FSI Digital Assets

• Crypto Newsletter

Apr 30

In this week’s crypto strategy note we discuss: Bitcoin rebounding from a healthy cooling off period last week as the macro backdrop remains accommodative & bull market remains intactEven if Facebook didn’t buy Bitcoin, corporates are coming, and it may not be reflected in earnings announcements yetRemaining overweight Ethereum and maintaining a price target of $10.5k as ETH reaches new highs and continues to outperform BTCContinue to see more upside in higher beta altcoins vs. Bitcoin as crypto markets are on pace to hit $5T Bitcoin rebounding from a healthy cooling off period last week as the macro backdrop remains accommodative & bull market remains intact Bitcoin and crypto markets have been rebounding this week after the prior week’s sell off. A combination of de-leveraging, Bitcoin falling below its 50-day, notable Wall Street firms forecasted a major correction to $20-30k sparking retail fear and the Biden tax plan were all events that took us lower last week. But market have stabilized and bounced since then. As we mentioned in our note two weeks ago, we thought a “crypto market cooling off would be healthy”. We’ve seen the price of Bitcoin retrace a little over ~25%, which would qualify as a major correction for traditional markets but is par for the course in crypto during bull market cycles. While we’re not technical traders, Bitcoin falling below its 50 day gives us less concern given this has happened several times during the prior bull market cycle, and it’s the 200 day that Bitcoin has historically maintained during prior bull runs. As we discussed in our prior week's note, we believe the bull market remains intact, and we are maintaining our $100k Bitcoin price target. Source: Fundstrat, Coinmarketcap We think the macro backdrop remains bullish for crypto assets. The Feds recent guidance that it plans to remain accommodative should be supportive for risk assets like crypto. Source: Fundstrat, CNBC Even if Facebook didn’t buy Bitcoin, corporates are coming, and it may not be reflected in earnings announcements yet In our January 2021 Crypto Outlook, we predicted corporates would be entering crypto in a bigger way this year. We think this is starting to happen more and will be one new source for capital flows into the crypto economy. Source: Fundstrat Tesla grabbed news headlines by announcing it had purchased $1.5B of Bitcoin earlier this year and again drew the spotlight the other day by announcing that they had sold a relatively small amount for a $100M profit to, in Elon’s words, “prove the market liquidity”. Rumors were even flying around that Facebook may be reporting Bitcoin on its balance sheet with its earnings release – this proved to be untrue but we even if Facebook didn’t buy Bitcoin, the corporates are coming, and it may not be reflected in earnings announcements yet. Source: Fundstrat, CNN, The Street Why do we think this? Based on the Q1 2021 Market Observations Report that was published yesterday, the OTC trading firm reported a notable jump in Corporates as a share of volume to ~27% from ~0% in the quarters prior. Source: Fundstrat, Genesis As one of the largest U.S. OTC desks, we think this is telling of what could be to come. Genesis reported a little over $30B in trading volume during the quarter, implying that roughly $8.5B came from corporates. Even if we back out buys and sell from Tesla, MicroStrategy and other corporate, we think this says that more corporates bought crypto this quarter than has been announced, unless Tesla is day trading its position, which we think is unlikely given corporates tend to be longer term holders. We think announcements from other corporations in the weeks to come could offer catalysts for the market. Source: Fundstrat, Genesis Remaining overweight Ethereum and maintaining a price target of $10.5k as ETH reaches new highs and continues to outperform BTC Ethereum reached a new all-time high of $2,800 this week. We’re maintaining our overweight Ethereum vs. Bitcoin recommendation from April 2020 and reiterating our ~10.5k price target from January this year. Ethereum’s market cap has risen to ~30% of Bitcoins over recent weeks. During the last market cycle, Ethereum broke this level and head as high as 80% of Bitcoins value – we’re not predicting exactly this but its a useful frame of reference. Source: Fundstrat, Coinmetrics When new investors come to crypto the first asset they generally hear about and buy is Bitcoin before learning about other assets and allocating across the space. We think the same learning curve is playing out with institutional investors right now where the crypto narrative is shifting from Bitcoin to Ethereum and other segments like DeFi and Web 3 apps. Source: JP Morgan One reason we remain bullish on Ethereum is the large amounts of development happening there and the resulting economic activity in its digital economy. Source: Fundstrat, Electric