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FSI Digital Assets

What next after BTC’s surge toward next resistance near 13.8K?

For a full copy of this report in PDF format click this link. After surging through resistance at the August highs near 12.5K  over the past week, BTC is closing in on next major resistance near June 2019 highs at 13.8K. With short-term trading indicators pushing into overbought territory, traders are understandably questioning whether they should reduce exposure. We disagree. Sure, a near-term dip or pause is likely given the recent rally, BUT the longer-term term technical structure continues to improve suggesting pullbacks are likely to be short lived and relatively shallow. Based on the following bullets and accompanying charts, we remain bullish on BTC’s longer-term prospects and rather than attempting to micro manage trading position, maintain exposure using pullbacks and pauses to further increase exposure.  Key technical developments Improving long-term price structure following 2018-2020 consolidation – BTC’s price structure is incrementally transitioning into a new long-term uptrend following its very broad 2018-2020 consolidation above its long-term structural uptrend defined by the 200-week sma. BTC has reversed its 2018-2020 downtrend with a series of higher highs and lows following the March collapse in all risk assets. Bottom line: BTC’s price pattern is in the early stages of a new longer-term uptrend with the June 2019 highs at 13.8K its next key resistance hurdle followed by 20K. While a pause/consolidation between current levels and 13.8 is likely, our recommendation is for longer-term investors to stay focused on the improving longer-term technical structure and to not be unnerved by tactical pullbacks and consolidations. Slide 3Relative performance trends vs equities, golds and bonds is beginning to trend to the upside. In our opinion, the most more noteworthy chart for investors to focus on is BTC’s relative performance versus the S&P 500, Gold and the TLT Bond ETF. BTC is likely in the early stages of assuming leadership to all three asset classes. This appears to be an almost textbook perfect bearish to bullish transition as BTC emerges from 6-mnonth trading range/pause following its 2019-2020 downtrend reversal. Asset allocators take note! Slide 4Daily chart is becoming overbought but expect pullbacks to be shallow and short lived. Momentum indicators are becoming overbought on BTC’s daily chart but they are by no means extreme yet. Our expectation is that pullbacks are likely to be shallow given the bullish higher weekly time frame chart discussed above.  Slide 5Intra-day 4 hour chart IS very overbought – Given BTC’s impressive surge over the past few days, it is hardly surprising its 4-hour RSI momentum indicators are very overbought. However, rather than attempting to micro manage the trade by selling in hopes of also identifying the exact pullback low, we recommend maintaining exposure at current levels and using near-term pauses and consolidations to further build BTC exposure. Slide 6Too early to rotate to small-caps – Participation remains concentrated in larger-caps – Our Fundstrat FS CryptoFX advance-decline lines for large-caps (FX 10), mid-caps (FX40) and small-caps (FX250) illustrate that upside participation is concentrated in larger-cap cryptos. As such, we recommend investors focus exposure in larger-caps, until we see breadth improve into smaller-caps. Slide 7 Resuming its longer-term uptrend – 13.8K next resistance (Slide 3)... BTC emerging vs the S&P, Gold and TLT bond ETF (Slide 4)... BTC – Overbought short-term – Expecting shallow pullbacks (Slide 6)... Participation remains concentrated in large-caps (FX 10) (Slide 7)...

CRYPTO SPECIAL REPORT: Zilliqa: Making a competitive play to capture the ASEAN Open Finance Market

