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*Ninepoint Digital Asset Group, is a division of Ninepoint Partners LP.
PRICE SNAPSHOT
(7 Day Change as of Nov 4, 2022 9:40AM ET)
Bitcoin Price: $20,797  2.99%
DeFi Total-Value-Locked: $55.27B
Ethereum Price: $1,613  6.82%
Crypto Market Cap: $1.04T
Bitcoin Range: $20,108 - $20,797
BITC.U Close: $5.79 (as of Nov 3, 2022)
Ethereum Range: $1,509 - $1,664
BITC.U NAV: $6.03
Bitcoin Dominance: 40.16% (2.78%)
BITC.U Discount:  0.039
DIGITAL ASSET COMMENTARY
On eve of election, half of Americans polled think crypto is the future of finance: According to a recent poll conducted by investment firm Grayscale more than half of Americans surveyed (53%) agree that “cryptocurrencies are the future of finance,” including 59% of Democrats and 52% of Republicans, with 44% of Americans noting that they expect to have crypto as part of their investment portfolio in the future.” The poll comes on the eve of the Midterm elections.

In the Metaverse, nobody can hear you scream (because nobody is there…yet): Decentraland, one of the more well-known metaverse platforms in Web3 is seeing scant adoption so far. DappRadar “estimates about 6,200 unique active wallets in total for the past 30 days, an average of 206 per day, according to an article in The Block. The author does note that “you don’t need a wallet to access Decentraland, though it does limit some functions, including the ability to save your avatar's appearance.” Decentraland disputes these numbers arguing the figure is closer to 8,000 a day which is better but still tiny by Web2 standards. To be sure, in the future we may all spend more time online in an immersive digital world, but at least today it appears only the most hardcore hobbyists are living in the Metaverse.

Bitcoin’s Correlation to Equities Drops from 0.99 to 0.28: The narrative for most of 2022 has been US dollar steamrolling its way across the globe, squashing assets indiscriminately into one giant pancake (metaphorically). To wit, financial conditions in September were as tight as in March 2020 at the height of the Covid-19 scare. Conditions have softened somewhat. While the U.S. dollar still sits near historical highs, we are seeing some variance in asset performance and Bitcoin and other cryptoassets have found some breathing room. Correlations have declined, notably between Bitcoin and US equity gauges.

Finally, October 31, 2022 marked the 14th anniversary of the Bitcoin white paper: In eight pages, Satoshi outlines his design for “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” Fast forward to today and this $1 trillion asset class is shaking the windows and rattling the walls of finance and other industries. The Bitcoin white paper is a tightly written, clearly laid out and frankly brilliant explanation of one of the most important economic innovations of our time – Read it here.
STORY OF THE WEEK
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If Accounting is the Language of Business, Then Cryptoassets Need a Translator.
They Might Finally Get One.
By Alex Tapscott

“Accounting is the language of business,” said Warren Buffett. “You have to be as comfortable with that as you are with your own native language to really evaluate businesses.” i It’s so important that some consider double-entry bookkeeping one of the great innovations of all time. ii According to economist Tim Hartford and others, it enabled Venetian and Tuscan merchants in the 1300s “to keep track of … extraordinarily intricate web[s] of transactions” around the Mediterranean over time, laying the foundation for managing the modern global enterprise. iii

The person who invented it, is still unknown. But Florentine Friar Luca Pacioli wrote the book on it—that is, he devoted a couple dozen pages to it in his much “translated, copied, and plagiarized” tome on mathematics iv. Since their publication in the late 1490s, those very lucid and illustrative pages have shaped how business owners have kept inventory and recorded transactions. v When they added up their transactions, both entries in the ledger had to “balance” out, which is where we get the term balance sheet, and why we “ balance the books.”

Perhaps because of its long history, vast size and enduring usefulness, the accounting profession takes time to absorb new information and update the rules.

Currently, there are no specific rules for how to do accounting of crytpoassets, which makes sense since the asset class itself is barely a decade old. This makes for some awkward jerry-rigging – trying to make a new asset class work with old rules. That may soon change.

