Effective today, MRP is adding LONG Digital Payments to our list of themes in order to capitalize on the rising adoption and legitimization of blockchain-based assets, as well as its implications for the cashless future.
The value of one unit of Bitcoin (BTC) in US Dollar terms is currently equivalent to roughly $38,000. That's about 11% off its all time high near $42,000, but more than 260% above its price this time last year. Owing to that significant appreciation, MRP believes that we have reached a tipping point in the digital asset industry, where the market for digital currencies is no longer being driven by wild speculation on behalf of retail investors and a small cohort of "whales" that control an overwhelming proportion of the market, but by a transformation in the way these assets are being evaluated by major institutions in the financial and payments industries.
Our body of research on blockchain technology goes all the way back to 2017, and the developments we have been highlighting over the last year show significant maturation of the industry and adoption of digital assets.
For the week ended January 22, inflows into Bitcoin and other crypto investment products hit a record high of $1.3 billion, per Coinshares data – cited by Decrypt. So far this year volumes in Bitcoin (BTC) have been considerably higher, trading an average of $12.3 billion a day compared to $2.2 billion in 2020.
Grayscale Investments remains the top dog in crypto investment products, with over $26 billion in assets under management (AUM). About $21.6 billion of that is in the Grayscale Bitcoin Trust (GBTC). Grayscale also manages more than $4 billion worth of the second-largest cryptocurrency, Ethereum, in their Ethereum Trust (ETHE).
PayPal recently announced that their platform would let users draw from cryptocurrency accounts to pay for goods and services at 29 million merchants by some point late in the first quarter. The payments giant, which already allows purchases of BTC, will also add support for several other mainstream cryptos as well; specifically Ethereum, Bitcoin Cash and Litecoin. Customers who purchased crypto through the platform have been logging into PayPal twice as much as they were before buying crypto, the company said in its most recent investor update.
Payment platform Square, which has accepted BTC payments since 2014, recently purchased $50 million worth of Bitcoin as a treasury asset with plans to hold onto it for the long-term. Square also noted that one of its most popular offerings, Cash App, sold $1.63 billion worth of BTC in the third quarter of 2020, with almost 80% of total revenue coming from the digital token.
Last month, MRP noted that about 900 new Bitcoins are mined daily, and three market participants alone — PayPal, Square, and Grayscale Bitcoin Trust — were purchasing considerably more than 900 BTC a day because of high investor demand.
More long-term holding of assets can be expected from larger purchases for investment purposes. Institutions will be key to securing more of those.
In December, MRP noted that Guggenheim Partners’ Macro Opportunities Fund held the right to invest up to 10% of its net asset value (around $530 billion) in Grayscale Bitcoin Trust. The firm’s SEC filing to make that investment became effective on January 31 and the very next day, leading cryptocurrency exchange, broker, and wallet provider Coinbase registered a massive outflow of BTC, amounting to 14,000 BTC – worth nearly half a billion dollars – of cold storage. Several outlets, including Coin Gape, speculated that this was likely a transaction directly related to Guggenheim's new Bitcoin holdings.
Coinbase, which also organized MicroStrategy’s huge $425 million BTC purchase this past September, is preparing for a direct listing on the Nasdaq later this quarter. The exchange has attracted over 35 million customers and, as of last month, was valued at $28 billion by crypto market analysis firm Messari.
That comes alongside several other blockbuster blockchain IPOs coming in 2021, particularly among crypto mining equipment manufacturers.
Though some big names in finance, particularly executives at JPMorgan and Goldman Sachs, have downplayed the efficiency and fundamentals of Bitcoin and other cryptocurrencies, those same two firms have been collaborating on blockchain-based payments for some time.
As MRP covered in depth last month, JPMorgan's in-house stablecoin, JPM Coin, is already being used in commercial transactions. The bank then launched a new subsidiary, Onyx, to handle its bank settlement blockchain platform, Liink. Cointelegraph reports that Goldman Sachs, one of several financial institutions to sign on to JPMorgan’s custom blockchain service, will reportedly sign on to Onyx for repo trades early this year.
Prior to Coinbase's decision to opt for a direct listing, it was widely reported that Goldman was set to be the lead underwriter for a potential IPO.
Elsewhere in the finnacial services industry, BlackRock Inc already enjoyed a certain level of exposure to Bitcoin via their 15% stake in MicroStrategy, which now holds a total of 71,079 BTC, equivalent to around $2.5 billion – per The Block Crypto.
Last month, however, the world’s largest asset manager announced it would allow their clients exposure to Bitcoin futures for the first time, adding them as an eligible investment to two funds.
Finally, as MRP wrote in our January Viewpoint report, we expect a strong rebound in the velocity of money to kick up a significant level of inflation in the months and years ahead.
Earlier this week, the 10-year Treasury breakeven rate, equivalent to inflation expectations for the five years beginning five years from now, climbed to 2.19%, its highest level since 2014. Meanwhile, the latest survey of expected changes in inflation, conducted by the University of Michigan, showed inflation expectations jumping from 2.5% in November to 3.0% for December.
Most major digital assets, like Bitcoin, are seen as hedges against inflation. Similar to precious metals, Bitcoin is scarce, has a fixed supply (18.5 million BTC are currenctly in circulation, versus the 21 million BTC that can ever be mined) and can be accepted as an alternative to fiat money as a medium of exchange. MRP has previously highlighted the deflationary properties and long-term correlation between BTC and gold, and we believe that the trillions of dollars printed in 2020 - as well as trillions more set to be printed in 2021 - has already played a role in BTC's recent performance, and strengthens the case for the inherent value of digital assets. |