For a full copy of this report in PDF format please click this link. Zilliqa Research Pte. LTD. (“the Company”) is the software and services company behind development of the Zilliqa DLT Network. The Singapore-based Company was founded in 2017 and is focused on refining Zilliqa’s DLT technology and deploying the platform with a focus on financial services applications in the ASEAN (“Association of Southeast Asian Nations”) region. Zilliqa (ZIL) is a public Distributed Ledger Technology (“DLT”) platform for decentralized applications (“dApps”). It employs sharding technology to achieve high levels of throughput and maintain low transaction fees. Zilliqa’s DLT offers a differentiated Blockchain-as-a-Service (BaaS) computing infrastructure platform. DLTs like Zilliqa allow businesses to leverage cloud-based solutions to build, deploy and use apps, smart contracts and other blockchain functions without hosting the infrastructure. Zilliqa’s sharded DLT enables high transaction throughput, with historically low fees, and offers a new smart contracting language, Scilla, to make its network safer for deploying enterprise-grade applications. First from Banking to Fintech, and now from Fintech to OpFi, Zilliqa looks focused on the right place. Zilliqa’s DLT is designed to support a range of use cases, but the team is currently laser focused on targeting the biggest one, banking. DLT based financial services, which we refer to collectively as Open Finance (“OpFi”), represent a cost-effective way to reach underserved markets and improve upon current infrastructure, while delivering unimagined financial applications through open APIs and new data access models. Disruption opportunities span payments, remittances, lending, investing, insurance and more. ASEAN OpFi represents a $7.2B revenue opportunity for ecosystems like Zilliqa by 2025 (Slide 34). We estimate that OpFi companies employing DLT in the region could capture 19% share from the digital banking market which represents a meager 2% of the overall ASEAN financial services market. ASEAN’s financial services market is ripe for disruption. Despite being collectively the 5th largest global economy, with rapid economic growth rates and high levels of internet penetration, ASEAN suffers from low levels of financial inclusion, with 75% of the population either unbanked or underbanked. Enterprises within the Zilliqa ecosystem could be worth $3.6B in 2025 by capturing 10% of ASEAN OpFi (Slide 35). Companies in the Zilliqa DLT ecosystem would generate $722M in revenue if our base model input is correct. We estimate the total value of areas where Zilliqa’s DLT can reduce costs to be ~$360M. Of these costs, we estimate enterprises save 50% using DLT, with the remaining $180M paid as fees to the Zilliqa DLT Network and Zilliqa Research. We assume industry net profit margins of 20% and a 25x P/E for our ecosystem valuation. Zilliqa’s DLT network and the ZIL token could be worth $3.9B and $0.22 using our 2025 model assumptions (Slide 37). From an assumed $64B serviceable market using Zilliqa’s DLT, we assume 30% use the ZIL token to facilitate the financial function(s) being served (i.e. using ZIL for payments or as loan collateral) and a 5x model velocity to reach our valuation. We assume 50% or $90M of DLT fees go to network nodes. As RedHat is to Linux, Zilliqa Research is to its DLT, which could earn the Company $118M in revenue and value it at $590M by 2025, should it successfully execute to our base model inputs (Slide 41). If Zilliqa Research can capture 50% of the DLT related fees (25% of savings) through provision of consulting and support services to companies building on its open-sourced network, it would earn the Company $90M in Enterprise Support revenue. The Company could earn an additional $9M in network fees and $19M in block rewards, for a total of $28M in BaaS revenue from its expected 10% Zilliqa DLT node ownership. Valuation assumes 20% profit margins on $118M in revenue with a 25x P/E.    Blockchain accelerator funds drive ecosystem growth. The launch of Zilliqa Capital, a proposed $50M - $200M ecosystem fund, holds the potential to strengthen the platform’s position as a leading regional player in ASEAN and APAC OpFi markets, if successfully launched (Slide 55). What could go wrong? DLT adoption in general could lag, resulting in underperformance. Zilliqa could fail to gain market share against competing DLT platforms with greater traction or alternative features. Failure to reach our assumptions (Slide 42). It’s early to estimate the market size and our approach may prove to be inaccurate as new markets emerge or fail to materialize. The Company may fail to gain product market fit and generate revenue from customers. Crypto is a volatile asset class with the potential for any token network to eventually lose significant value. Bottom line: Successful deployments in 2020 would validate the Company’s go to market strategy and the DLT’s utility in a production environment. We’ll continue looking for signs of increasing fundamental network growth, while keeping an eye on how strategic partnerships evolve over the coming months. Key slides from this report... Zilliqa: Making a competitive play to capture the ASEAN Open Finance Market (Slide 1)... Zilliqa Research could capture ~$120M in revenue by 2025 (Slide 32)... The platform technology stack is reshaping the delivery of banking (Slide 23)...  Zilliqa DLT Network is a platform technology for the Open Finance ecosystem (Slide 25)... Zilliqa DLT Network is a platform technology for the Open Finance ecosystem (Slide 26)... Ecosystem: Network effect and value creation feedback loop design (Slide 15)... Zilliqa Ecosystem Funds: Driving blockchain ecosystem growth (Slide 55)...  

