Welcome to this 2nd edition of our Chain Reaction newsletter for the week ending 29th November 2021. In the news this week we saw Finder launch a new savings app to challenge the banks, a new DAO was launched to try and buy an NBA team (after seeing the US constitution almost being bought by another DAO last week) and talk of a battle between central bank digital currencies (CDBCs) versus traditional cryptocurrencies continues.
What you can expect in this newsletter
In the News
Videos of the week
Charts and Data
Around the world of social media
Education
In the news
Decrypt - Morgan Stanley Adds More Grayscale Bitcoin Shares Despite Heavy Discount - The US investment bank Morgan Stanley increases its share of Grayscales Bitcoin Trust by 71% in recent quarterly filings. This was for the banks Institutional Fund whilst its Insight Fund increased its holdings 63% and its Global Opportunity Fund increased 59%. GBTC shares are trading at a discount to NAV (net asset value) but this may be reduced as Grayscale plans on repurchasing some of its shares.
CoinTelegraph - South Korean regulator proposes strict new rules for token issuers - On Tuesday this week, South Koreas Financial Services Commission (FSC) proposed new definitions for cryptocurrencies that also sees strict rules imposed on DAOs (decentralised autonomous organisations), NFT minting services and others. They would have to submit whitepapers, obtain favourable findings from token evaluation services (like ratings agencies) and disclose regular reports to the public. This sits under the Act on the Protection of Cryptocurrency Users but requires the National Assembly to pass it.
CoinDesk - Grayscale Says Metaverse Is a Trillion Dollar Market Opportunity - Grayscale, the investment giant (see their GBTC - Bitcoin Investment Trust) published a report that highlights the metaverse represents a $1 trillion annual revenue opportunity. They highlight projects like Decentraland, virtual gaming worlds and the expected investment from companies alongside Facebooks initial push into this space.
AFR - Rest Super to invest in crypto - A major win for the move towards cryptocurrency becoming more mainstream with superannuation provider, Rest Super announcing that part of its $66 billion portfolio would be apportioned to cryptocurrency investments. This is in contrast to AustralianSuper (the largest fund until the Q Super/Sunsuper merger) said it would not go down the digital currency path. This comes as Vanguard (a major ETF issuer) came out against cryptocurrencies as a serious asset class whilst their peers like BetaShares and ETF Securities embrace blockchain investment. Subscription needed to read the article.
CoinTelegraph - RPG adventure game Illuvium boosted by $2M gaming guild fundraise - The soon to be released play-to-earn game Illuvium gained a liquidity boost this week with Polemos, a play-to-earn (P2E) guild, raised $2m in funding focused on the game. Illuvium co-founder Kieran Warwick stated that "Guilds like Polemos will help players enter the Metaverse by assisting with capital and onboarding requirements." Polemos is developing a number of assets that will help players including a GameFi learning management system, DEX (decentralised exchange) and a player analytics platform. Stay tuned.
NewsBTC - Over $10 Billion Has Been Lost To DeFi Exploits In 2021 - In a warning bell for investors to not just dive into any protocol/token that sounds good, Elliptic (a firm that tracks movement of funds) reported that DeFi exploits totalled $12 billion this year. The issues include things like bugs in code meaning that criminals can target certain platforms and they highlight that the irreversible nature of these protocols can make recovery difficult. It highlights why we advocate for buyers to beware when looking into any coins that are less proven and to use services like RugDoc (https://rugdoc.io/) part of their due diligence process.
BetaShares - Off the Chain Newsletter - Demand for crypto reversing? - In this issue, Justin Arazdon of BetaShares highlights the pull back in crypto prices as well as how they're keeping an eye on CBA and RBA comments regarding crypto (CBA seems more bullish especially in their actions so far). They also highlight some altcoin news with Crypto.com (CRO) buying the naming rights to the famous Staples Centre arena (home of hte Los Angeles Lakers and Clippers in the NBA). For those that don't know, BetaShares manages the CRYP ETF which provides indirect exposure to cryptocurrency and blockchain and so they mention highlights in their underlying holdings. We include their On-Chain metrics alongside our own in the data section below.
AFR - Crypto players dismiss the RBA’s ‘wishful thinking’ - Interesting article from Australia's leading financial news outlet which highlights the arguments against comments made by outgoing Reserve Bank Head of Payments, Tony Richardson. The RBA comments were how demand for cryptocurrencies would be reduced if the RBA created their own CDBC (central bank digital currency) but many see this as complementary not a replacement for bitcoin and other cryptocurrencies. The argument against crypto being just a fad is also highlighted in how the CBA has made strides towards embracing the asset class for its CommSec customers. Time will tell as to which side is right but we argue that we'll want to see some utility in what is created in this space.
