April 3, 2024

Insights and analysis for the professional investor

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Welcome to Crypto Long & Short!

This week, Max Freccia, of Truvius, argues that the recent price action in bitcoin and ether is just the tip of the iceberg when it comes to the wider potential for blockchain technology to revolutionize finance.

Then, Peter Gaffney, of Security Token Advisors, says BlackRock and Securitize's new digital assets fund is a game-changer for tokenization among institutional investors.

As always, get the latest crypto news and data from CoinDeskMarkets.com.

– Benjamin Schiller, head of opinion and features at CoinDesk

From the Analyst

Are You Too Late to Crypto?

The recent run-up in digital asset prices may have some crypto-curious investors feeling like they missed their entry opportunity. Bitcoin is up ~50% YTD and ~135% over the trailing one-year period.

However, zooming out to observe the transformative nature and relatively small current utilization of blockchain technology (vs. the performance of any single asset built upon it) reveals just how much of crypto's potential economic impact remains untapped.

Separating Blockchain from Bitcoin

Investors focusing only on Bitcoin's current price appreciation and its potential economic impact (while substantial) are looking past the fundamental driver of crypto's value proposition to the broader global economy: blockchain technology. The blockchain's use cases for powering transactions and broader interactions with information far surpass that of any single asset, with the potential to increase efficiency in a variety of industries. Figure 1 puts in perspective the sheer size of the market opportunity for crypto by pinpointing areas particularly well-suited for blockchain innovation:

Figure 1: A Comparison of Asset Valuations

The industries and assets ripe for blockchain-driven efficiencies represent a staggeringly large and diverse set of fundamental use cases. Let's dive into a few representative examples:

Financial Services: the value proposition for decentralization in financial services covers asset management, trading, insurance, payments, and more.
Entertainment and Gaming: Decentralizing content distribution, improving royalty payments, and providing secure in-game monetization are just a few of the entertainment- and gaming-related uses of blockchain technology.
Information Technology Infrastructure: Secure, decentralized, and distributed data and computing power offer more efficient and connected infrastructure solutions for technology-enabled businesses.
Fixed Income: Earlier this month, tokenized U.S. Treasuries surpassed the $1B mark, signaling an early milestone for the real world asset (RWA) tokenization movement across asset classes.
Real Estate: Smart contracts fit very cleanly with a variety of real estate use cases, including transfer of ownership, recurring rental payments/yield, and financial derivatives. Smart contracts used in this way could disrupt many industries where intermediary brokers stand between buyers and sellers.
Value Storage and Transferability: The classic Bitcoin value proposition—native crypto characteristics (portability, divisibility, scarcity, etc.) lend themselves well to mirroring gold or fiat currencies as a store of value.

Conclusions for New (and Old) Crypto Investors

Instead of asking themselves, "Did I miss my chance?" potential digital asset investors should ask, "Do I believe in the transformative nature of blockchain technology?" Investing in digital assets should represent a belief in the far-reaching value proposition of blockchain technology, ranging from the variety of industries that comprise the macroeconomy to the transactions that encompass everyday markets and human experience.

A thoughtful multi-asset approach to portfolio construction and ongoing management is crucial to ensuring crypto investors capture the full value proposition of blockchain innovation.

- Max Freccia, Co-Founder and the COO/CFO at Truvius

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Institutional Outlook

Where BlackRock Goes, Liquidity Flows

News that BlackRock and Securitize are linking up to create a digital assets fund has major implications on regulated, compliant tokenization markets within the United States.

BlackRock's USD Institutional Digital Liquidity Fund (BUIDL) is not the first of its kind to list on Securitize's platform, but it's likely the product that will catalyze institutional capital and serious money managers to the Securitize ecosystem.

(BUIDL) will hold 100% of its assets in cash, U.S. Treasury bills, and repurchase agreements (repos), categorizing it as a digital money market product. Securitize previously and currently acts as the transfer agent and issuance platform for Arca's US Treasury Fund (RCOIN). While Arca mapped out the vision and pioneered the blockchain-based structure for a traditionally ultra-liquid fund in 2020, BlackRock's positioning here may provide the real spark this vision was aimed at.

Per Security Token Market (STM.co) data, lifetime Alternative Trading System (ATS) volumes for tokenized assets reached $110+ million through March 2024. BlackRock's $100 million BUIDL seed funding makes it the largest asset on Securitize, and Week 1 inflows of roughly $175 million already position BUIDL as the second-largest product in the money market cohort with $275 million in AUM behind Franklin Templeton's $360+ million money market fund.

While limited to Qualified Purchasers (QPs) in the primary markets (defined as an estimated 2.7 million households with $5 million or more in investable assets or investment managers & corporations with $25 million in investable assets), eventual spillover to a secondary market listing will enable more desirable trading conditions to incentivize investors. BUIDL will prove itself to be a sticky asset enabling investors to collect yield while evaluating other listed alternative investments like Securitize's listed KKR and Hamilton Lane funds and composing portfolios without ever leaving the platform once.

As Security Token Advisors detailed all 2023 in its State of Security Tokens report series, money markets and treasuries are the low-hanging fruit for asset managers to get familiar and comfortable with tokenization technology, partners, and the landscape. Other blue-chip money managers will see BlackRock's liquidity fund as the gold standard to park capital in and get their own teams up-to-speed with regards to on-chain finance.

In fact, on March 27, 2024, Ondo Finance completed a $95 million reallocation of its own tokenized short-term bond fund to BUIDL. As fiduciaries onboard with Securitize for the desired access to BUIDL, they'll move significant capital into the fund and therefore into the Securitize ecosystem. As a result, surrounding alternative investment products and listings on Securitize Markets' primary and secondary trading venues are likely to see a bump in capital flows and activity. This in turn will set precedent for other broker-dealers, alternative trading systems, and comparable regulated venues in their issuer structuring and strategies.

- Peter Gaffney, Head of Research, Security Token Advisors

Takeaways

From Benjamin Schiller, here is some news worth reading:

ALL ABOUT THE HALVING: Bitcoin's next big event happens around April 20, when the block reward will be halved from 6.25 BTC to 3.125 BTC. This happens every four years, making it a somewhat predictable event (it will happen this time when the number of blocks on Bitcoin hits 840,000). But there's a few good reasons why this "halving" will be quite different from the last one in 2020. For one, the last halving happened as the COVID lockdown began, so all the watch parties took place in dislocated bedrooms around the world. For another, the crypto market is healthier and deeper now, meaning that we might see a greater "bitcoin bump" as the moment happens. CoinDesk Indices recently looked at the historical data and found that previous halvings produced an uptick in the bitcoin price. He expects the jump to be greater this time. "The reduction in the supply issuance rate emphasizes Bitcoin's scarcity, which can drive up demand and consequently increase its price," he wrote. Block 840,000 could become the most prized, expensive block ever mined, CoinDesk's Dan Kuhn reported in a separate piece. CoinDesk will have continuing in-depth coverage of the event and its impact on Bitcoin and the wider crypto market.

Want more? For the latest news affecting the crypto markets, listen to CoinDesk's Markets Daily podcast.