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*Ninepoint Digital Asset Group, is a division of Ninepoint Partners LP.
PRICE SNAPSHOT
(8 Day Change as of September 30, 2022 9:45AM ET)
Bitcoin Price: $19,338 1.95%
DeFi Total-Value-Locked: $54.74B
Ethereum Price: $1,329 4.31%
Crypto Market Cap: $940B
Bitcoin Range: $18,632 - $20,383
BITC.U Close: $5.76 (as of Sept 29, 2022)
Ethereum Range: $1,254 - $1,400
BITC.U NAV: $5.78
Bitcoin Dominance: 41.02% 0.10%
BITC.U Discount: 0.34%
DIGITAL ASSET COMMENTARY
  • FTX won the auction for the assets of bankrupt crypto lender Voyager’s Digital, paying $1.4 billion. The price includes $1.3 billion fair market value for the assets plus $111 million of additional consideration. FTX and its founder Sam Bankman-Fried has played an outsized role as an acquirer and lender of last resort during this recent downturn, which Alex discusses in this opinion piece for Fortune Magazine.
  • Last week, crypto data analytics firm Messari hosted its annual Mainnet event in New York. At the event, Messari announced the closing of a $35 million financing led by Brevan Howard Digital. In an interview at the event with Decrypt, Mainnet’s media partner, Alex shared his thoughts on the state of the market and the big trends for 2023. Also see Alex’s section below.
  • The IMF has called on the Financial Stability Board, a global watchdog for banks, to oversee regulation of stablecoin and other cryptoassets. In two reports, The IMF says the FSB is "well placed to take the lead in coordinating and establishing global standards to support national regulation of crypto assets.” The reports suggest the IMF now acknowledges the systemic importance of cryptoassets.
  • California Governor Gavin Newsom vetoed a bill which would have required a ‘crypto license’ to operate in the state, similar to New York’s much maligned BitLicense, which many in the crypto industry accuse of duplicating existing regulatory requirements, burdening start-ups with added legal and compliance costs, and thus limiting innovation and entrepreneurship in the state. The veto was viewed as a positive for the industry and the state’s much celebrated innovation economy.
STORY OF THE WEEK
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Field Report from My New York Trip

By Alex Tapscott

I was in New York last week for Mainnet, hosted by crypto data analytics firm Messari. Though most of my colleagues in the industry (especially in the U.S.) had long-ago returned to some form of ‘normal life,” the trip still felt like a novelty to me.

New York pulsed with the familiar energy of a city awakened from its Covid-19 induced catnap, and that energy carried over to the event. I left the event feeling invigorated and inspired and frankly more bullish on cryptoassets as a long-term investment and on Web3 as a transformational technology than ever before.

Hopium Springs Eternal

I was not alone in feeling this way. In fact, there was a sense amongst attendees that despite the drop in cryptoasset prices, “this time is truly different” from past bear markets. Of course, this crowd would very much like to see Web3 succeed, but this “hopium” is grounded in reality. While NFT volumes have dropped off and exchange activity has slowed, the number of Bitcoin wallets holding at least 0.01 BTC continues to hit new highs. The VC funding for start-ups has not let up. In fact, Messari announced at their own event a $35 million funding round led by Brevan Howard (the venerable tech VC) via their Digital group.

The drop in prices also didn’t derail The Merge where Ethereum upgraded to a proof-of-stake consensus mechanism. The receding tide of cryptoasset prices has exposed those groups “swimming naked,” such as the crypto lenders who went bankrupt and hedge funds who failed, providing cover for a more assertive regulatory response. But even this may not be a bad thing. Regulation is an inevitability of any serious industry. At the event, attendees heard from senior industry figures, including Kara Calvert head of Policy at Coinbase, Kristin Smith, Executive Director of the Blockchain Association, who are working with policymakers and government agencies to ensure any new laws are thoughtfully crafted and existing ones fairly administered, without harming innovation.

The Enterprise Strikes Back?

The biggest bull case for blockchains and Web3 may come from an unlikely source which got relatively little stage time at the event: large enterprises. Whereas most investors remain obsessed with institutional money flows, they pay less attention to the big companies who are experimenting with Web3 tools. Probably this is a legacy of the ‘enterprise blockchain’ period when companies would work with professional services firms and enterprise software companies to spin up closed-end proprietary blockchains, which generally didn’t work out.