Capital As we discussed in our Bitwise Decentralized Finance report, Ethereum and others are enabling new financial applications which have grown significantly in scale over the last year. Source: Fundstrat, Defi Pulse These applications are generating ~3x the fees for the Ethereum network vs. Bitcoin which trades at ~3x the market cap. Source: Fundstrat, Coinmetrics, Coinmarketcap We think fees are an important way to look at Ethereum given the upcoming changes to its network economics with EIP-1559. Ethereum is transitioning from a currency like Bitcoin to a crypto capital asset where a portion of the network transaction fees are used to buyback (burn) and retire (treasury stock) ETH supply. In crypto accounting terms, this is the same as a company using revenue (fees), less operating costs (stock comp supply issuance), and earing profit (net supply burn) that is used to buyback stock (share repurchase). This means the network would become “profitable” like a company once ETH supply reduction from burned fees outpaces inflation. Source: Bankless Our price target of $10.5k from January 2021 looks a Ethereum this way and values it on a revenue multiple basis. Although the price has doubled since our target was issued, Ethereum annualized fee revenue growth has nearly doubled as well, while the price to revenue multiple has remained roughly the same. Given the correspondingly strong improvement in fundamentals, we think Ethereum still looks as cheap as it did 3 months ago at half the price. Ethereum(1/19/21)Ethereum(4/27/21)Change%Price$1,341$2,757106%Supply                 114,000,000                 115,660,0001%Market Cap$152,874,000,000$318,874,620,000109%Forward Sales$3,673,903,520$7,270,515,23598%Sales Per Share$32.23$62.8695%Price to Sales41.6x43.9x5%Sales Growth516%1219%136%PSG Ratio0.08x0.04x-55% Source: Fundstrat, Coinmetrics, Coinmarketcap We continue to view Ethereum as a Cloud 2.0 crypto stock as we discussed in our prior ETH report. Given this dynamic, we think it’s reasonable to compare Ethereum against the Bessemer Venture Partners (BVP) Emerging Cloud Index. On a revenue multiple basis, Ethereum is about twice as expensive as the cloud index, but on a growth adjusted basis, its ~13x cheaper. BVP Cloud IndexEthereumMarket Cap ($B)$2,100$319Revenue Multiple21.4x43.9xRevenue Growth Rate42%1119%Price-to-Sales Growth0.51x0.04x Source: Fundstrat, Coinmetrics, BVP Emerging Cloud Index Comparing the individual cloud stocks in the index vs. Ethereum, we can see that on a growth adjusted basis ETH is “off the chart cheap” relative to cloud 1.0 comps. Source: Fundstrat, BVP Emerging Cloud Index Our $10.5k target from January applied a growth adjusted price to sales multiple based on the cloud index. Although we’re maintaining our current target on Ethereum, updating that same analysis based on the fundamental improvements since would imply an ETH price of ~$35k. Given the high implied multiple due to Ethereum’s rapid growth rate, we’re applying a 70% discount to the comp implied price to let the network continue to grow into its valuation – as it has been. Although the price has risen and we’re being a bit more conservative compared to our prior analysis, we think meaningful upside remains. Source: Fundstrat, Coinmetrics, BVP Emerging Cloud Index Continue to see more upside in higher beta altcoins vs. Bitcoin as crypto markets are on pace to hit $5T We remain bullish not just on Bitcoin and Ethereum but on the entire crypto space. From our January 2021 Crypto Outlook, we forecasted the total crypto economy reaching $5T in market cap. Source: Fundstrat We recognize crypto reaching $5T may sound crazy. And we are aware of where this would put the market in relative terms compared to other assets. We haven’t forgotten that the dot. com bubble topped out at $4.5T. But, as we have written about extensively, we think crypto is the next wave of the internet economy and given how much larger that market and every market has become since then (including M2 growth), we humbly think our forecast remains reachable. Thus far, we’re 3 months into that forecast and we’re on pace to hit $5T with the total crypto market cap having already risen by $1T or 1/4th of the way there. We compare the actual market prices from our forecast issue date against current prices and our forecast below: Bitcoin dominance has continued to fall in line with our forecast as Etherum and other alts have had strong performance during 2021. During the prior cycle, bitcoin dominance fell ~55% from 85 to 38 before having a mid-cycle bounce. Thus far this cycle, Bitcoin dominance has fallen ~33% from 70 to 47, implying alts have room to continue outperforming if we see a similar trend as we did during the prior cycle. We think if Bitcoin can have a healthy consolidation around these levels, capital will continue flowing to smaller assets within the crypto economy and other assets will benefit. Source: Domination Finance

