Crypto Weekly: 2/17/2021
As we noted last week, Tesla recently announced it had added $1.5 billion of Bitcoin to its balance sheet. The announcement came less than two weeks after Elon Musk added Bitcoin to his Twitter bio, an act that caused a huge buzz amongst crypto enthusiasts. Tesla’s Bitcoin purchase adds to the growing list of public companies that are buying and holding Bitcoin in their treasuries.
Source: https://bitcointreasuries.org/
Excluding Tesla, public corporate treasuries currently account for approximately 104,716 Bitcoin or 0.5% of the 21 million total supply cap. Although it has not been reported exactly how many Bitcoin Tesla purchased, we can assume that the purchases were made in January because that was when Tesla amended its investment policy. In January, Bitcoin traded in the range between $27,734 and $42,000 on Coinbase. Assuming Tesla’s purchases averaged the mid-point of the range at ~$35,000, Tesla accumulated about 43,000 Bitcoin with its $1.5 billion investment. Tesla’s Bitcoin position is the second largest public treasury holding behind MicroStrategy, which is currently holding over 71,000 Bitcoin in its treasury.
Just today, MicroStrategy announced they are issuing another convertible note for the purpose of accumulating more Bitcoin to the tune of $900 million. The 0% convertible note will Mature in February 2027 and the initial conversion rate is equivalent to $1,432 per share of MSTR. Clearly there is demand for such a product, as MicroStrategy’s previous convertible note was oversubscribed and the initial allocation of $400 million was subsequently increased to $650 million. In our view, MicroStrategy is wisely appealing to fixed income institutional investors and offering them an ETF-like product enabling them to gain exposure to Bitcoin. The current offering is expected to close Friday, and we expect MicroStrategy will be able to fill the entire $900 million allocation.
Bitcoin responded positively to the influx of corporate buyers steadily reaching new all-time highs.
Source: FSInsight, CoinMetrics, CNBC, MarketWatch
As DeFi projects have continued to see growth and adoption, Ethereum has also been performing well and reached a new all-time high this week of $1,873. Last month, our Lead Digital Asset Strategist, David Grider, published his thesis for Ethereum and issued his price target of $10,500. Since the release of the report, DeFi Total Value Locked increased 60% from $25 billion to over $40 billion. This is a positive signal as users are locking ETH and other ERC-20 assets in DeFi protocols to make use of the various products in the ecosystem.
Source: DeFiPulse
As users are diving into new DeFi products and use cases, usage of the Ethereum blockchain has reached a new all-time high causing transaction fees to skyrocket. Rising transaction fees is a positive indicator as it shows increased demand for the network that makes the network more valuable. However, it can also limit certain use cases and price out smaller users from the network.
As shown in the charts below, in recent weeks the average transaction fee has spiked from $2 in mid-December to $22 now, an increase of 1,000%. As expected, this has priced out lower value transactions (and smaller holders/users) with the median transaction value increasing 450% from $60 in early December to $330 per transaction now.
Source: FSInsight, CoinMetrics
The launch of ETH 2.0 is still at least two years away, and in the interim, layer-two scalability solutions like Optimistic Rollups and Matic can alleviate network congestion. While ETH 2.0 continues its development, competing layer-one protocols focused on delivering DeFi applications may have a window of opportunity to grow their ecosystems. Although Ethereum has performed well, appreciating 209% since beginning of December, ATOM, AVAX, and ADA have outperformed rising 367%, 936%, and 460% respectively. We remain overweight Ethereum and believe it will deliver on its technical roadmap, and we will be paying attention to how the competitive landscape develops over the coming months and years.
Source: FSInsight, CoinMetrics, Coinmarketcap, CoinDesk
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