15 Feb 2021
Tesla became the first major Fortune 500 company to diversify its balance sheet into BTC and also accept it as a mode of payment; expectations of future mass adoption, with Tesla’s US$ 1.5bn purchase of Bitcoin, BNY Mellon’s plan to offer crypto custody later this year, and Mastercard’s plan to support crypto on Mastercard network later this year, drove Bitcoin price to a new ATH of $49,700. The first two weeks of January did see record levels of bitcoin received by whales (those holding > 1,000 bitcoin each, Chart 1), suggesting Tesla was buying them.
This also coincides with the timeline of Musk changing his Twitter bio to #bitcoin from 29 January to 4 February, 2021, and filling before shilling. The cryptocurrency industry is hopeful that Tesla’s move would provide signalling effect for more F500 companies to follow suit. As institutional investors increasingly diversify their portfolio holdings to digital assets, it is crucial to identify their flow of funds. Ethereum has also been attracting institutional inflows. According to Coinshares, last week saw nearly US$ 200mio of inflow (or 80% of total inflows) into Ether investment products ahead of CME Ethereum futures launch. And addresses holding large amounts of ETH are starting to show similar growth to addresses holding large amounts of BTC (Chart 2).
In the alts space, BNB and legacy coins, such as Litecoin, Bitcoin Cash, EOS, Monero, etc., led the rally. Regarding BNB, while Binance Smart Chain (BSC) is a more centralised solution relative to other prominent layer 1s, superior utility due to cheaper and faster transaction fees and brand recognition is driving the price rally, with DeFi TVL on BSC up ~US$ 4.2bn in the past 30 days (Chart 3) driven by PancakeSwap and Venus.
On the macro side, risk marched on and major stock indices finished modestly positive for the week on strong earnings growth, accelerating coronavirus vaccines rollout, and increasing likelihood of additional fiscal stimulus. Currently, ~11% of US population has been vaccinated with at least one dose, and the government announced plans to purchase an additional 200 million vaccines. In other economic news, inflation and jobs data came in below expectations, as growth stalled and continuing claims remain significantly higher than pre-COVID levels, but this did little to stem risk rally, as market focused on broad vaccine uptake and expectations in return to pre-COVID normality.
What is Happening?
Bank of New York Mellon, the world’s largest custodian bank, has revealed it will start rolling out cryptocurrency custody service, and allow cryptocurrencies to pass through the same financial network it currently uses for traditional holdings like Treasuries and equities. BNYM cited “growing client demand for digital assets … and improving regulatory clarity” as reasons for extending their service offerings. Aside from custody solutions, BNYM is also “looking at issuing digital assets, like tokenized secu rities, real assets”.
Mastercard announced digital asset integration with payment infrastructure, following on from Visa and PayPal. Mastercard will begin supporting a select group of digital currencies directly on their network, rather than existing partnerships with firms like Wirex or Bitpay where crypto assets would be converted to cash before sending onto Mastercard’s payment system. Mastercard says it has been active in the space for some time, with 89 blockchain patents granted, alongside “actively engaging with several major central banks around the world, as they review plans to launch new digital currencies, dubbed CBDCs, to offer their citizens a new way to pay”.
Canada’s securities regulator, the Ontario Securities Commission (OSC), approved the first publicly traded bitcoin ETF in North America. And in the US, SEC Commissioner Hester Pierce believes that the likelihood of a Bitcoin ETP in the United States has substantially increased after all ETF proposals were rejected in the previous administration.
Macro and narrative backdrop continues to be extremely supportive of risk assets and crypto prices in general. We continue to advocate investors to stay long and be selective in choosing the right tokens for their digital assets portfolio.