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*Ninepoint Digital Asset Group, is a division of Ninepoint Partners LP.
PRICE SNAPSHOT
(7 Day Change as of Nov 25, 2022 9:40AM ET)
Bitcoin Price: $16,447 (1.23%)
DeFi Total-Value-Locked: $41.3B
Ethereum Price: $1,187  (1.33%)
Crypto Market Cap: $829B
Bitcoin Range: $15,630 - $16,802
BITC.U Close: $4.90 (as of Nov 24, 2022)
Ethereum Range: $1,073 - $1,231
BITC.U NAV: $4.94
Bitcoin Dominance: 40.24% (1.00%)
BITC.U Discount: .008
SPECIAL ANNOUNCEMENT
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We just hosted a live Webinar “In the Eye of the Hurricane: What Comes Next for Crypto?”
DIGITAL ASSET COMMENTARY

The Next Domino to Fall? Genesis, the largest cryptoasset lender, is seeking bailout financing, warning that if it is unable to raise money it may go bankrupt. Genesis is owned by Digital Currency Group (DCG), which also owns Grayscale, the manager for the Graysale Bitcoin Trust (GBTC). Barry Silbert, CEO of DCG, told investors that Genesis, which has $2.8 billion in loans on its balance sheet, is facing a liquidity crisis. Notably, 30% of the loans outstanding are to related parties, including DCG. The pressure on Genesis has caused the discount on GBTC relative to NAV to hit a record of nearly 50%. For a full breakdown of this and more, check out this week’s episode of DeFi Decoded

Why Bitcoin ETFs are Good for Investors: GBTC is a closed-end fund that has cratered relative to NAV in the past two years. It recently hit a record discount to NAV of nearly 50% after trading for many years at a premium. Holders cannot redeem their investment and are thus effectively trapped. By contrast, the Ninepoint Bitcoin ETF has traded historically within a few basis points of NAV (See Quantitative Analysis section below). Investors who buy into tracking funds want safe, convenient and inexpensive way to gain exposure to Bitcoin. They also want to know their investment is tracking the underlying asset. With ETFs, they get that assurance. To learn more about the Ninepoint Bitcoin ETF check out: https://digital.ninepoint.com/

Practicing Safe CEX? The collapse of FTX has people rightly asking, “How could this happen?” and relatedly, “What can we do stop it from happening again?” Various solutions have been floated to strengthen the industry’s biggest centralized players and restore some sense of trust: stronger regulation, regular audits, and better corporate governance, to name a few. To be sure, these are all good ideas, and we expect many centralized exchanges will need to go through with them if they want to maintain the trust of users and stay in the good graces of regulators, but there is another option – so-called “proof of solvency” or “proof of reserves” which uses the cryptographic proofs that blockchains afford to show that an exchange has the assets it claims to have. There are limits to this model, namely that an exchange could easily prove its assets while not showing the full extent of its liabilities, but proof-of-reserves is a welcome industry standard more exchanges should adopt.

The White House has its eye on crypto following the FTX Collapse with reports that President Joe Biden led a critical call on FTX and the future of crypto regulation. This may turn out to be a good thing. 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 during the early days of the Web. Any new rules should distinguish between the technology and the companies that build services on top of it.

STORY OF THE WEEK
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A Potential $100 Trillion Opportunity: Could Tokenized Securities Transform Finance for the Better?

By Alex Tapscott

Despite the recent crypto carnage, large enterprises and financial giants continue to press on with their investments in Web3 and blockchain. This week, lost in the headlines about the FTX fallout, was the announcement that Apollo Global Management and Hamilton Lane are launching funds “on chain” as tokenized securities. To do this, they are partnering with Figure, which provides tokenization services on its chain, Provenance. Combined, Apollo and Hamilton manage more than $1.3 trillion USD. Hamilton has already tokenized several funds with partner Securitize.

