Bitcoin and DeFi breaking into the mainstream
Where to start…? While most traditional sectors and asset classes took a breather during the end of year holidays, the digital asset markets have shown no such signs of slowing.
On the contrary, the final weeks of 2020 (and first weeks of 2021, for that matter) were marked by an accelerated entry of institutions into the cryptoasset space, starting with bitcoin, as outlined in the figure below (source: Kaiko).
With industry analysts estimating that PayPal and Square’s user base alone accounts for enough demand to absorb 100% of newly minted bitcoin (see here), the supply-demand dynamics skewed towards a supply crunch, and pushed the price of bitcoin up to an all-time high of $41.6k on the 8th of January, up from just below $20k at the beginning of December. While the price has since shown some volatility (sharp ~25% correction driven by (1) $2.9bn liquidations, (2) profit-taking and (3) USD rallying), it has since stabilized in the $34-38k range, and most notably, ownership metrics point to increased adoption as there are almost 85k addresses with at least $1m in bitcoin and almost 15 million bitcoin in addresses with at least $1m in bitcoin, as evidenced in the chart below (source: CoinMetrics).
While bitcoin continues to push adoption of cryptoassets beyond retail and towards institutions and enterprises, we also note that stablecoins and decentralized finance continue to rapidly break into the mainstream as well. The past couple of weeks saw major developments, with the US Office of the Comptroller of the Currency (OCC) authorizing banks to facilitate payments in stablecoins and penning an OpEd in the Financial Times that looks at the future of finance and opportunities of DeFi (see here, or summary in the regulatory section below). While our view has long been that a new monetary and capital markets / financial system is being built on top of public blockchains, the pace of adoption and regulatory embrace in recent weeks has exceeded even the most bullish expectations.
We believe 2021 will be an extremely exciting year for blockchain technology and digital assets (notably with Bakkt, Coinbase and BlockFi’s pending public market debuts), and continue to be excited about cryptoassets’ growing adoption, DeFi and stablecoins’ rapid growth, but also in other areas of the space such as crypto-native credit, the ownership economy and social tokens, gaming and digital art, just to name a few.
For more details on the recent weeks’ news flow, we outline key events below in our usual structure. Happy reading!
I. Enterprises & Institutions
Bitcoin’s price could cross $146,000, say JPMorgan strategists
JPMorgan strategists believe that bitcoin has the potential to reach $146,000 in the medium to long term as it competes as an asset class with gold. However, the outlook depends on the volatility of bitcoin converging with that of gold as it will encourage more institutional investment, a process that will take some time according to the note.
Goldman Sachs analyst believes that Bitcoin is on the path to maturity
Goldman Sachs analyst Jeff Currie said in a recent interview that bitcoin is on the path to maturity, but needs more institutional money in order to stabilize the market. He added that bitcoin’s remarkable run has attracted greater institutional interest, but also noted that smart-money investors still account for a tiny fraction of the overall market.
BlackRock looking to hire VP Blockchain Lead to drive demand for its crypto products
BlackRock, the world’s largest asset manager with $6.84tn assets under management, is seeking to hire a VP to help build and execute strategies, with the focus to “drive demand” for the company’s crypto and crypto-related offerings.
Greenpro Capital plans bitcoin fund of up to $100m
NASDAQ-listed Greenpro Capital, which provides financial consulting and corporate services to small and medium-sized businesses primarily in Hong Kong, Malaysia and China, is planning to set up a bitcoin Fund of up to $100m. Greenpro will use its subsidiary, exchange CryptoSX, to acquire bitcoin.
Morgan Stanley acquires 10% stake in MicroStrategy after its massive push into bitcoin
Wall Street giant Morgan Stanley has acquired a 10.9% stake in business intelligence firm MicroStrategy on December 31, 2020. MicroStrategy has invested heavily in bitcoin since August 2020 and held 70,470 bitcoin as of December 21, 2020, on its balance sheet.
Fidelity increases stake in Hong Kong cryptocurrency company BC Group
Fidelity International has increased its stake to 6.29% in Hong Kong-based cryptocurrency company BC Group following an investment of $6.71m. Fidelity had first acquired a 5.6% stake for $14.2m in the company in February 2020. BC Group operates OSL, one of Asia’s biggest digital-asset platforms for professional investors.
