What happened this week in the Crypto markets?
- BTC found its narrative again, and reacted exactly as a safe-haven asset should respond to the Iran news.
- Sports are going to be a huge part of blockchain growth; tokenizing NBA contracts is just the beginning in the crypto market.
- If the Nasdaq at all-time highs has taught us anything, it’s “don’t bet against technology”. Beyond Bitcoin is a whole slew of technological innovations that are utilizing blockchain (and investable tokens).
Bitcoin Reacted Exactly as a Safe Haven Should React to the Iran News
For six months, ever since the Facebook/Libra euphoria wore off, the crypto market has patiently awaited a new catalyst. This past week, Bitcoin may have gotten one unintentionally, but it was enough to send Bitcoin 9% higher week-over-week (now +14% YTD).
Historically, BTC has reacted to some (but not all) global macro events. When BTC has reacted, there is often a lag between the news and the price move, because while most investors can trade gold, US Treasuries, stocks, and oil all at the same brokerage account, they cannot do the same with BTC. Every Wall Street trading algo is setup to react instantaneously to news with gold, bonds, and stocks, but an entirely different workflow, and different algos, and even different players, are needed to trade BTC. This is only exacerbated further by different trading hours for BTC compared to other asset classes. Therefore, there are usually timing differences even if the same news drives the results.
In the Iran case this past week, however, Bitcoin’s price reacted almost instantaneously to the news, both up (upon the killing of Soleimani and again on Iran’s retaliation) and down (upon the de-escalation). This is a very encouraging sign for Bitcoin. It means every non-crypto investor has to pay closer attention to BTC. Further, investors can now believe with confidence that BTC is an uncorrelated long-term asset, but can still act as a VIX/Oil/Gold substitute in the short-run. As the BTC playbook expands, it will lead to more overall interest.
Graph of Gold, Oil and BTC
Why is this important? Recall 2011-2012, when many smart investors expected a double-dip recession and were preparing for multiple European bank failures. Their playbook? Buy gold, buy the VIX, buy Spain/Italy CDS and/or short stocks -- none of these ideas worked. In fact, they were disastrous trades. But these same investors can now buy BTC because it carries the same "world is ending" upside, but also comes with tech upside in case the economy (or multiples) expand further. It’s a true “Win/Win” investment.
Further, it’s worth noting that the Iran news happened after US market hours. That means a majority of fund managers had little to no chance to react to the news in real-time, as it is quite difficult to buy/sell anything in size with deep enough liquidity after hours. Bitcoin may be the most liquid asset class around the clock that allows you to hedge and take risk real-time. In fact, most of Bitcoin’s largest gains these past few weeks have occurred outside of normal U.S. trading hours, exemplifying the benefits of 24/7/365 liquidity when turmoil strikes.
Sports and Digital Assets - the Ultimate Fan Engagement
Spencer Dinwiddie, an NBA player for the Brooklyn Nets, announced that his company, DreamFanShares/SD8, will this week begin the sale of a tokenized bond offering loosely backed by Dinwiddie's NBA contract, dubbed PAInTs (Professional Athlete Investment Tokens).
Regardless of the specifics of this investment, this is an enormous opportunity for the potential collaboration between sports and digital assets. This litmus test has the potential to shape the future of player/fan interactions as well as investment opportunities in the sports industry's digital assets (recall, sports is Prediction #2 in our 2020 crypto outlook).
We’ve argued at length that the biggest fallacy of Digital Assets is the word “Cryptocurrency” itself. The terminology needs to change, because most of the growth in digital assets will have nothing to do with what most people think of when they hear the word “currency”. Bitcoin is a currency; most other digital assets are not. Sports tokens are not currencies, and will likely be the easiest non-currency example for new investors and adopters to wrap their hands around, as it will represent what Blockchain is truly for. Blockchain is to “asset transfer” what the internet was to “communication transfer”.
Live game and fan experiences will be enhanced greatly by blockchain - the teams/leagues/players will gain more information about their fans, while simultaneously giving fans a better overall experience. This includes:
- Ride-sharing to games/events (Uber/Lyft will likely tie digital payments to tickets soon)
- Vendor payments (tying your fan purchases to your identity)
- Crypto collectibles (MLB Crypto)
- Fan loyalty programs and voting on team decisions (Juventus)
- And of course Mr. Dinwiddie’s NBA contract token (with many more like this to come)
Perhaps the most interesting example is the tickets themselves. From Axios:
Tickets were once mementos, collected like photographs and saved in scrapbooks. They are now barcodes on our phones — convenient and impossible to lose yet completely forgotten about the moment they're scanned.
According to Seatgeak, in 2012, 7% of tickets were purchased on mobile devices compared to 93% on desktops. In 2019, it was 68% mobile / 32% desktop. With so many professional and college sports teams going fully digital, the in-stadium experience could eventually revolve around the digital ticket.
Armed with seat numbers and real-time data like digital wallet transactions and geolocation, teams can and will personalize experiences and promotions for individual fans.
Sports are going to have a big impact on digital asset usage, and the investment opportunities available today, including Spencer Dinwiddie’s bond offering, are just the beginning.
The Nasdaq at All-time Highs Reminds us Not to Bet Against Technology
With the Nasdaq at all time highs, it’s a good time to remind everyone not to bet against technology. The irony of course is the same people who made their living betting on companies with zero intrinsic value on the Nasdaq from 2000-2020 are often the same people who don't understand how to (or don't have the means to) invest in digital assets.
