Crypto Long & Short: Bitpanda’s Raise Is About More Than Market Infrastructure

It's also about the potential of the European market.
It's becoming increasingly apparent that the rapid change in crypto market infrastructure that we've seen over the past year was just the warm-up.

 

(Thanks to Nelson Rosario and Cris Carrascosa for inspiring this thread.)

Momentum and gateways

This week, CNBC's report that Morgan Stanley was allowing its financial advisers to put client funds into bitcoin sent ripples through the wealth-management industry. 

 

The firm, one of the largest asset managers in the world with over $4 trillion AUM, will give clients access to three bitcoin funds via its platform. Two of these funds are managed by Galaxy Digital, and the third is overseen by FS Investments and NYDIG.

 

For now, the bitcoin funds are only available to clients with accounts that have been active for at least six months and are worth over $2 million ($5 million for investment firms), and there is a limit of 2.5% of a client's net worth.

 

Nevertheless, the move is significant for the whole market for the signals it sends:

  • Clients are demanding bitcoin exposure. We knew this anyway, but here's more proof.
  • Bitcoin is now officially investment grade. Morgan Stanley's acceptance of bitcoin's liquidity, custody and market integrity is a loud stamp of approval. This signals to financial advisers of all types that this market is worth thinking about with an open mind.

These signals won't just reach investors. They will also reach other investment houses and financial advisers, who will probably scramble to offer similar services rather than be seen as overly conservative in a low-yield market that is pushing investors further along the risk curve. 

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CHAIN LINKS

"There are plenty of things that people want and value highly that have no intrinsic value. How about a painting or a diamond or a bar of gold?" – Howard Marks, in a video interview

 

"For speculative investment opportunities to rise to the level of an investable asset class that can play a role in diversified investment portfolios requires transformational progress on both the supply and demand sides. With cryptocurrency, we think that threshold is being reached." – Morgan Stanley Wealth Management, in a report released this week

 

"Importantly, small changes in investors' overall perceptions about Bitcoin can have a large impact on its price, especially because relatively few bitcoins are in circulation. So, if several pension funds or large asset managers with trillions of dollars decide to allocate a few basis points of their portfolios in a cryptocurrency, it can have a very large impact." – Deutsche Bank Research, in a report released this week

 

SEC commissioner Hester Peirce gave a speech this week at the British Blockchain Association's conference in which she discussed her view on the regulator's inconsistent reasons for rejecting previous bitcoin ETF applications:

 

"Rather than applying the fairly straightforward standard that we have typically applied in approving other ETP filings—including for precious metals like palladium and platinum—we have insisted on increasingly sophisticated analyses of the relationship between the underlying spot market and the futures market to determine the susceptibility of these markets to fraud and manipulation. Not only is it unclear whether prior non-crypto ETP filings could have passed muster under this more rigorous approach, the ever-shifting goalposts are unfair to innovators who spend ever-increasing amounts of money on attorneys and quantitative experts only to find that they have failed to hit a target that has moved once again."

 

She also pointed out that the SEC stance has heightened risk for retail investors, rather than protected them:

 

"The SEC's reluctance to permit traditional investment vehicles to hold bitcoin or bitcoin futures has contributed to investors seeking more expensive, less convenient, or less direct substitutes, but it also has heightened the stakes of any regulatory approval for a mainstream retail product we might one day grant. By waiting we also have magnified the first-approved advantage in the bitcoin ETP or registered fund space. Moreover, because we have comported ourselves like merit regulators, investors might view any approvals as an official blessing by the Commission about the quality of the products we approve. That would be the wrong inference to draw."

 

Speaking of ETFs, the SEC acknowledged the ETF application submitted by VanEck, formally kicking off its 45-day window to make an initial decision on the proposal. TAKEAWAY: If approved, the ETF would be the first bitcoin ETF in the U.S., and its approval would send a strong signal to the global investment community that the market has "grown up" and now passes the SEC's rigorous (albeit contentious) standards. 

 

First Trust Advisors and SkyBridge Capital, the hedge fund run by Anthony Scaramucci, have filed an S-1 with the SEC for the "First Trust SkyBridge Bitcoin ETF Trust," to trade on NYSE Arca. TAKEAWAY: They join WisdomTree, NYDIG, Valkyrie and VanEck in the queue, with Grayscale (a subsidiary of CoinDesk parent DCG) hiring ETF positions.

 

Grayscale Investments (a subsidiary of CoinDesk parent DCG) has launched five new trusts based on decentralized application tokens Chainlink (LINK), Decentraland (MANA), Brave (BAT), Filecoin (FIL) and Livepeer (LPT). TAKEAWAY: This is a meaningful nudge to institutional investors to look a bit further down the market cap rankings for potential – and the inflows this is likely to produce will send not just funding but also more mainstream attention to innovative platforms and use cases.

Trading platform eToro will become a publicly traded company via a merger with special purpose acquisition company (SPAC) FinTech Acquisition Corp. V. The combined entity will have an implied equity value of about $10.4 billion, reflecting an implied enterprise value for eToro of about $9.6 billion, according to the company. TAKEAWAY: This adds to the list of crypto market infrastructure companies to go public, boosting our access to financial statements and a better understanding of the business dynamics of the industry.

 

Kraken could also soon contribute to that list. The crypto exchange, which has been trading since 2011, is reported to be considering a direct stock exchange listing in 2022. TAKEAWAY: Kraken is a key player in the industry, offering not only one of the leading exchanges, but also the first regulated "crypto bank" after receiving a bank charter from the state of Wyoming. While those would be some financial statements I would love to take a look at, it's possible that an eventual listing, should it materialize, would be for only part of the growing company's business lines.

 

SBI Crypto – a subsidiary of Japanese conglomerate SBI Holdings – is opening up access to its mining pool for both institutional and retail customers. TAKEAWAY: This is part of what seems like an emerging trend to bring greater liquidity to bitcoin mining as an investment asset, and follows just one week after North American mining firm Foundry (a subsidiary of CoinDesk parent DCG) opened up its mining pool to institutional customers.

 

The latest survey by Bank of America shows that inflation fears have replaced the pandemic impact as fund managers' biggest worry, and that "long bitcoin" is still the second-most crowded trade, behind "long tech." TAKEAWAY: "Most crowded" does not mean "unadvisable." It does warn investors that, should sentiment turn, the stampede toward the exit could be nasty.

 

An Investopedia survey showed that 20% of respondents have added bitcoin to their portfolios, while 60% believe it is in bubble territory. TAKEAWAY: The U.S. financial website's editor in chief Caleb Silver said that respondents' concerns were founded, as bitcoin's price has risen without any specific catalyst other than growing institutional demand. I'm perplexed as to why that wouldn't be considered a catalyst.

 

Hong Kong-listed software firm Meitu has bought another 16,000 ETH valued at around $28.4 million and 386.086 BTC valued at approximately $21.6 million. TAKEAWAY: Could this be another corporation on its way to becoming an ETF-by-proxy? These purchases more than double the previous investment earlier this month. The company's share price did not noticeably react to the first announcement, but has picked over the past couple of days. I haven't seen the 2020 balance sheet, nor am I clear on the distribution of the crypto holdings among subsidiaries – but we can probably conclude that $90 million is starting to feel more material for shareholders than the previous investment of $40 million. Also, given that Meitu's main business line appears to be social media apps, this could end up being part of a strategic business pivot.

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