Digital Assets Weekly: April 28th, 2020
Please see important disclosures at the bottom of this report
Bitcoin and crypto markets have had a very strong week. We expect the strength could very likely continue over the next week and a half as we approach the Bitcoin halving on May 12th.
If you are a longer term investor without crypto exposure, this is still not a bad time to be dipping your toe in the water and gaining that initial allocation, but be comfortable with potential volatility risk and be able and willing to get more aggressive if prices find more attractive levels.
On the other hand, if you are a long-term investor with a proper allocation to crypto, as we have discussed in prior notes, I wouldn’t be jumping in too heavily and chasing the market here to gain added exposure. These run ups usually take breathers and offer the opportunity for more attractive levels.
While I’m not recommending investors sell here, if you’re a nimbler trader who caught most of the recovery since we started recommending clients buy aggressively near the sell-off bottom, I wouldn’t blame you for lightening up and taking some profits over the coming days and weeks.
To be clear, we remain affirmatively bullish over the next 12 months. But in the immediate days before and weeks after the Bitcoin halvening, we will be keeping a very watchful eye on how the market dynamics unfold. As we have discussed, we are looking to see how the near-term risks play out with miner economics and the potential for coin liquidations.
If the market can sustain current or higher levels for the days and weeks following the halvening, we will gain much greater comfort in the medium-term sustainability of these price levels and may adjust our already long term bullish stance more aggressively within our crypto allocations by moving down the caps and towards more cyclical assets.
But if the market experiences a pull back, especially one that lasts over a prolonged period of a month or more, depending on the sharpness and severity, we may become more warry of risks to miner balance sheets medium term.
We believe our current recommended market positioning remains ideal for balancing between the risk and reward of these two scenarios until time passes. There is no answer I can give you today on how this will play out, nor an affirmative view how to position if it happens just yet. But as we approach the halvening, and we gain more market data, I believe the picture of what to do when we get there will become clearer and the optimal path forward will present itself.
Our outlook for Bitcoin over the next 12 months and investment themes are shown below:
After closing around $6,880 last Tuesday, Bitcoin quickly broke through its $7,000 resistance level on Thursday eventually recording a full recovery from its 37% plunge on March 12th. Momentum was strong throughout the remainder of the period with Bitcoin closing around $7,680 on Monday.
Bitcoin’s strong price performance over the past week pushed up its YTD performance into 3rd place compared to 5th place according to our performance ranking below. Strong grains this week pushed it ahead of both bonds and the dollar on a YTD basis and established BTC as the strongest performing asset this month.
All major crypto assets had a big week. Ethereum, was the best performing asset this week, climbing up 14.9% on the week on top of its 8.8% gain last the week.
Performance was strong across all size based indices this week and the FS Crypto FX 40 retained its leadership with a 14.7% weekly gain compared to a 10% – 13% gain for other size-based indices.
Ethereum has been the strongest large cap 5 performer coming out the market sell off, while among the size-based indexes, the Crypto 40 have been performing the best over the same period.
Bitcoin’s P/CMR valuation stood at 8.0x as of 4/27 vs 7.1x as of last week. This value
is remains slightly below the levels from Mar-19 through present.
While not as enticing as prior weeks, the 1M, 3M, 6M & 12M risk/reward still looks attractive here based on historical average forward returns of 19%, 104%, 399% & 1164%, respectively.
Bitcoin’s market cap to realized value (MV/RV) multiple was 1.2x as of 4/27.
The comp table for large cap crypto asset prices and fundamental valuations is shown below.
Valuation Methodology Description
The P/CMR ratio is a fundamental valuation method I invented in December 2017 that has historically been a strong predictor of price movements. It functions like a Price/Book (Crypto P/B) ratio by telling investors if a crypto asset is relatively cheap or expensive. It’s calculated by comparing the Market Cap to Cumulative Mining Revenue (Mkt Cap/CMR). The ratio can be calculated on a per coin basis (P/CMR) by adjusting the Mkt Cap and CMR by outstanding supply. Read more.
The MV/RV ratio is another method later developed that takes a similar approach but adjusts the denominator value based on the last time coins were moved. Read more.
The P/CMR and MV/RV metrics gives an approximate measure of unrealized profit, and therefore an investors incentive to sell or hold. The P/CMR ratio gives a measure closer to the absolute floor value of sunk costs for all investors while the MV/RV ratio gives the highest end of the range. Its best to take multiple approaches when valuing any asset. These two have been the best for crypto assets in my experience, and the answer probably lies in the middle.
Blockchain & Crypto Stocks
The table above shows publicly traded blockchain and crypto related stocks, which offer a vehicle for investors who are constrained from owing underlying crypto assets themselves.
Winners & Losers
Winner: Libra – Checkout.com, a London-based payments processing platform, joined the Libra Association last week. This is the first payment processor to join the association after Visa, Mastercard and Stripe all withdrew from the stablecoin project last October.
Loser: The Maltese Crypto industry – The Maltese Financial Services authority (“MFSA”) published the names of 57 blockchain companies which applied for a financial services license but who did not complete the process by November 2019. According to the MFSA, only 26 startups of an original 340 applicants are still contenders in the application process and, Binance is not of them. The Company fully withdrew from this waning crypto hotbed in February.
tZERO – Overstock’s blockchain arm, tZERO, raised $5MM in an equity financing round led by GoldenSand Capital, a Beijing based venture capital firm.
Applied Blockchain – The London-based enterprise blockchain company backed by oil giant Shell raised $2.5MM from Hong Kong-based venture capital firm QBN capital. The fresh capital is expected to be deployed to continue further developing the Company’s privacy-focused platform.
Blockgration Global Corp – Zoompass Holdings Inc., a SaaS provider for the web 3.0 space, announced it will acquire Blockgration Global Corporation (BGC) for an undisclosed sum. Blockgration is a Toronto based digital wallet platform connecting blockchain platforms with payment ecosystems and traditional banking.
Access Fundstrat’s recent crypto insights if you missed them by clicking below or visiting FS Insight.
- David Grider subbing in for Tom this week: Tom’s Take on Crypto: What Are the Risks?
- Robert Sluymer: Crypto Technical Analysis: BTC recaptures its 50-dma – ALTs beginning to move to the upside
- Ken Xuan: Crypto Quant: Benchmark Crypto Indices Weekly Performance Review
- David Grider: Digital Assets Weekly: April 21st, 2020
Contact us at email@example.com
This research is for the clients of FSInsight only. FSI Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or FSInsight at fsinsight.com.
This research contains the views, opinions and recommendations of FSInsight. At the time of publication of this report, FSInsight does not know of, or have reason to know of any material conflicts of interest.
FSInsight is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.
FSInsight is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of FSInsight (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by FSInsight clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of FSInsight, which is available to select institutional clients that have engaged FSInsight.
As registered representatives of IRC Securities our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.
FSInsight does not have the same conflicts that traditional sell-side research organizations have because FSInsight (1) does not conduct any investment banking activities, (2) does not manage any investment funds, and (3) our clients are only institutional investors.
This research is for the clients of FSInsight only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but FSInsight does not warrant its completeness or accuracy except with respect to any disclosures relative to FSInsight and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FSInsight expressly agrees otherwise in writing, FSInsight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.
Copyright © 2021 FSInsight LLC. All rights reserved. No part of this material may be reprinted, sold or redistributed without the prior written consent of FSInsight LLC.