AFR - Finder’s new crypto product a warning to banks on deposits - James Eyers highlights the new Finder offering for clients to provide 4% returns on top of stablecoins it will provide users in exchange for fiat dollars. This will likely see other providers with similar offerings coming out. The way this process is setup for customers to receive the TrueAUD token means that ASIC does not regulate this but rather, AUSTRAC does which has a lighter touch process on regulation. Eyers article highlights how this is a unique competitor to what neobanks have come with against the traditional retail banks as its competing on banking deposits rather than net interest margins.
Crypto Potato - El Salvador to Build a Bitcoin City: Will Buy $500M More BTC - Not specifically DeFi related but it does show the strength of the adoption of bitcoin as El Salvador moves towards not just having legal tender of the cryptocurrency but now there will be an entire city based on bitcoin. This means that schools and hospitals will be funded by any profits that come from the city holding bitcoin bonds provided by Blockstream and iFinex who are supporting them.
Boardroom - What is a DAO, and Why is One Trying to Buy an NBA Team? - In a follow up to what we saw last week with a DAO looking to buy the last privately owned first-edition of the US Constitution comes a new one relating to sports. In this case it's KrausHouse (named in honour of former Chicago Bulls general manager, Jerry Krause) which is amassing a following online to become the first DAO to own and operate an NBA (basketball) team. It has some hurdles to getting there with the average team valued at $2.2 billion but even if this fails, it shows the possiblities of what could be in this world of decentralised finance. Further details on KrauseHouse can be found in its Flightpaper (whitepaper equivalent).
Videos of the week
Whiteboard Crypto - What is Algorand - In this video, we learn more about Algorand, which was designed to be a faster blockchain than Ethereum and that gives Pure Proof of Stake rewards to all Algo token holders. Unlike normal Proof of Stake which only rewards a few, all Algo holders get a 4-6% APR per year just for holding the coin. Check out the article we wrote to accompany this video here: What is Algorand?
9mins
ausbiz - A Crypto Christmas - 22nd November 2021 - Karl Mohan of Crypto.com interviewed around 2k existing crypto investors and one of the findings was that many would look towards gifting cryptocurrencies as a Christmas present (with around half of those under 44 considering this). Additionally, 8% aim to use options like crypto-enabled cards to pay. More and more people are looking to get involved and this shows how more and more. 6mins
Equity Mates Media - What is Web 3.0 & is it the future of the internet? - Great video from the crew at Equity Mates (who are more commonly known for their stock market podcast) as they discuss the evolution to get to web 3.0 and we get to see the bullish and bearish case for this. From how this has similarities to the decentalised talk in early internet days to the recent heralded case of ConstitutionDAO and play to earn gaming, this is certainly an interesting space to be in right now and this is a great video for those looking to get a high level overview of what is going on right now.
Charts and Data
Another area to highlight from Finder's cryptocurrency adoption statistics is that nearly 18% of the 1lk members surveyed said that they own the asset class with Bitcoin, Ethereum and Cardano making the top 3. With Dogecoin being amongst that top 5 however, to us it shows that many have viewed these more for its meme status rather than the utility that many coins provide. This highlights how there is much more upside as adoption becomes more mainstream and investors find value in the capability of new protocols that come out whether its for play to earn gaming or other new forms of transacting.
Per the analysis in this space from BetaShares: "This week we take a look at the Illiquid Supply Shock (ISS) Ratio, the ratio between Illiquid Supply, and the sum of Liquid and Highly Liquid Supply. This metric could be considered a leading indicator, and gives an insight into entities whose holdings of bitcoin are considered ‘illiquid’, and whether they are currently buying or selling. An entity’s holdings are considered illiquid if the entity spends 25% or less of the coins that it takes in.
Citing data from on-chain analytics company Glassnode, we look at the ISS Ratio. Even with the bitcoin price recently setting an all-time high, coupled with a sell-off taking the price back down below $60K, the ISS Ratio has continued to trend higher, meaning buying from these entities has continued. In the past, mass selling of bitcoin from these entities has coincided with bull-market tops, as you can see in the chart in 2017 and earlier this year in April/May, and selling from these ‘illiquid’ entities gives reason for caution."
Top 10 cryptocurrencies by market cap as at 28th November 8:20pm AEST. A sea of red when we look at the last 7 days of price performance for the top 10. The 3 outside this group are Avalanche, Shiba Inu and Crypto.com.
Post of the week
In this weeks social media highlight we turn to Twitter where we highlight Chris Dixon (@cdixon) where he goes through his thoughts on blockchain demand vs supply. The last entry in this series of posts is one we highlight as it resonates with what we're trying to do here, 'bring blockchains and web3 mainstream'.
Education
Another piece of the puzzle to look at when it comes to crypto is the Finematics website which, along with videos, also provides some great articles to learn from as well. Check it out whether you're getting started or a veteran in the DeFi space. They have a lot of great content.
