5 Minute Finance: ROCK.JPEG, Institutions Gain BTC Exposure, Stablecoins Mature

The 5-minute newsletter on the important stuff in finance — reporting what's going on and why. Let’s see what's going on this week:

• Bitcoin's Bullrun Test Ahead
• Stablecoins Seek Transparency to Become Competitive
• BlackRock and Morgan Stanley Gain Bitcoin 'Exposure'
• NFTs - Resurgence of Fun, to Include Digital Rocks
• Stock Trading Apps See Massive Rise in Crypto Trading

Bitcoin’s Moves Take the Spotlight

• On August 27th, about $2 billion worth of Bitcoin options will expire. Most of them are call options – betting on the price of BTC to go up. (link)
• After two months of a holding pattern, Michael Saylor chose to buy 3,907 BTC at an average price point of $45,294. Is this the new BTC bottom amid a slew of bullish news? (link)

Without China FUD, Bitcoin is Free to Explore New Price Ranges

In March, Bank of America calculated that it would take $93 million to move BTC's price by one percent. With $2 billion worth of options on the table, this leaves plenty of space for Bitcoin's price to maneuver. People love round numbers, so $50k is the magic price to be breached (which, by the way, already happened on August 23rd).

Calls - options to buy Bitcoin - far outweigh the puts - options to sell Bitcoin.

If Bitcoin goes above $50k again, 12,000 calls will be fulfilled, creating substantial buying pressure. If its price remains at around $48k and moves sideways, only 6,500 calls will be fulfilled. This would still leave the ratio firmly on the bullish side, with 5x more calls than puts.

Furthermore, Michal Saylor of MicroStrategy, one of the largest Bitcoin whales out there (with 108,922 BTC), hauled off a fresh batch of BTC at $45k. Will we look at this price point wistfully in a year, as we now look at $30k in January? Whether Bitcoin remains neutral or supercharged with the $50k price point on Friday will be the biggest indicator in Bitcoin's ongoing bullrun test.

If not, some will see a buy-the-dip opportunity as Lightning Network expands Bitcoin’s usability beyond digital gold. Substack, the rising publishing platform unburdened by editors, is making the same bet. With half a million paid subscribers, Substack will count on Lightning Network to create Bitcoin 2.0, allowing writers to accept it cheaply and instantly.

Competition Between Stablecoins is Heating Up

• Circle, part of the consortium behind USDC – the second-largest stablecoin – announced it would improve its collateral by shoring it up with cash and short-duration US treasuries. (link)
• Paxos, the most regulated blockchain company and PayPal’s crypto developer, is powering PayPal’s crypto offering into the UK. (link)
• Paxos rebrands its stablecoin from Paxos Standard (PAX) to Pax Dollar (USDP). (link)

Transparency is the Name of the Stablecoin Game

The value of something is best defined by its absence. Without stablecoins to lessen crypto volatility, the space would have been half-baked. There would’ve been lower trading volume, less liquidity, and less adoption. By tokenizing fiat money, primarily USD, stablecoins greatly matured the crypto ecosystem, giving investors confidence to explore the blockchain space.

Top stablecoins with above one billion market cap, source: coincodex.com

In fact, stablecoins have become so useful that it remains an open question if it makes sense to create CBDC – Central Bank Digital Currency – in the United States. As noted by Treasury Secretary Janet Yellen, stablecoins already provide that role. One may then ask if most stablecoins are pegged to USD in a 1:1 ratio, what would make one better than the other? The answer is – the transparency of their reserves.

Run by private companies, each stablecoin has its own way to collateralize its peg to USD. Although less popular, Paxos is leading the stablecoin pack in terms of transparency. This makes it less prone to regulatory scrutiny, which is likely why PayPal chose the company to handle its crypto expansion.

Seeing the regulatory writing on the wall, both USDC and USDT are reworking their reserve attestations. However, from the left field, TrueCurrency is making grounds with its TUSD - the only stablecoin to have a novel, real-time reserve attestation.

Institutions are Jumping into Crypto, Indirectly

• Last week, we saw that BlackRock bought $382.9 million worth of stocks in Bitcoin mining companies, 6.71% of Marathon Digital Holdings, and 6.61% in Riot Blockchain. (link)
• Morgan Stanley, a large investment bank capped at $190.5 billion, owns close to $300 million worth of Grayscale Bitcoin Trust (GBTC) shares. (link)
• Citigroup, one of the largest US banks, seeks a regulatory nod to start offering Bitcoin futures to select clients. (link)

The Kingpin of the Financial World Sets its Gaze on Bitcoin

If you haven’t heard of BlackRock by now, you are missing the key to understanding the world’s financial web. Blackrock is the world’s largest asset manager with nearly $9.5 trillion in assets under management—and the Fed’s close confidant.