“The areas that technology has disrupted have seen plummeting prices. We can see this visually, if we compare the number of different pieces of hardware replaced by a single iPhone. We can see this quantitatively, if we compare the cost of browsing Wikipedia or Spotify to the equivalent in physical encyclopedias or compact disks. And we can see this visually if we compare the long-term trajectory of costs in the sectors technology has touched (televisions, software, phones) to those it has not yet disrupted (education, healthcare).”
Quite simply, technology creates growth curves that are unmatchable, and there are countless examples of just how fast a new technology can disrupt an incumbent product once it hits its “Malcolm Gladwell Tipping Point”.
Investors take leaps of faith on projected growth all the time, as long as they can make that bet using a format or investment vehicle that they are familiar with (i.e. stock certificates). But if you let the format of the investment scare you, you may end up being as short-sighted as this guy.
Notable Movers and Shakers
The tide has shifted, with many alternative digital assets outperforming Bitcoin last week. While Bitcoin dominance remained flat, high caps set the pace for the market - something that has not been the case since last September. Some tokens and coins moved based on actual news, while others moved without an obvious reason:
- Bitcoin forks (BCH, BSV, BTG, BCD) all significantly outperformed last week (12%, 41%, 22%,16%). While there is no concrete event to explain three of them, BSV moved as a result of Craig Wright submitting a third “Tulip Trust” document to the court in the ongoing Wright vs. Kleiman case, in which Wright is attempting to force the heirs of Dave Kleiman to repay the 1.1M Bitcoin that was supposedly entered into a trust (to be paid out 1/1/2020). It is worth noting that the two previous submissions to the court were thrown out due to falsified documents (perjurious testimony, fraud), and this third submission is currently hidden from the public due to a supposed NDA between Wright and an undisclosed third party. It is reasonable to treat all the Bitcoin forks as a basket, which would explain the correlated move higher on this news, which BSV supporters seem to be celebrating prematurely.
- Chainlink (LINK) made the rounds Tuesday as Ethereum founder Vitalik Buterin affirmed a theoretical possibility that Ethereum 2.0 could use Chainlink oracles via ZKtech rollups to reach up to 160k transactions per second (TPS). On Thursday, the Aave Oracle network integrated with Chainlink and went live. This is seen as a big step for decentralized finance (DeFi), as Aave is “the first lending protocol to leverage off-chain pricing data for calculating lending rates using a decentralized network of price oracles.” The network effect Chainlink continues to have (integration with quite a list of projects) has been fruitful for the pick-and-shovel style digital asset, which posted gains of 24.5% on the week.
What We’re Reading this Week
After the escalation of tensions between the US and Iran caused Bitcoin’s price to surge 6%, stories began circulating that Bitcoin was selling for $24,000 on a peer-to-peer exchange, LocalBitcoins in Iran. The news probably drove some of the price appreciation with the narrative of Bitcoin as a “safe haven” asset returning. However, many failed to research this massive price discrepancy further. The prices on LocalBitcoins are quoted in the Iranian rial, however, the country’s observed exchange rate to USD is actually about three times that quoted by the central bank, leading many to believe that Bitcoin was going for $24k in rials when it fact it was trading closely to the market value everywhere else.
The report from Fidelity’s digital asset arm examines the notable developments made in Bitcoin last year covering infrastructure developments and metrics. Bitcoin’s metrics last year surpassed any other year with hashrate, addresses and transactions reaching new all time highs, indicating that Bitcoin’s network is gaining adoption and wider spread usage.
In an interview, Christine Lagarde, President of the European Central Bank (ECB), made note that the ECB wants to take a more active role in developing Central Bank Digital Currencies (CBDC) which is quite a departure from comments Lagarde made last year. She reiterated that the ECB does not want to stand in the way of innovation from private enterprises but wants them to grow alongside CBDCs. The ECB’s comments and formation of a cryptocurrency working group could signal that a CBDC could be coming for the eurozone.
According to the Fourth Industrial Revolution, a South Korean government group, Bitcoin should be listed on a Korea Exchange (KRX). In addition, the group has recommended allowing the trading of crypto derivatives, instituting crypto business licenses and guidelines for exchanges stating that it “no longer possible to stop crypto-asset trade.” The country currently allows institutional investors to purchase crypto from OTC dealers, however, has not supported retail adoption to date. The country is increasingly interested in cryptocurrency and regulating its activities, which will hopefully be a boon for adoption.
According to Coindesk, yes this is a real thing. The company, MY Sardines, is reportedly raising an Initial Coin Offer (ICO) backed by cans of vintage sardines. The company will reportedly account for its stock of cans and issue a token equal to the current value of one can of sardines. The tokens are expected to appreciate 20% in value over one year, however, they cannot be redeemed for cash. The company’s co-founder and CEO has stated “It’s an investment [that’s] really safe….there’s no speculation,” as the tokens are backed by actual sardines, which regulators are apparently comfortable with.
And That’s Our Two Satoshis!
Thanks for reading everyone!
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The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Katie Talati - Head of Research
Hassan Bassiri, CFA - PM / Analyst
Sasha Fleyshman - Trader
Wes Hansen - Head of Trading & Operations
To learn more or talk to us about investing in digital assets and cryptocurrency