October 22 · Issue #768

Bitcoin jumps $900 in 24-hours reaching $13,184 before a slight pull back – BTC dominance breaks 61%PayPal announces plans to bring crypto to its platformPBoC official calls for China to increase effort to build and deploy DCEP ahead of other sovereign digital currencies Weekly Stock Review Highlights from the North American listed crypto, blockchain and mining stocks: Grayscale Bitcoin Cash Trust (OTCQX: BCHG) was the best performing tracked stock this week posting a 100% 7-day return. HIVE Blockchain Technologies (TSXV:HIVE) reported quarterly income from digital mining of $6.6 million derived from 25,562 ether and 154 newly minted bitcoin; adjusted EBITDA was $2.6 million. The premium to NAV for Grayscale Litecoin Trust (OTCQX: LTCN) jumped 137% and is now close to 950%. The Bitcoin Fund (TSX: QBTC-U. TO) is reported to have reached a new milestone with its marketcap surpassing $100 million for the first time. Taal Distributed Information Technologies (OTCQX: TAALF) had the worst return, dropping 8.3% on the week. Among the tracked stocks, the mean return during this period was 17.2% and median 14.8%, outperforming bitcoin at 12.2%. The Headlines Exchange, Custody and Product News Thoughts on the Ecosystem

October 21 · Issue #767

Bitcoin breaks $12,000 ceilingBahamas releases digital sand dollar across entire countryActing Comptroller of the Currency Brian Brooks sees banks becoming nodes on financial blockchains The Headlines Market Data Exchange, Custody and Product News Thoughts on the Ecosystem

October 20 · Issue #766

Crypto prices inch back up with bitcoin looking to retest $12,000Fed Chairman said being the first to issue a sovereign digital currency is not as important as getting it rightMixer founder charged by FinCEN for operating without a MSB license Crypto Fear and Greed IndexThe Fear & Greed Index for bitcoin and other large cryptocurrencies remains unchanged at 56 for the week. After moving into “neutral” and then entering the “greed” range at the beginning of the month, the index has held above 50 for the past 10 days signifying improving sentiment but trader hesitation as bitcoin inches higher but leading DeFi and other new protocols begin to show significant volatility. Time to Gloat for a MomentLike many readers of BitDigest, I have spent the past several years talking to people, attempting to educate them about digital currencies. For the most part this has been an enjoyable experience, but on occasion you meet a naysayer who simply will not listen and accept the idea of digital money. People ask about its intrinsic value or quote Berkshire Hathaway’s Warren Buffet who called bitcoin “rat poison squared.”One of the biggest longtime crypto defeatists has been the Bank of International Settlement’s Agustín Carstens. Carstens was one of the first central bankers to publicly speak out against digital assets calling cryptocurrencies a “combination of a bubble, a Ponzi scheme and an environmental disaster” saying he could not imagine a digital currency or other related technology “coming along any time soon that would be more efficient and generate the same level of trust” as sovereign electronic payment systems like those used in Switzerland. Yesterday morning, the IMF held a series of webinars on digital currencies and cross-border payments and as I cover below, the story among central bankers has turned 180 degrees. None other than Agustín Carstens spoke and said that CBDC’s are not a threat to the international monetary system and will provide much greater control to central bankers and provide the grounds to facilitate international payments, cost reduction, inclusion and efficiency gains. To quote Nelson Mandela, “education is the most powerful weapon, which you can use to change the world.” This journey has only just begun, but it’s nice to be able to take a moment and recognize that I am among many who have helped tell this story and educate others on this new technical innovation. What if I Get Hit By a Bus? My son recently asked me what will happen to my digital currencies when I die or as he put it, “what will happen if you get hit by a bus?” He was not as concerned about who will receive the digital assets in my wallet, but rather what will happen to the cryptocurrencies if he does not know how to access them. This is a legitimate question and something I have given a lot of thought too.I have tried to educate him as to how digital wallets function and have even left him written and video instructions on the steps to take to transfer crypto assets custodied on a digital wallet, but since he does not have any real experience in managing his own wallet and given the fear that he could make a mistake and potentially even send his assets to a wrong address I have considered moving some of my assets to a third party custodian. The main reason for this decision would be to add a safety factor by using a trusted third party. Besides offering an easier process for a crypto newbie, using a third-party custodian would eliminate the single point of failure, i.e. me getting hit by a bus, or at least that is what it is supposed to do. Given this background, I really do not understand what is happening at OKEx. There has been no news since last week. They are one of the largest digital exchanges in the world with $2.05 trillion in 24-hour volume and purportedly over $2.3 billion in bitcoin on-exchange holdings alone, yet since one person has been “out of touch” and meeting with Chinese authorities, no one else is able to authorize the withdrawal of client funds? As my son would say, what if this individual was hit by a bus? Will all funds remain locked on the exchange? I hope not. The Headlines Market Data Thoughts on the Ecosystem