Interestingly enough, BlackRock and Tesla have a long history, with the former trying to remove Elon Musk from running the company. Remember Musk’s little tweet about no longer accepting BTC payments which triggered a significant crypto crash? There's a strong case to be made that BlackRock opened up China for Tesla’s car sales in return for that favor.

Ok, the tinfoil hat has been put away... for now.

Although BlackRock hasn’t directly bought Bitcoin yet, the partaking in mining companies is a sure signal it is slowly building up its exposure to the asset. So far, Bitcoin’s volatility seems to be keeping it away. However, because BlackRock’s global reach is so encompassing, it may not need more direct exposure.

BlackRock owns 6.1% of Morgan Stanley shares and 4.5% of Citigroup—and both are actively exposing themselves to crypto. While Citigroup is yet to launch its Bitcoin futures offer, Morgan Stanley uses a financial vehicle like Grayscale Bitcoin Trust (GBTC) to track Bitcoin’s value on the stock market. Thus, with each price movement of Bitcoin, GBTC follows, tagging along both Morgan Stanley (and therefore, BlackRock).

NFT Summer Rekindled

• Visa, the world’s domineering payment gateway, now has an expensive jpeg on its balance sheet (a roughly $150k CryptoPunk). (link)
• Thanks to NFT resurgence, Ethereum’s hash rate reached an all-time high of 600 TH/s. (link)

How Much for That Digital Rock, Sir?

When faced with blockchain products, there are many avenues to explore. Some focus on hard deflationary cryptocurrencies like Bitcoin, while others become yield farmers within DeFi protocols. Both require moderate knowledge of charts, supply ratios, and technical indicators, to name a few items with a high mental load.

Not so with NFTs. They are fun and speculative, but without having to dip into technicalities. Instead, NFTs rely on the gut feeling invoked by memetic artwork. As a result, after a hibernation period during June, NFT sales have gone through the roof, increasing by 175% from May’s peak.

Monthly NFT sales during 2021, source: nonfungible.com

As is always the case with art, its worth is in the eyes of the beholder. You may think that a cartoon rock has little value, but someone is willing to pay $611k for the privilege of owning it.

NFTs have seemingly become the best marketer Ethereum could wish for. Top NFT marketplaces are hosted by it, providing endless exposure to ETH cryptocurrency and the wider DeFi ecosystem.

Stock Apps Becoming Crypto Apps

• While having 3 times less valuation, eToro managed to outpace Robinhood’s crypto trading revenue for Q2 2021 by 13%. (link)
• Gavin Michael, the CEO of Bakkt, a blockchain asset management company, thinks that payment systems will encompass all digital assets, creating a “pay with anything” consumer model. (link)

Millennials Want to Harness Digital Assets as Payments

Created for easy stock trading a year ago, both eToro and Robinhood saw only a fraction of their trading volume come from crypto. Now, cryptocurrencies have accounted for 52% of Robinhood’s transaction-based revenue. eToro saw even better success, with crypto trading making 73% of its total trading commission.

Such a rapid rise tells us that millennials are at the forefront of crypto adoption as predominant users of these apps and that a shift in perception is occurring. Both stock trading and e-commerce are becoming gamified systems. Dogecoin perfectly exemplifies this as it makes up 62% of Robinhood’s crypto revenue.

More importantly, digital assets are no longer just cryptocurrencies. They include an entire range of incentives and stakes – loyalty reward points, utility tokens, digital art as NFTs, fan tokens, etc. Gavin of Bakkt forecasts a future in which some of these illiquid assets can be seamlessly turned into spendable money, unlocking $2 trillion worth of value.

A big part of this gamification is loyalty programs. A survey from Citibank shows that 69% of millennials see cashback rewards as a prerequisite for opening a new credit line. Accordingly, Visa, MasterCard, BlockFi, and Gemini are already deploying credit cards with crypto cashback programs.

Tweets of the Week

"Saying NFTs are in a bubble is like saying collectibles are in a bubble...it's nonsensical.  You can say Crypto Punks are in a bubble, or digital avatars, or Art Blocks...or any other segment of NFTs. But NFTs as an asset are here to stay. Humans are collectors."

@RyanSAdams

“‘Digital Gold’. Bitcoin registers 100x improvement over gold as a store of value. The pandemic movement of assets challenges the old safe-haven methods and offers an outlook on what the savvy thing is worthy today! #BeTheDeFiance#FinancialRevolution”

@PawelSynapse

“Bankers issue ‘seismic’ warning: Bitcoin, Ethereum, BNB, Cardano And XRP could replace the dollar in just five years as crypto market price adds $1 trillion:”

@Forbes

"After signing a $210 million deal with TSM, FTX has also partnered with the LCS, the MLB, the Miami Heat, and now are renaming Cal's entire football stadium. Crypto deals just keep on coming."

@JakeSucky

"100,000 ETH has now been burned. EIP-1559 has only been live for 20 days."

@sassal0x