CRYPTO’S SECOND WAVE: A POINT BREAK?

Wednesday, February 3, 2021

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”

With this headline, Satoshi kicked off a conversation about the nature of money. Because few people – ourselves included – have the mental fortitude to dig into money supply dynamics, the impact of crypto is distilled to one primary signal: BTC/USD.

The bailout of a few mortgage-punting banks sparked crypto’s first wave, which saw its peak in 2017, with Bitcoin reaching $20k before plummeting >50% in a matter of weeks. What many had hoped to be the perfect pipeline ended up being a scammer-filled wipeout.

The COVID-19 pandemic and government-led monetary interventions have acted as a point break revealing crypto’s second wave.

With Bitcoin topping 2017s all-time-highs decisively, we want to answer some key questions:

  1. Which narratives are helping crypto sustain its momentum?
  2. Which new players are riding this wave?
  3. How should investors be aiming to capture best conditions?

VIRAL NARRATIVES: WHAT DOES CRYPTO REPRESENT?

Q: “This bitcoin thing — is it a virus, a drug, or a religion?” 

A: “What’s the difference?” – Naval Ravikant

In digital labs, cypherpunks experimented until they finally merged money with their utopia of “code is law”. Ever since Bitcoin’s whitepaper release into the wild, crypto advocates and critics have been challenging one another, causing an ecosystem layered with narratives. 

Ironically, crypto’s first wave ended because there was little narrative consensus. Too many mutations – and forks – took place, culminating in the 2017 hype of there being a blockchain to tackle any and every problem.

Living through a pandemic is making us ask – what can we vaccinate against?

While crypto narratives spread like a virus, the narratives that are strongest in crypto’s second wave, and have caused a resurgence to new all time highs are the ones built around immunity:

  • Digital Gold (Bitcoin): Immunity against inflation, and fiat-debasement because of QE
  • Decentralized Finance (Ethereum): Immunity against asset seizures, trading halts (vis-a-vis Robinhood and wallstreetbets), etc.


If financial risk management is an exercise in choosing the best mediums for protection, then crypto is a drug that can give meaningful protection to inflation and give people upside to a new financial system.

So is crypto a virus, a drug, or a religion? What’s the difference…

NEW CARRIERS: MACRO FUND AND FINTECH SURFERS

“I am not a hard-money nor a crypto nut” – Paul Tudor Jones

Soundbytes by macro fund legends on CNBC, $310k BTC predictions by Citi, and the Financial Times ceding ground, are signs that the second wave of crypto is being amplified by a new group – “the institutions”.

On the buy-side of the institutional spectrum are macro funds like Paul Tudor Jones, long-only funds, and a handful of pioneering company treasuries. On the sell-side, fintech companies such as Paypal and Square offer crypto and invest in the ecosystem while the Goldmans and JPMs are busy assembling their 5-layer “Digital Assets” teams (emphasis on omission of “crypto”).

*Bitcoin buy-data from Casebitcoin.com

While the volumes bought by the “institutions” are still just a rounding error, the prospect of a 10x – or dare we say – 100x return on investment and future bragging rights, brings participants with legitimacy and best practices to a market infatuated by anon accounts and coins named after dog-memes.

CROWDED CRYPTO TRADES*

“If you want the ultimate, you’ve got to be willing to pay the ultimate price.” – Bodhi (Point Break)

Good trades, like good waves, get crowded. The mantra of don’t buy what you don’t understand is more important than ever. The big wave surfers of institutional crypto, ride the pipeline of Bitcoin’s momentum, hedge their initial investments with the right tools and reap the gains. The n00b bodyboarders see Bitcoin at $40k, think it’s “too expensive”, pile in Ripple, and get crushed. 

However, stupidity and recklessness are not beholden to retail investors. We’ve taken the liberty to simplify the consensus trades by investor type below:

BEWARE THE REEF OF REGULATORS

“(Bitcoin) is a highly speculative asset, which has conducted some funny business” – Christine Lagarde

While Lagarde and heads of state only seem to care about the “dangers” of crypto when the price goes parabolic, the actual deeds by regulators seem more pragmatic and show awareness of everything happening in the crypto space.

Nonetheless, the following topics are likely to fill the timesheets of regulators, lobbyists and crypto-lawyers busy for the foreseeable future:

  • Stablecoin regulation
  • KYC of non-custodial wallets
  • Limits on crypto derivatives trading
  • ICO-style crackdown on DeFi tokens
  • The elusive Bitcoin ETF (wen?)

With the influx of institutional players, the discussions could become very different from the ones in the previous cycle. Will regulators be the gnarly reef crushing the industry’s momentum, or will they eventually will push crypto’s second wave even higher?

Hang loose, HODLers, we’ll find out soon enough!

The TokenData Team

Crypto M&A: 1H20 Update

Wednesday, August 19, 2020

What follows is a short summary of our research report about M&A activity in the cryptocurrency space. The full version can be downloaded for free:

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1H20 Deal Flow

42 acquisitions involving cryptocurrency and blockchain companies have taken place in the first half of 2020. At the start of the year, our industry survey had a majority of participants forecast a significant pick-up during 2020. While deal activity in Q1 was promising, we’ve seen a pull-back in Q2. Nonetheless, activity is on track to match 2019 despite the Covid-19 crisis. 

Click to enlarge

We estimate that deal value in the first half of 2020 has already matched 2019. The main reason for this increase is the re-emergence of large nine-figure transactions, mostly absent in 2019. The best example is the $300-400M acquisition of CoinMarketCap by Binance

Click to enlarge

Crypto Exchanges & Decentralized M&A

Exchanges and other trading-related companies were the most active strategic buyers in the first half of 2020.

Moreover, while we have not seen an actual case of “Decentralized M&A” yet, there have been deals involving protocols and ICO-funded teams.

Download the full report for an in-depth analysis on these topics.

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