This kind of enterprise adoption of Web3 tools violates the narrative that the industry is reeling, and companies are losing confidence in the technology. Despite the ups and downs in the market, it’s possible that we even see accelerated growth in enterprise adoption. Why? First, the Ethereum Merge reduced the carbon footprint of the network by 99% removing any concerns about smart contracts and digital assets ‘boiling the ocean.’ Second, 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. Third, the lower profile of crypto now creates room to experiment and play around.

We should welcome these efforts as it is clear for crypto to succeed as a technology and an investible asset class, the industry must apply DeFi innovation to securities and other financial assets.

Of course, there are limits to using blockchains to conduct transactions in assets that still require physical delivery or occupancy, like houses. But this is not true for most financial assets, such as equities, bonds, futures and forwards contracts and others. A stock in a company is, after all, just a contract entitling the holder to a share of a common enterprise and a distribution of profits if the company pays dividends, plus other rights defined in the corporate charter. All of this ‘business logic’ can be programmed into a smart contract with several benefits. First, trades clear and settle instantly rather than in days. Second, voting takes place instantaneously and transparently on-chain so that everyone can see results. Third, theoretically anyone with Internet access can trade them and participate in wealth creation. Fourth, transactions are automatically recorded to a trusted and immutable record (a blockchain) which will reduce back-office expense and improve trust.

The opportunity is significant. Today, cryptoassets are worth around $850 billion down from a peak of nearly $3 trillion, which pales in comparison to the value of all other financial assets. U.S public equities alone are worth over $40 trillion, according to the World Bank. Tokenizing real assets would drive adoption and use of platforms like Ethereum and others which would be supporting these efforts.

Still, tokenizing real assets has its share of challenges. First, legacy attitudes make some industry participants skeptical and reluctant to change. Second, installed market infrastructure and technologies makes switching to a “crypto-native” format challenging. Third, customers are used to the old ways and may not want to switch over. Fourth, it is difficult to “tokenize” something that already exists in analog format. It’s much easier to start from scratch. DeFi was a staging ground to prove many concepts that we can now export to finance and the real economy more generally. Implementing a policy framework will also help to speed this along. But most of the growth will come from enterprises choosing to innovate. By the looks of it they are not slowing down.

DEFI & DIGITAL ASSETS
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Tips on How to Practice Safe CEX
On today’s episode of DeFi Decoded, Alex and Andrew discuss some of the steps centralized exchanges (CEXes) can take to restore user trust. These solutions split into the “fiat variety” such as better governance, stronger regulation and regular audits and “on-chain variety” such as proof-of-reserves and proof-of-solvency. They also discuss the ongoing fallout from FTX which has engulfed crypto lender Genesis and had a knock-on effect with the Grayscale Bitcoin Trust and discuss how asset management giants Apollo and Hamilton are embracing tokenized securities.
QUANTITATIVE ANALYSIS
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Source: Bloomberg
Grayscale Bitcoin Trust (GBTC) Discount to NAV Hits Record at 45%
GBTC is a closed-end fund that has cratered relative to NAV in the past two years. Holders cannot redeem their investment and are thus effectively trapped. Grayscale has said that if the SEC permits it, they will convert to an ETF. By doing so, the fund would likely trade close to NAV almost immediately, as ETF’s have an open-ended structure that allows for daily creations and redemptions. This would potentially create a multi-billion windfall for investors. Unfortunately, there is no sign that a change to the rules is forthcoming.
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Source: Bloomberg
By Contrast, Ninepoint Bitcoin ETF (BITC-TSX) Has Traded Historically Within 0.03% of NAV
The Ninepoint Bitcoin ETF has consistently traded very close to its NAV. Investors who want a safe, convenient and inexpensive way to gain access to Bitcoin should consider ETFs like the Ninepoint Bitcoin ETF.
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Source: glassnode
Bitcoin on Exchanges Plummets Most on Record Last Month
Exchanges experienced their biggest monthly withdrawal on record last week as investors, concerned that centralized exchanges may fail, rush to move assets to cold storage, or sell them for cash. 172,700 Bitcoin left exchanges last month, worth approximately $3 billion USD
COMMENTARY & INSIGHTS