’s treasury capital into bitcoin.
Macro and narrative backdrop continues to be supportive of risk assets and crypto. However, it is also worth noting the level of complacency baked in the market. We advocate doing exhaustive due diligence before investing in a token while actively managing the portfolio to identify the diamond in the rough within the digital assets ecosystem. We continue to like Bitcoin and Ethereum which makes up the bulk of our portfolio followed by a basket of growth/Defi tokens (including Litecoin, Link, Polkadot and Kusama).