Can't see the pictures? Select "Enable all message content" or view this message in your browser.
*Ninepoint Digital Asset Group, is a division of Ninepoint Partners LP.
PRICE SNAPSHOT
(7 Day Change as of Nov 17, 2022 3:30PM ET)
Bitcoin Price: $16,652  (3.94%)
DeFi Total-Value-Locked: $42.5B
Ethereum Price: $1,203  (5.55%)
Crypto Market Cap: $830B
Bitcoin Range: $15,790 - $18,140
BITC.U Close: $4.81 (as of Nov 16, 2022)
Ethereum Range: $1,192 - $1,328
BITC.U NAV: $4.93
Bitcoin Dominance: 40.65% 1.59%
BITC.U Discount: 0.024
SPECIAL ANNOUNCEMENT

Thursday, November 24th @12:30 ET, we are hosting an interactive webinar with Alex Tapscott, Managing Director of the Ninepoint Digital Asset Group, to discuss the fallout from FTX’s collapse and how it may impact the investment case for digital assets.

We will also discuss what happens next and where the industry is heading.

This is an interactive webinar with most time dedicated to answering audience questions.


DIGITAL ASSET COMMENTARY

It has been a tumultuous week in the digital asset world: Last Thursday, FTX filed for Chapter 11 bankruptcy, and now the Wall Street Journal is reporting that FTX is still trying to raise money, while simultaneously being probed by Federal Prosecutors in New York. In the Bahamas, where the company is based, FTX is subject to a criminal probe by authorities. Bloomberg is reporting U.S. and Bahamian authorities are discussing bringing FTX CEO Sam Bankman-Fried to the U.S. for questioning.

This situation is happening in real-time, and we expect more shoes will drop. Buckle up.

Collateral damage continues to come to light as worries persist about possible contagion risk. Notable cryptoasset manager Multicoin Capital announced 10% of its assets are trapped on FTX. Hedge Fund Galois said 50% of its assets are on FTX, while fund manager Sino Global announced a ‘7-figure loss.’ BlockFi, bailed out by FTX earlier this summer, said it has ceased operations and filed for Chapter 11 bankruptcy.

Alex Tapscott joined BNN Bloomberg recently for an interview with Jon Erlichman to discuss how the unfolding FTX drama impacts digital assets and Web3. For more detail, check out Alex’s section. 

Meanwhile in non-FTX news…

USDC issuer Circle Says its Customers can Now Use Apple Pay, Following Integration: “NFT marketplaces, crypto gaming, crypto exchanges, crypto wallets and cross-border remittance providers can help their business grow by making checkout easy with Apple Pay and Circle,” the company said. The announcement is another reminder of the deepening ties between digital assets and traditional finance.

Stablecoin values on the exchange have hit an all-time high of $42 billion, after one of the most significant weekly inflows on record. Meanwhile, some investors are buying the dip as passive cryptoasset funds recorded $42 million of net inflows in the past week.

STORY OF THE WEEK
iStock-1276692278.jpg
FTX Collapse and What Comes Next 

By Alex Tapscott

The collapse of FTX set the digital asset industry back significantly in terms of public trust. Market participants, policymakers, and other stakeholders in the space must ask how this happened and what we can do to prevent it from happening again. We must commit ourselves to address unscrupulous or irresponsible actors while continuing to push the boundaries of Web3.

First, we need a sensible framework and regulations that protect users and still promote innovation. The status quo of regulation by enforcement must end. Policymakers and industry leaders can work together to come up with something akin to the 1996 Telecommunication Act, which created the conditions for innovation to thrive responsibly. Any new rules must distinguish between the technology and the companies that build services on top of it. Take cues from the Internet—we don’t regulate network time or hypertext transfer protocols (aka the web). Still, we do try to regulate platforms like PayPal, Internet service providers like Comcast and other corporate entities like Amazon that use those protocols (though, one could argue not well enough). Still, we can try a similar tack here. As I’ve said before, the problem is not too much decentralization in crypto, but too much centralization in these crypto corporate intermediaries, with their inner machinations and financial health concealed from the public.

