The Great Unlock
12 July 2021
Digital assets market remained cautious ahead of a few key risk events, and continued to trade range-bound. There has been much talk about Grayscale BTC Trust (‘GBTC’) unlock which begins in earnest today and peaks next Monday (Chart 1).
The unlock represents 6.5% of total outstanding shares, but it is also worth noting that GBTC is still a very retail vehicle, with institutional holders accounting for only ~12% of total outstanding shares. In last quarter (Q1’21), large institutional names like BlockFi sold big chunks of GBTC shares in response to the launch of multiple Canadian ETFs (BlockFi, for example, sold 16.3mio shares of GBTC, or ~15k BTC), driving GBTC premium to collapse (Chart 2); this round of unlock will probably see unlocks from names like BlockFi and Ark Invest.
Ark’s unlock is less of a concern given their holdings are for their ETFs; BlockFi’s unlock could further widen GBTC discount, but the impact on spot bitcoin might be positive given they would buy spot to cover their selling of GBTC. Furthermore, many instis have been/would be holding off selling given current discount of >10%, which would be enough to wipe out their 6m futures carry from 6 months ago. On the ether side, London hard fork is scheduled to be on Aug 4th, 2021, and Sygnum Bank became the first bank to offer ETH2 staking service, but these did little to stem ETHBTC from sliding down from 0.069 to 0.0627. Elsewhere, NFT-related tokens saw idiosyncratic move higher, as $AXS saw record number of players and protocol revenue.
Other notable developments last week were 2 crypto companies announcing plans to merge with SPACs to gain access to broader capital markets; Bullish, a unit of Block.one planning to launch a crypto exchange, is targeting US$ 9bn valuation, while Circle, firm behind USDC stablecoin, is targeting a $4.5bn valuation. Many have expressed skepticism on Bullish’s number given their $9bn valuation implies $3bn valuation for an exchange that has not been built yet (+ $6bn worth of crypto/cash). The SPAC is led by former NYSE president, and it has US$300mio committed private investment from EFM Asset Management, BlackRock, and Galaxy Digital.
On the macro side, steep decline in US Treasury yields, with 10s hitting near 5-month low on Thursday, drove broader risk markets. Equity investors welcomed the decline, and large-caps and growth outperformed. Earnings season begins in earnest this week, with JPM kick-starting bank earnings today. Analysts are expecting biggest quarterly earnings growth rate in a decade, and project 2Q earnings for S&P 500 companies to jump an average of 69%. Aside from that, market is looking at the spread of delta variant of the coronavirus, and whether it would translate to further lock-down.
What is Happening?
Marshall Wace plans to invest in the crypto sector. The hedge fund, with US$ 55bn in assets under management, is said to be interested in acquiring stakes in crypto companies that are at a late stage in their development. The team will be headed out of Asia, and and will target investments in sectors such as blockchain technology, payments systems for digital currencies and stablecoins; Marshall Wace previously made investments in Circle. This marks the latest in hedge funds entering the space from trading and/or investing perspectives; Intertrust’s survey last month of 100 hedge fund CFOs with average AUM of US$ 7.2bn found that executives expected to hold an average of 7.2% of their assets in cryptocurrencies in 5 years’ time.
Coincover secures $9.2mio in Series A funding. The company is a technology platform with insurance protection underwritten by Lloyd’s. The fundraising was led by Element Ventures, with participation from DRW Venture Capital, Susquehanna Private Equity Investments and CMT Digital.
We think that the two aforementioned uncertainties in the bitcoin and ether market (GBTC unlock, London hard fork potential delay) are not significant, but with range-bound market and lack of clear narrative driving bullish/bearish sentiments, they have caused participants to de-risk, and could move the market further. As such, we remain lightly positioned. Nonetheless, it is refreshing to see tokens with strong fundamentals, such as Axie Infinity and Synthetix rally and believe this is positive for the long-term health of the digital asset investment space.