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*Ninepoint Digital Asset Group, is a division of Ninepoint Partners LP.
PRICE SNAPSHOT
(8 Day Change as of Oct 14, 2022 10:00AM ET)
Bitcoin Price: $19,614  (2.38%)
DeFi Total-Value-Locked: $54.1B
Ethereum Price: $1,327  (2.78%)
Crypto Market Cap: $938B
Bitcoin Range: $18,131 - $19,954
BITC.U Close: $5.79 (as of Oct 13, 2022)
Ethereum Range: $1,190 - $1,344
BITC.U NAV: $5.77
Bitcoin Dominance: 41.79% 0 .41%
BITC.U Premium: 0.003%
DIGITAL ASSET COMMENTARY

Enterprise Adoption in a Bear Market

In the past week, we have seen three big Web3/Crypto announcements from large enterprises. First, Google has announced that it will accept crypto payments for cloud services, via a partnership with Coinbase. Second, BNY Mellon officially launched its cryptoasset custody business which was announced last year. BNY Mellon, founded by Alexander Hamilton, is the oldest American bank and one of the largest custodians of financial assets in the world. Finally, VISA announced a partnership with FTX to offer crypto payments in Latin America.

Analysis: Enterprise adoption of Web3 should continue and even accelerate in the bear market. There are several reasons for this. First, the market is simply too big to ignore. Second, these initiatives are months if not years in the making and once a big company sets out to do something it is likely to see it through. Third, the technology is increasingly ‘ready for prime time.’ Fourth, the growing popularity of NFTs has moved decision making from technology departments to marketing and head office. Some low-tech NFT initiatives are having outsized business impacts and so others will follow. Finally, the ‘greening’ of Ethereum with the move to proof-of-stake removes the ESG overhang making it easier for consumer facing brands to build in Web3.

Alex recently sat down for an interview in New York with Decrypt Media to discuss the enterprise adoption narrative. Check that out here.

Is the Bottom in for Bitcoin?

In this week’s Quantitative Analysis section (bottom of this newsletter) we re-examine some of our favourite metrics to gauge whether the floor is in for Bitcoin. We conclude that for the patient investor, now is a very attractive entry point to make a Bitcoin allocation and the data supports it. Learn more about the carbon-neutral Ninepoint Bitcoin ETF (BITC.U: TSX).

STORY OF THE WEEK
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Web3’s Next Schism Will Be Over Decentralization vs. Growth
By Alex Tapscott

Missionaries vs. Mercenaries

Many Web3 founders approach their work with missionary zeal. They not only want to build products and make money, but also want to rewire the economic power grid and the old order of human affairs for the better. To them, Web3 is not merely a technology toolset but a grand social and economic experiment playing out in real-time. It is frankly inspiring and one of the many reasons I remain so bullish on the asset class and the technology.

In any field, there are missionaries and mercenaries. The Bull Market lured in a fair share of mercenaries from Wall Street and Silicon Valley to Web3, drawn by the prospect to make quick money and be part of the “New, New Thing.” Many of them are returning to their old jobs after failing their trial by fire. But the missionaries are still here, and they are trying to figure out how to build on the success of the last bull market to reach the next billion Web3 users. As it turns out, they are going through their latest crisis of faith.

Pragmatic vs. Dogmatic

“Innovation and entrepreneurship are not ‘root and branch’ but ‘one step at a time’. They are “pragmatic rather than dogmatic and modest rather than grandiose.” - Peter Drucker

Religious metaphors are justified when describing this industry, given crypto’s many past schisms. Bitcoin true believers assert all other cryptoassets are “sh*tcoins,” despite their own high-profile fractures in the past. Many Ethereum backers see little value in alternative platforms like Solana and Avalanche. To be sure, many Web3 builders and users are open-minded and can take a balanced view. I count myself among them. But it is also clear people migrate to projects that fit their values. I know many Ethereum users who like Bitcoin but can’t stomach the energy usage. It is also evident that each of these groups has its fair share of missionaries, certain that their beliefs are incontrovertibly true.

And while all missionaries are dogmatic, some are more pragmatic than others. The Jesuit missionaries in North America were rigidly dogmatic, but they also were flexible when it suited them, adapting their teachings to existing native customs, languages, and narratives. The Bible and Lord’s Prayer were translated to Wendat, the local language. The story of Jesus, told in the Wendat Huron Carol, reimagines the birth of Christ from a Huron perspective: “Within a lodge of broken bark, the tender Babe was found, a ragged robe of rabbit skin, Enwrapp'd His beauty round.” No Bethlehem in this rendition.

The Dogma of Decentralization

In Web3, this tension between dogma and pragmatism flares up in the debate over decentralization. Since the beginning, decentralization has been a cornerstone of Web3. In a 2019 interview for my book Financial Services Revolution, Maker DAO co-founder Rune Christensen described what he saw as the core features of a DeFi application: It must be tamper-resistant (meaning it is difficult to shut down), run on a blockchain, and be trustless, meaning as a user you are not relying on a central party or platform. Today, venture capitalists and many founders tout the benefits of “progressive decentralization,” which assumes the end state should be as decentralized as possible. Ethereum’s early backers spoke of a world computer running unstoppable code.