Second, let’s keep in mind what makes this technology disruptive, it enables anyone, anywhere to move, store and manage assets peer to peer. Let’s support the entrepreneurs trying to build a better Web and a more inclusive financial system. Blockchains are the first digital medium for value, in the same way, the Internet was the first digital medium for information. Our digital economy needs a digital native asset class for payments, savings, and other financial tools. Builders should create simple, accessible Web3 applications that appeal to a broad swath of the population, instead of arcane trading apps and esoteric financial instruments. Build what regular people want and need and can understand.

Third, let’s end the hero worship and demote these intermediate solutions to supporting roles. The sad irony is that middleware like FTX need not dominate the industry. After all, what makes Web3 so compelling is that it is permissionless and decentralized, meaning anyone, anywhere can own digital assets, manage them peer to peer, and have a say in their governance. Bitcoin was the first to make this possible, and Ethereum and DeFi applications have turbocharged it. To its credit, FTX offered a great user interface and experience, but it needed greater transparency, better risk management and stronger governance. Companies like FTX served and may continue to serve as important on-ramps to this asset class and the wider world of Web3. However, the on-ramps to an industry must not define the industry. Right now, Binance accounts for half of all cryptoasset volumes. We may sing its praises today for surviving, but concentration like this should worry everyone.

Finally, we must acknowledge that, while self-custody is a feature for some, it is a significant impediment to Web3 adoption for others. That means users still need trusted service providers in this space. The technology tools of Web3 are not intuitive to everyone, and many users have a legitimate fear of holding their own assets. Web3 innovators are making more accessible tools, but individuals and businesses especially will still need trusted agents and partners. Let’s support good actors through industry standards like proof-of-reserve requirements, sensible regulations, and social consensus and collaboration—in other words, call out bad actors when they appear and support those who speak truth to power.

Web3 was supposed to make “too-big to fail” intermediaries irrelevant. With FTX, we got exactly what Bitcoin’s creator Satoshi Nakamoto sought to route around: a centralized organization that used its clout to take excessive risks in a loosely regulated market. In the end, retail paid the heaviest toll. We need to emerge from this crisis with a renewed commitment not only to building safe, simple, decentralized tools on open protocols but also to regulating centrally controlled financial intermediaries, no matter what technology they use.

DEFI & DIGITAL ASSETS
tsALiKhUQ_A-HD.jpg
Mike Belshe, CEO of BitGo, on how to prevent the “Next FTX”
On this week’s episode of DeFi Decoded, Alex and Andrew sit down with Mike Belshe, Founder and CEO of BitGo, one of the world’s leading firms in institutional staking, custody and trading firms, holding over $20 billion for some of the world’s largest cryptoasset investors and many companies. Mike gives his perspective on the collapse of FTX, adding a few sensible recommendations for what industry leaders can do to prevent the “next FTX.” He tells us why he’s super bullish on DeFi but also why we will still need trusted third parties like BitGo in the future. Andrew and Alex mostly just listen as Mike gives a masterclass on how to run a digital asset business safely, sustainably and with an eye for future growth.
QUANTITATIVE ANALYSIS
2022-11-16_11-48-25.jpg
Source: glassnode
FTX Collapse in Two Charts: The above charts show the Bitcoin (BTC) and ETH balance on FTX
Last week, amid fears of insolvency, users rushed to dump their assets and, when it was still possible, move them off the exchange. By the end of the week, balances had reached effectively zero. According to FTX’s bankruptcy filings, the company has a significant hole in its finances, perhaps as high as $10 billion. Likely the company’s entire equity and any debt will be wiped out with depositors receiving very little as well. Also, bankruptcy proceedings can take years so a quick resolution is out of the question at this point (all data courtesy of Glassnode).
2022-11-16_11-49-23.jpg
Source: glassnode
Meanwhile, stablecoin values on exchanges hit all-time high
For another week in a row, stablecoin values on exchanges hit an all-time high. Most of this growth is coming from BUSD, issued by Binance (yellow line) which has gained tremendous market share, especially following the collapse of FTX. There is currently over $40 billion of stablecoins on exchange. This represents dry powder that can be deployed into other assets at any point.
2022-11-16_11-50-04.jpg
Source: glassnode
Last week over $1 billion of stablecoins was added to exchanges
The growth in stablecoin balances is not only coming from investors selling other assets into stablecoins and then leaving them on exchange. It is also a result of net inflows to exchanges. The more than $1 billion added in the last week placed it in the highest 10 weeks on record (#7). Given the general turmoil in the market, this is notable.
COMMENTARY & INSIGHTS