There are two important differences with today’s enterprise blockchain efforts. First, in the past most enterprise interest came from IT or finance departments, and now it is coming from marketing and head office, thanks to the growing popularity of NFT’s. For relatively little cost and with low technical capability a brand can launch an NFT project which can have an outsized impact. As a result, we’ve seemed major fashion companies such as LVMH and household brands like Gucci and even Taco Bell launch projects. Nike has made over $150 million from NFT sales. To be sure, some of these are publicity stunts but others like Starbucks’s NFT rewards programs are meaningful innovations to the core business. Second, whereas in the past most enterprises were building on closed-loop systems purpose built for some narrow use case, now these companies are building on public blockchains like Ethereum, Polygon, Solana, and others.

Enterprise adoption of public blockchains is likely to accelerate rather than decelerate in this bear market. There are three reasons for this. First, the Ethereum Merge reduced the carbon footprint of the network by 99%. The ‘greening’ of Ethereum has made it easier for consumer-facing brands to build on Web3. The criticism that NFT’s are boiling the ocean (which was never credible) has now become obsolete. Second, the Merge removed a crucial overhang that may have prevented enterprises from leaning into public blockchains. Good companies plan for the long-term and having comfort and certainty on the technology they’re using is critical. Finally, the drop in price is unlikely to impact adoption as most of the initiatives in the pipeline would have begun months ago and won’t be derailed by a bear market. Also, the lower profile of crypto now creates room to experiment and play around.

Enterprise Adoption and the Investment Case for Web3

Enterprise adoption not only lends credibility and validates the thesis for Web3, it also directly benefits the investment case for the asset class, particularly Ethereum and another so-called Layer 1 blockchains. If significant business activity moves on-chain, then these platforms stand to benefit greatly. NFT’s are Web3’s Trojan Horse opening the gates to the Enterprise citadel.

In the 1990’s big companies built and implemented costly ‘intranets’ to try and mimic the benefits of the Web while cleansing it of its more unruly and anarchic attributes. Today nobody uses intranets, but the Web is more powerful than ever. In the 2016-2020 period, big enterprises tried to build their own ‘private blockchains’ which, much like the early intranets, looked good on paper but failed to scale. Soon, blockchains will be more powerful and more popular with enterprises than ever before. I believe that sooner rather than later, “What’s your Web3 strategy?” will just be “What’s your strategy?” as the technology gains mass adoption.

DEFI & DIGITAL ASSETS
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On today’s episode, Alex and Andrew dig into the current macro situation and debate the ‘Milkshake Theory” that the US dollar sucks all liquidity from other currencies (Cue Daniel Day Lewis: “I drink your milkshake! I drink it up!”). Right now, global currencies are collapsing as the US dollar steamrolls its way across the globe. Financial conditions are as tight now as in March 2020. In U.S. dollar terms Bitcoin is down but for global traders pricing in their local currency, the situation looks better. Still storm clouds are raging and the water level is rising. Will the levy break? Also, they dig into how enterprise adoption of public blockchains is likely to accelerate post-Ethereum merge, and how that will impact the investment case for Ethereum and others. 
QUANTITATIVE ANALYSIS
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Source: CarbonX and the Crypto Carbon Ratings Institute
Carbon-Offsetting the Ninepoint Bitcoin ETF
With Ethereum’s move to proof-of-stake, Bitcoin is the last remaining major blockchain which still uses the energy intensive process of proof of work mining. As we have written before, Bitcoin mining is one of the more “green industries” measured by the share of energy inputs that come from renewables at 49% (according to Cambridge University). Still, 51% of a big number is still a big number.

At Ninepoint, we took the additional step of offsetting 100% of the carbon footprint of our Ninepoint Bitcoin ETF. How do we quantify our impact? According to our partners CarbonX and the Crypto Carbon Ratings Institute, who used the EPA’s carbon dioxide calculator, Ninepoint has so far offset 7,000 metric tons of carbon dioxide, equivalent to greenhouse gas emissions from the various activities in the above infographic.  
COMMENTARY & INSIGHTS