Source: TradingView, CNBC, Bloomberg, Messari
How Crypto Usage and Asset Management Will Evolve
We’ve been writing “That’s Our Two Satoshis” for over 7 years. Naturally, some of our write-ups have been good, some bad, some in between. I believe what our team
wrote last week regarding new market cap standards is one of the best we’ve ever written, and I hope everyone takes the time to read it.
This past week was another dull trading week in the crypto market, and in traditional asset classes, though those lines are blurring more and more every week. In fact, almost ALL of the digital asset news last week, and over the past month, affected the equity market more than the crypto market directly, such as:
- Circle upsizes IPO, prices at high end of price talk, and trades up almost 1000% in two weeks
- Public companies bought more crypto:
- MSTR bought another $1.8 billion in BTC
- Metaplanet bought $550 million in BTC
- French listed “The Blockchain Group” bought $70 million in Bitcoin
- SharpLink Gaming bought $463 million in ETH
- Anthony Pompliano announced a $1 billion reverse merger with CCCM, and raised $750 million to buy BTC
- The GENIUS Stablecoin Bill passed the Senate and moved to the House
- Robinhood (HOOD) launched tokenized stocks on Arbitrum
- JP Morgan announced plans to offer borrowing against crypto ETFs
- Gemini filed an S-1 ahead of an IPO, and Bullish, Kraken and others are seemingly on the horizon as well
- Polymarket, a blockchain-based prediction market, is reportedly closing an equity round at a $1 billion valuation.
- Robinhood (HOOD) and Coinbase (COIN) announced the launch of perpetual futures for crypto trading
These are, of course, positive developments, but it feels very far removed from the old crypto news we used to discuss, like new token launches, product growth, usage metrics, and new sectors emerging. Which begs the question I’ve posed many times to our investors and our reading audience:
“Is crypto even an asset class? Or is it just a wrapper that will eventually house all asset classes?”
I think digital assets are pretty clearly still a separate asset class today, because tokens issued by Layer-1 protocols, DeFi, NFTs and even some DePIN assets are pretty unique, and really not represented anywhere else outside of digital assets. Therefore, it's still safe to consider crypto an asset class for the time being. However, investor interest in all these token types is waning, and the investable universe of tokens isn’t growing significantly. Instead, new capital looking to enter the industry is going:
- Directly into BTC and ETH ETFs
- Into tokenized assets (traditional debt, equity and real estate issued via an asset-backed token on blockchain rails)
- Into equity shells containing certain crypto assets (like MSTR and other Digital Asset Trading companies)
- Into the public equities of companies serving the industry (COIN, GLXY, HOOD, CRCL, etc).
As more and more capital flows into other areas of crypto instead of into crypto itself, it muddies the waters of the asset class. Even BTC and USD stablecoins, arguably the biggest and most well-known areas of crypto, are really part of other asset classes (BTC is either a commodity or a currency, and stablecoins are really just cash or Treasury debt). So again, the lines are really blurry.
Even though Arca is an asset manager in the digital assets industry, I’ve often speculated that calling ourselves a “crypto fund” will sound as foolish one day as someone who says they manage an “ETF fund”... the ETF itself means nothing; what is inside the ETF matters most. Said another way, the ETF is a wrapper just like crypto is a wrapper, and it will no longer be descriptive in and of itself.
So what does that mean for the future of asset management in crypto? How can a crypto-native skillset add alpha in a blended, homogeneous crypto world? Well, a few areas come to mind where crypto-native folks still appear to have an upper hand:
- Crypto-native investors have, to date, had some advantages in trading crypto equities over equity fund managers, as we track volumes and on-chain data in ways that equity managers do not. As such, this often gives us insights into changes in revenues and earnings far faster than the Street. This advantage is likely to last only temporarily, but it is real, and on-chain data has consistently proven to be more accurate than the Street’s estimates over the last several quarters.
- Crypto-native investors have access to certain tokens that the general public has not been able to access, either due to custody issues or exchange connectivity issues. Hyperliquid (HYPE) is a recent example where it was clear that this was an incredibly well-designed token from a high-revenue-producing issuer; however, many were shut out due to an inability to buy it directly on Hyperliquid’s exchange.
- Airdrops, farming, and other on-chain-native uses of blockchain rails can still add value as a fund manager compared to what is available to the masses. There are still numerous areas in crypto where holding assets on-chain and testing new and unproven protocols can yield higher returns than simply holding proxies via the equity market.
- New token issuance is on the rise, and these launches will go to crypto-native investors. For example, Pump.fun is reportedly issuing a token in the near future, which could be as hot an allocation as the CRCL IPO was to equity mutual funds. Similarly, Plasma (a high-performance Layer-1 built specifically for stablecoins) is launching its token soon. Still, the only way to participate in this token launch was to deposit stablecoins into the Plasma vault on Ethereum via the Plasma website. The allocation of Plasma (XPL) tokens is determined by a time-weighted share of total vault deposits (earlier and longer deposits earn more “units,” where 1 unit = 1 XPL token). These types of opportunities will still separate crypto-native investors from other investors dabbling in crypto.
The point is that crypto-native investors have been evolving and adapting for almost a decade, and that trend is unlikely to stop, even as a new wave of TradFi products and investors takes center stage. However, we are currently seeing a clear bifurcation in “crypto investing,” as the generic term can now encompass a wide range of meanings. I heard last week that all asset classes, including crypto, are now higher YTD, and that, of course, is ridiculous since every crypto index is negative YTD, as are most tokens, even as BTC and a handful of crypto stocks are meaningfully higher YTD. What “crypto” means to one person is almost assuredly different from what it means to someone else, given there are now so many different ways to invest in some portion of the crypto markets.
And that isn’t a bad thing… but it is a much different world than how this all started.