Our overall takeaway
Crypto trading volumes are breaking all historic records as bitcoin prices breached the $40,000 barrier for the first time in January 2021. With Wall Street giants and large institutions adding direct and indirect exposure to crypto assets in their portfolio and building their blockchain teams, the crypto space looks poised to continue its strong momentum into the new year.
II. Government & Regulation
US banking regulator issues new guidance allowing US banks to use public blockchains and dollar stablecoins as a settlement infrastructure
US Treasury OCC, the largest US banking regulator, has published a new letter with guidance allowing US banks to use public blockchains and dollar stablecoins as a settlement infrastructure in the US financial system. This guidance establishes that banks can treat public chains as payment infrastructure similar to SWIFT, ACH and FedWire, and stablecoins as electronic stored value.
DeFi to pave way for “self-driving banks”, says the acting US Comptroller of the Currency
Brian Brooks, the acting US Comptroller of Currency, wrote in a recent article that DeFi will enable banks to deliver services without any human intervention in the future. He also said that the existing banking laws need to be revisited and called out the need for “21st-century regulation”.
Gary Gensler expected to be named head of SEC by Joe Biden
Former Commodity Futures Trading Commission (CFTC) chair Gary Gensler is expected to be named the head of the Securities and Exchange Commission (SEC). Gary Gensler is considered one of the country's most serious thinkers on the future of payments and has made pro-cryptocurrency comments in the past.
Our overall takeaway
The new letter from US banking regulator is a big step in the direction of acceptance of stablecoins as a core part of the US financial system. Along with the encouraging article by the acting US Comptroller of Currency calling for “21st-century regulations” (see section V), US regulators seem to point to a bright 2021 for the crypto world. Further, “self-driving banks” has got a nice ring to it, especially when the US Comptroller of Currency makes the case for use of DeFi. Exciting signs for the crypto world from the US regulators!
III. Funding & Exits
Cryptocurrency lender Vauld raises $2m in a new funding round
The singapore-based crypto lending startup has raised $2m in funding from a host of investors including Coinbase Venture, Pantera Capital, and Compound founder Robert Leshner. The firm will use the funds to expand its presence in Europe and the United States.
DeFi aggregator Furucombo raises $1.85m in seed funding
Decentralized finance (DeFi) aggregator Furucombo has raised $1.85m in seed funding round backed by SevenX Ventures, Defiance Capital, 1kx, Multicoin Capital and Aave founder Stani Kulechov, among others. Furucombo plans to expand its team and launch version 2 of its platform using the fresh funds.
Blockchain developer tools provider Biconomy raises $1.5m in seed funding
Blockchain developer tools provider Biconomy has raised $1.5m in a seed funding round led by Eden Block. Binance Labs, Fenbushi Capital and Digital Asset Capital Management also participated in the round, among others. Biconomy will use the funds to expand its team and launch version 2 of its platform in the coming months.
Shanghai government invests $5m in blockchain startup Conflux
Beijing-based blockchain startup Conflux has raised $5m in research grant from the Shanghai Science and Technology Committee and the local municipal government. The company claims that it is the only public, permissionless blockchain project backed by the Chinese government and will use the funds to develop the public chain’s research.
Crypto tax automation startup TaxBit raises $5m from PayPal and Coinbase
TaxBit, a tax compliance automation startup, has raised fresh funds from PayPal Ventures, Coinbase Ventures and Winklevoss Capital. Winklevoss Capital had previously participated in the $5m seed funding round for TaxBit in January 2020. The investment represents the latest move by PayPal as it continues to expand its footprint in the crypto space.
Swiss crypto bank SEBA raises $22.5m in Series B funding
Switzerland-based crypto bank SEBA has raised 20m Swiss Francs (~$22.5m) as part of its Series B funding round. The bank did not disclose its new investors, but the company said that all existing key shareholders and new shareholders “from Switzerland, Europe and Asia” participated in the round.
SEBA also said that it will tokenize its shares of the Series B shortly after Switzerland's blockchain law comes into force on February 1, 2021.