• BitDigest

Apr 30

Crypto prices flat overnight but RE₿EL COINS up on week and YTDCrypto Mom thinks stablecoins can help USD in fight against digital yuanEIB’s issuance of €100 million blockchain-bond was actually CBDC settlement experiment by Bank of France Weekly Stock Update The Headlines Exchange, Custody and Product News Daily Cartoon

• BitDigest

Apr 29

ETH hits another highPowell wants to make sure US Gets CBDC RightNew German law could provide tail winds to crypto investments The Weekly Stock Update will be published tomorrow. Too many articles this morning and I fell behind. The Headlines Market Data Exchange, Custody and Product News Daily Cartoon

• First Word

Apr 29

I am sending along my takeaways from our Wednesday webinar with Tom DeMark, the founder of DeMark analytics. Tom DeMark is a widely market systemic timer and is considered one of the pioneers of technical analysis. There is no replay, at the request of DeMark. So our summary below is the only way to get the abstracts. Here is our list of takeaways: 1. A possible '13' top formed in equity markets in early April, but the 3 major indices fell out of 'alignment' so that bearish view is negated 2. S&P 500 is in an 'uptrend' and possible target of 4,400 near-term. Nasdaq has upside but less so. 3. VIX is heading to 13-ish 4. Market breadth, measured as % stocks above 50D, set to surge = broader participation, not mega-cap led 5. Energy looks like it has bottomed = upside to Energy stocks (sweet!!!) 6. WTI should be expected to exceed its prior high, or $76.90 from October 5, 2018 7. XLE and OIH should trade to levels on October 5, 2018, which is $78.36/ $526.51, respectively, or +56% and +178% upside. 8. Bitcoin sold off at a '13' but found support at an anticipated key level of $47,000-ish = new uptrend likely underway BOTTOM LINE: To me, the biggest takeaway, is the move in WTI to $76.90 and the associated ballistic rise in Energy stocks. If oil does rise to $76.90, which is consistent with Goldman Sachs' $80 projection by Summer, and Energy equities rally to 2018 levels, we expect institutional investors to massively Overweight Energy stocks before year-end. This would be a formula for a melt-up.     ...S&P 500 sold off to key level 4,137-ish and upside now 4,350-4,400DeMark cited a trifecta of factors that pointed to a pullback to 4,137 in S&P 500 in April. As these charts show, that is where the S&P 500 retraced and now the upside in play is 4,350-4,400 and a possible upside to 4,600 - a few weeks ago, there was a '13' spotted on equities, but this was negated- the alignment was not seen in Dow, Nasdaq and S&P 500- now they are 'aligned' to the upside Hence, stocks are still in an uptrend This is consistent with our view that we will see S&P 500 4,400 before mid-year, maybe in the next month or so ... VIX still heading lower towards 13.48 or lowerHe also pointed out the VIX downside target is 13.48. - the VIX could breakdown further below that level- but 13.48 is the key level to watch- VIX is 17.6 now ... Market breadth should rise = small-caps > mega-caps DeMark also sees the % stocks >50D surging. This is a breadth indicator. - if # stocks >50D goes up = small-caps Our takeaway: Megacaps likely underperform (FANG/Growth) and Small-caps likely resume leadership ... Energy (XLE) likely bottomed vs broader market DeMark also noted that Energy (vs S&P 500) seems to track DeMark signals closely, as both the combo and sequential counts work at the tops and bottoms. - XLE/SPX posted a '13' bottom and is now in an uptrend - this means Energy stocks should outperform S&P 500 ... Crude oil expected to surpass 2018 highs of $76.90, implying +56% upside for XLE and +178% upside for OIH Tom DeMark also noted that he expected Crude, when looking at the weekly chart, that it would be typical for crude to exceed the prior highs at the next '13' -- in this case, the 2018 highs of WTI of $76.90. See below. - if WTI exceeds its October 5, 2018 highs, XLE and OIH should at least re-attain its October 5, 2018 levels - XLE was $78.36 on October 5, 2018 vs $50.11 today, or +56% upside - OIH was $526.51 on October 5, 2018 vs $189.04 today, or +178% upside Takeaway: The confirms our view that Energy stocks are due to a huge catch-up to oil. The upside in XLE and OIH is way higher than many appreciate, if correct, with >100% upside for OIH and >50% for XLE. So we think Energy remains very attractive, even as we realize this group feels leaning against the wind ... Bitcoin saw a textbook 20% selloff after a '13' but now found support at ~$47,000 Bitcoin saw a textbook sell-off of >20% after a '13' qualified combo count. - downside target was $47,000 on two different models --> TDST shown below - if this holds, and is likely, given this was a level prior to the last 'sell countdown' (green 1), Bitcoin going to rally Takeaway: Not crystal clear what to expect here... Key level is $62,000 and $47,000. The daily DeMark count shows an uptrend, so that is what should be watched and a move above $62,000 affirms selloff over