October 19 · Issue #765

Bitcoin dominance returning with break above 59%Spain identifies digitalization and analysis on digital currency as strategic themeNorthern European Central Banks see continuation of cash in CBDC environment No Update from OKExOKEx has not provided an update since Friday morning when withdrawals were temporarily suspended. The Chinese operated, Malta-based exchange last said that all user funds and non-withdrawal operations are safe and functioning as usual, after it was reported that an unidentified staffer responsible for users’ private keys  has been “out of touch” while cooperating with a police investigation. The Headlines Market Data Exchange, Custody and Product News

October 16 · Issue #764

Crypto prices falling on news that crypto exchange OKEx has halted user withdrawals – BTC dominance hits multi-week highThe White House defines blockchain as a “critical and emerging” technologyBahamas expects next week’s release of digital sand dollar will become a global traded currency The Headlines Thoughts on the Ecosystem

October 15 · Issue #763

Crypto prices slide for second dayThe Mt. Gox Trustee needs more time and will only release the rehabilitation plan in DecemberNY DFS Calls for regulation and the “Systematically Important” designation to be given to top social media sites Weekly Stock Review Highlights from the North American listed crypto, blockchain and mining stocks: Grayscale’s Bitcoin Cash Trust (OTCQX: BCHG) was the top performing asset of the week returning 68.9%Ebang Holdings (NASDAQ: EBON) announced it has issued a tender offer to acquire a regulated New Zealand wealth management firm. Grayscale announced average weekly investments over the past 12 months include $39.5 million into the Grayscale Bitcoin Trust (OTCQX: GBTC), $9 million into the Grayscale Ethereum Trust (OTCQX: ETHE), $1.1 million into the Grayscale Digital Large Cap Fund (OTCQX: GDLC), and $2 million into its other three offerings. Marathon Patent Group (NASDAQ: MARA) announced the formation of a JV with Beowulf Energy to locate 1.265 EH/s in new mining equipment to Montana and access lower cost (>$0.3/kWh) energy. Hut 8 Mining (TSX: HUT) has completed the TSX Sandbox Program solidifying its status on the senior market exchangeBitfarms (TSXV: BITF) has entered into an equipment lease agreement to aqcuire an additional 1,000 WhatsMiner M21S rigs adding 72 PH to the company’s installed computing powerGalaxy Digital Holdings (TSX: GLXY) reported assets under management of $407.4 million as of the end of Q3The premium to NAV for Grayscale’s Ethereum Classic Trust (OTCQX: ETCG) turned negative and is posting at -2.44%. It was also the worst performing stock on the weekly chart, dropping -1.6%Bitcoin returned 7% over the past 7-days The Headlines Market Data Exchange, Custody and Product News Thoughts on the Ecosystem

October 14 · Issue #762

Crypto prices inch downwards in 24-hour tradingThe Financial Stability Board issues recommendations to provide oversight and clarity for stablecoinsRussia and Australia announce efforts to actively investigate CBDC DCEP: A Libertarian Dream or Tyrannical NightmareI am a big proponent and advocate of digital currencies, but I try to be pragmatic and one of the sayings we have repeated in our office for the past several years is that the use of digital currencies by sovereign nations would lead to a ‘libertarian dream becoming a tyrannical nightmare.”  Trustnodes has authored an opinion piece that warns of China’s Digital Currency Electronic Payments (DCEP) being a “Totalitarian Nightmare.” They explain that there is “nothing crypto” about the DCEP calling it a  “master and slave system with the central and commercial banks sharing one ledger, but the central bank is the master in as far as it can print however much yuan it wants in that ledger, while the commercial banks are the slaves in as far as they can only read what orders the central bank has given.” This master – slave structure cascades to a similar relationship between the banks and general public. Trustnodes conclusion is that the DCEP is about surveillance giving the Chinese government “absolute power over 1.4 billion people.” The Headlines Thoughts on the Ecosystem

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