Decentralization has some limitations. If you are not relying on a central party to execute a transaction, you also cannot rely on them to mediate a dispute or reverse a fraudulent transaction. You cannot seek damages because there is no central party at fault. This issue became relevant again recently with the Binance Bridge hack, which led to the theft of nearly $600 million of BNB, the chain’s native token, before the network was paused and much of the theft reversed, thanks to Binance being highly centralized. Some would say any blockchain that can be paused and reversed is no blockchain at all – just another centralized system, while others thought the pause sensible considering the potential loss. After dipping on the news, BNB again traded in line with the market, suggesting investors and holders didn’t penalize them for the decision to pause, and may have even rewarded them for it.

Even MakerDao, heralded as a successfully decentralized organization, is becoming more centralized. They recently announced they were buying $500 million of treasuries and bonds as collateral for the DAI stablecoin. i I gather they felt the need to centralize to compete with USDT and USDC, which have dominated the stablecoin race.

Centralization as a Stop-Gap

I am of the view that some centralization is inevitable until the technology scales. For example, many Web3 applications run on AWS. Eventually they will run on decentralized clouds, but we are a long way off. Metadata for NFT’s sit on centralized servers at OpenSea. Eventually, when Ethereum can handle it, that data should be on chain. The current limits don’t mean we shouldn’t run dApps or build NFT projects. There are other Web3 applications that may always have some level of centralization: for example, rendering a real-life Metaverse is not possible on a centralized cloud like AWS and may never be possible on a decentralized cloud. In this sense, Web3 can be re-cast as the Web3 toolkit we use to build apps of various levels of decentralization. Today, at least, centralization is a stop-gap. For any project considering a more centralized architecture, be careful that your medicine does not kill the patient.

DEFI & DIGITAL ASSETS
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How Decentralized is Web3, Really?
On this week’s episode, Andrew and Alex start by discussing recent exploit of the Binance chain’s most popular bridge, which led to the theft of nearly $600 million of BNB, the chain’s native token, before the network was paused and much of the theft reversed. Binance chain is more centralized than Ethereum and others, and the swift pause, though effective, was controversial. Some argued that any blockchain that can be paused and reversed is no blockchain at all – just another centralized system. Others argued that the pause was sensible considering the potential loss. After dipping on the news, BNB again traded in line with the market, suggesting investors and holders didn’t penalize them for the decision to pause (and may have even rewarded them for it). The Binance Chain situation exposed a philosophical rift in the industry between “decentralization maxis” who believe decentralization should be put ahead of all other considerations, and “adoption maxis” who believe trade-offs must be made to scale Web3. Who is right? 
QUANTITATIVE ANALYSIS
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Source: glassnode
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Source: glassno de
Is Bitcoin Getting Less Volatile?
Over the past month, Bitcoin’s implied volatility has declined about 10% from 74% to about 67%. In the same period, Ethereum has seen an even steeper decline, with implied volatility dropping from near 100% to closer to 80%.

In that same period, the VIX, which measures equity market volatility has increased by 39% – a significant jump. Still, implied volatility for Bitcoin is roughly double that of equities generally.
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Source: glassno de
Bitcoin: Percent Supply in Profit
In last week's newsletter, we touched on the realized price of Bitcoin, a metric that shows roughly where the breakeven price is for all Bitcoin accumulated to date. In the past, this value has been used by many to identify an attractive entry point. We have been asked just how “undervalued” Bitcoin is when it gets to this metric. Bitcoin recently dipped below 50% of Bitcoin in profit and sits more or less at that breakeven point.

In the past, we have seen bear markets where the percentage of Bitcoin supply in profit got as low as 40% (2014-2015) and more recently 47% (The Covid Crash of 2020). The chart above illustrates historic breakeven points as originally displayed in the glassnode weekly newsletter.
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Source: glassno de
Minnows Buying?
The number of Bitcoin addresses with at least 0.01 Bitcoin (or roughly $200 USD) continues to hit all time highs. In past bear markets, most recently the crash of 2018, the number of addresses contracted significantly. This may suggest an ongoing accumulation from smaller-sized investors. It may also suggest Bitcoin is becoming more widely used as a medium of exchange for small dollar transactions.
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Source: glassno de
Whales: Relative Address Supply Distribution
The chart above shows the percentage of total supply held by holders of at least 100 Bitcoins (aka ‘whales’). While the percentage held by those with at least 100 BTC ($2 million) is rolling over slightly, the share of supply held by those with at least 10k Bitcoin (or $200 million) is increasing. This could suggest institutions are taking advantage of price weakness to add to their holdings.

The fact that both small and very large holders are adding here is bullish, in our opinion, as breadth is generally good for the market. 
COMMENTARY & INSIGHTS