BlockFi in talks to raise Series D funding ahead of IPO plans
Crypto-lending startup BlockFi is reportedly raising a Series D funding round from existing investors Morgan Creek Digital and Valar Ventures ahead of its potential IPO in the second half of 2021. The three-year-old startup has raised $158.7m to date from investors that also include Susquehanna, Fidelity, CMT, Akuna, Three Arrows Capital and Hashkey.
Crypto exchange Bakkt to go public through a merger with Victory Park SPAC at an expected valuation of $2.1bn
Bakkt, the cryptocurrency venture of NYSE’s parent company Intercontinental Exchange (ICE), will go public through a merger with Victory Park SPAC. The deal is expected to value the company at $2.1bn and Bakkt will $532m as part of the deal. The company will use the funds to further its goal of launching a consumer app for trading and making payments with digital assets.
Coinbase acquires crypto trade execution firm Routefire
Coinbase has acquired crypto trade execution startup Routefire for an undisclosed sum. This marks Coinbase’s first acquisition of 2021, having acquired over 20 firms in the space in 2020. Blockchain Capital, Hustle Fund and FJ Labs were some of the investors in Routefire, which was founded in 2017.
Ripio acquires Brazil’s second-largest crypto exchange BitcoinTrade
Digital asset services firm Ripio has acquired BitcoinTrade, Brazil’s second-largest crypto exchange, for an undisclosed amount. The acquisition will help Ripio bolster its presence in Brazil and across Latin America. BitcoinTrade founder Carlos Andre Montenegro will exit his role as CEO but remain at Ripio; current BitcoinTrade CFO Bernardo Teixeira will take over as the chief executive.
South Korea’s Shinhan Bank makes strategic investment in Korea Digital Asset Trust
Shinhan Bank, the oldest banking institution in South Korea, has invested in Korea Digital Asset Trust (KDAC), an industry consortium of businesses that provide digital-asset custody. The initiative was launched by local crypto exchange Korbit in collaboration with blockchain startup Blocko and digital-asset research company Fair Square Lab.
NYDIG acquires crypto data firm Digital Assets Data
Bitcoin custody services provider NYDIG has acquired crypto data firm Digital Assets Data as it ramps up the process to expand its platform. Digital Assets Data's twin co-founders - Mike and Ryan Alfred - will join the NYDIG team as head of M&A and head of product, respectively.
Our overall takeaway
Funding, especially at early stages, continues to exhibit healthy volumes while consolidation in the crypto space is ramping up. Impending public listings of Bakkt, Coinbase and BlockFi are going to make 2021 a watershed moment for the crypto world as the industry continues to gain mainstream acceptance.
IV. Project Launches & Updates
Pokemon-inspired digital pet universe Axie Infinity launches public testnet on Ronin sidechain to accelerate growth
Axie Infinity, the Pokemon-inspired digital pet universe that has become the most-played game on Ethereum, has launched the public testnet of its Ronin sidechain. The non-fungible token (NFT) game had over 18,000 monthly active users as of December 2020. Video game giant Ubisoft will be Ronin’s inaugural validator.
Poolin launches 'hash rate token' to bridge bitcoin mining and DeFi
Poolin, which is currently the second-largest bitcoin mining pool, has rolled out an ERC-20 token backed by its bitcoin hash rate capacity. The hash token enables participation in both proof-of-work mining and yield farming in an effort to bridge the gap between the two.
Our overall takeaway
An increasing number of projects are demonstrating the opportunities the space provides beyond the traditional use cases of crypto as an alternative asset class, but also broadening the design surface of blockchain-based capital markets with new instruments such as hash rate tokens.
V. Other Bits We're Excited About
Crypto exchange trade volumes reach a record $379bn in December
Spot volume on cryptocurrency exchanges eclipsed the previous high of $309bn reported in January 2018 and reached an all-time high of $379bn in December 2020. Binance accounted for ~$219.5 bn of the volume while Coinbase accounted for about $45.7bn.
Open interest on Ethereum derivatives hit an all-time high on January 3
The aggregate open interest on Ethereum (ETH) options and futures peaked at $2.65bn on January 3, growing 28.6% from December’s peak. Binance accounted for the largest share at 23.8%, with OKEx in second place with 17.8% and Huobi’s 14.4% in third.
Our overall takeaway
With growing institutional participation, volumes in cryptoasset markets have been mindblowing!