Tailwind from Traditional Institutions
22 Mar 2021
Crypto markets took a breather as Bitcoin retraced from new alltime highs last Saturday and spent the week consolidating. Rest of the crypto complex continues to be mixed; Ethereum continued to struggle as chasm between miners and the rest shows no sign of narrowing. Miners have proposed EIP-3368 which seeks to increase the Ethereum block reward from 2 ETH to 3 ETH, and then taper the reward block-by-block to 1 ETH over 2 years. Cardano (ADA) outperformed as it finally managed to be listed on Coinbase, and other outperformers included Theta Network (THETA), Terra (LUNA; fueled by launch of Anchor Network, a money markets architecture that aims to offer more stable interest rates) and Kusama (KSM). Going forward, there will be a record $6.1bn expiry in Bitcoin options (106.6k BTC notional) this Friday, and with Bitcoin looking rather peakish, it is worth being cautious. However, on-chain data shows that proportion of circulating supply younger than 6 months still remains at 35.9%, which is far less than 50% or more which preceded blow-off top peaks (Chart 1).
And with long-term holders of Bitcoin (>155 days) still having a much larger share of profit (Chart 2), Bitcoin is still in structurally ‘safe’ position.
Traditional finance players continued to dip their toes in (or dunk in) cryptocurrencies/blockchain ecosystem as the virtuous cycle of increasing institutional participation & adoption of Bitcoin leading to de-risking of Bitcoin continued. Following news of investment in NYDIG last week, Morgan Stanley made the news again by becoming the first big U.S. bank to offer its wealthy clients access to 3 bitcoin funds, including 2 from Galaxy Digital and 1 from NYDIG. Morgan Stanley is also reportedly bidding for Bithumb, a Korean cryptocurrency exchange, at a $2 billion valuation. On the ETF front, the first Bitcoin ETF in Canada reached CAD $1bn, and SEC publishes VanEck’s Bitcoin ETF application, formally kicking off its 45-day window to make an initial decision on the proposal.
On the macro side, traditional markets spent most of the time waiting for Wednesday’s FOMC statement for further guidance of long-term interest rates, and details on how the Fed would react to the recent acceleration of pickup in long-term bond yields. Fed’s projections showed an upgrade to short-term growth (4.2% -> 6.5% growth this year) and unemployment (5% -> 4.5% by end of this year) forecasts, with greater inflation readings (core PCE inflation 1.8% -> 2.2% this year) now expected in the short-term driven by $1.9 trillion stimulus package and vaccine roleout. However, the paths for interest rates were kept the same, and officials signalled that they expect to keep interest rates close to zero until at least 2024. Several European countries have also instituted new lockdown restrictions, with others considering tightening their rules, as COVID-19 case counts in Europe rose, and dampened risk appetite.
What is Happening?
Hong Kong-listed tech firm Meitu buys another $50mio worth of Ethereum and Bitcoin. Following purchase of $40mio of Ethereum and Bitcoin (15,000 ETH for $22.1mio and 379.1 BTC at $17.9mio) earlier this month, Meitu bought additional 16,000 Ethereum (aggregate price of $28.4mio) and 386.085 BTC (aggregate price of $21.6mio). Since the announcement of the first clip of cryptocurrency purchase on 3/7/2020, Meitu’s stock (Ticker: 1357) has risen by more than +20%.
Following halting GBTC inflows earlier this month, Grayscale announced they would be launching 5 new crypto investment trusts, allowing investors to gain exposure to Basic Attention Token (BAT), Chainlink (LINK), Filecoin (FIL), Decentraland (MANA), and Livepeer (LPT). This round of launch seems to be focused on Web 3.0, with BAT (token for the Brave browser’s advertising network) and LINK (decentralized oracle network); and FIL (P2P file storage system), MANA (virtual world), LPT (token-powered live video broadcasting) are DCG portfolio companies.
Despite poor March seasonality, Bitcoin and the broader crypto market has, thus far held up strongly with tailwinds from institutional participation. The broader market seems hopeful for April, a historically strong month (in fact, the strongest month of all).