Cryptoassets: Fair Value and Fair Treatment

Earlier this month, the Financial Accounting Standards Board concluded firms should measure cryptoassets using fair value accounting, with gains and losses recorded in current period comprehensive income. This decision is not final and so it will be some time before these standards are reflected in US GAAP and other account rules. For a detailed breakdown, read KPMG’s report on the decision.

Still, this is a big step forward as it gets us closer to a workable framework for cryptoassets, specifically making it easier for companies to carry cryptoassets on their balance sheets. The lack of clarity in accounting standards for cryptoassets is often cited as a reason for limited adoption of cryptoassets by firms. According to an article in CPA Practice Advisor, most cryptoassets are accounted for as indefinite-lived intangible assets, such as trademarks, in the absence of crypto-specific US GAAP, citing the KPMG executive summary. This often means companies must carry the asset at the lowest value since purchase, rather than simply marking to market based on current values. Logically, a company will not hold an asset if it is carried at an artificially low value unless it must, especially if it means they need to take a significant impairment charge on that asset when it declines in value from the purchase price.

Invariably, many enterprises will own cryptoassets, either as a treasury investment, or because it is essential to operating their day-to-day business – for example, it’s easy to imagine many corporations who offer web3 services needing to carry ETH on their balance sheets to act as a network validator. This should make adoption that much easier.

Mind the GAAP: Leapfrogging Traditional Accounting

In the short-medium term, this is a big positive that will ease the path for companies to own this asset class. Long term, however, we think that much of the accounting industry itself will be replaced as more transactions move on-chain. Blockchains enable triple-entry bookkeeping, with the third entry (or entries) appearing on-chain, that is, every transaction created an entry in a blockchain that anyone can see. Already, we can search, verify, and audit on-chain data across a range of blockchains. Soon, we will have a record of large amounts of economic activity, not only the movement of money, but also the trading in financial assets, IP, and even physical goods in this way.

The example of Yearn Finance is illustrative. It has made its GitHub repository a destination for data about the platform, all of which can be independently verified on-chain. vi On it, we can track every single Yearn transaction in real time, get transaction records and search protocol income, protocol expenses, income statements, end of month balances and more. We can see revenue projections, charts, tables, and other useful data. In the future some mix of verifiable on-chain raw data, data analysis tools, and verifiable information curated by individual projects like Yearn will replace the quarterly statements and other financial paperwork of today.

In a world where on-chain data gives us a perfect snapshot into the financial health of an organization, what role is there the accounting firm or auditor? Plenty, it turns out. However instead of auditing data in a spreadsheet, auditors will have to vet on-chain data and audit smart contracts.
DEFI & DIGITAL ASSETS
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Jack Zampolin, Master Chef Turned Web3 Empresario, Dishes on What’s Next for Cosmos
On this week’s episode of DeFi Decoded, Alex and Andrew sit down with Jack Zampolin, Co-founder of Sommelier, and former Product Manager at Tendermint. He’s no Doctor, but the Strangelove Ventures founder has breathed life into several Cosmos’s most well-known applications such as Akash Network, where he was also product manager. This “Jack of all trades” now has his sights set on cross-chain implementation of IBC, starting with Polkadot. Jack tells us about his investment thesis for Cosmos, why a portfolio approach is best, and why he thinks most of the killer apps on Cosmos and in Web3 generally are yet to be built. He may try to build them all!
QUANTITATIVE ANALYSIS
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Source: The Block
Just one chart today: Bitcoin Correlation to NASDAQ Drops to 0.28 from High of 0.99
The narrative for most of 2022 has been US dollar steamrolling its way across the globe, squashing assets indiscriminately into one giant pancake (metaphorically). To wit, financial conditions in September were as tight as in March 2020 at the height of the Covid scare. Conditions have softened somewhat. While the U.S. dollar still sits near historical highs, we are seeing some variance in asset performance and Bitcoin and other cryptoassets have found some breathing room. Correlations have declined, notably between Bitcoin and US equity gauges. See chart from The Block.
COMMENTARY & INSIGHTS