Improving Collateral and the Excitement Behind NFTs

IN THIS PUBLICATION:

• Bitcoin is exiting exchanges at the highest pace ever.
• Stablecoins are increasingly being used as collateral for crypto derivatives (instead of BTC), which is decreasing volatility in crypto markets.
• The NFT market, whilst currently very heated and potentially in a bubble, is opening up a universe of new opportunities that are likely positive in the long term.

Recent Developments

• The first official day of BTC’s experiment as legal tender in El Salvador last week was welcomed with an unexpected flash crash. It’s fundamentally unclear what led to the correction - research houses like Delphi Digital primarily attribute it to a liquidity collapse rather than excessive leverage, whilst others flagged DDoS attacks by bad actors exacerbated the move.
• Elsewhere, Panama, Cuba, and Ukraine have all been progressing towards implementing Bitcoin into their legislative framework. Whilst not Tier 1 economies, we believe the majority of Bitcoin experiments will be made in economies of smaller scale and scope, so this progression is worth keeping an eye on.
• Brevan Howard, one of Europe’s largest hedge funds with $7 billion of AUM, has set up a new digital assets unit (read crypto), whilst Point 72’s Steve Cohen is reportedly investing in crypto quant trading firms.
• Visa bought a CyptoPunk for $150,000 joining the NFT party (NFT-related tokens currently have a +$20bn market cap). The US payments company has a history of buying commerce artifacts, so one should not see this transaction as a game-changer… but still.
• Union Investment, a $500 billion German Asset Manager, will be adding Bitcoin up to a maximum of 2% of its total assets. Crypto Blitzkrieg – you heard it here first.
• MicroStrategy continued its BTC purchases, with an additional $242 million purchase announcement earlier this week. They currently own 114,000 BTC, for which they paid a total price of $3.16 billion (average price of $27,713 per BTC), a “paper profit” of almost $2 billion (63% ROI).
• Coinbase’s CEO Brian Armstrong and the SEC have been going head-to-head over crypto lending. Whilst Brian’s tweets make for great headlines, we wonder if Coinbase IPO investors share the same enthusiasm, especially after a 25% drop in price since floating (and now trading below IPO price of $250).

Market Fundamentals

• September has historically been the worst month of the year price-wise for BTC, but it also tends to mark the end of summer’s weakness towards Q4, a quarter that has made us accustomed to very strong performances (we also said that of Q2… and look what happened).

• Bitcoin is currently exiting centralized exchanges at the highest pace ever. As a reminder, this is usually seen as a bullish indicator given that it likely means fewer investors are interested in trading their holdings.