NYDIG Bitcoin Q3 2021 Market Update

On China

• China attempted crypto bans: 6
• Chinese crypto market: major exchanges OKEx + Huobi = 180,000 coins, c. 0.9% of all bitcoin

On SEC

• SEC’s role: stimulating capital formation + investor protections.
• Gary Gensler — knowledgable on crypto (taught crypto course at MIT), keen on more regulation, key focus on (1) stablecoins, (2) secondary market trading of cryptos that are securities, (3) staking and lending (which he considers to be securities)
• Investment contracts and crypto lending: Gensler / SEC has deemed that lending and borrowing activities are well within their purview. Doesn’t mean it can't be done, but must be registered.

Bitcoin's privileged place in the digital asset ecosystem

• First
• No money sought in formation of it
• No hallmarks of being a security…CFTC's repeated public stance is that it is property and taxed as such
• This can’t be said for almost every other digital asset

Bitcoin’s favorable factors

• Low correlations to other asset classes
• High risk adjusted returns

Sizing

• A little bit goes a long way
• Most institutional allocations range from 50bps to 5%
• Most common allocation is still 0%…therefore most common strategy is "get off 0"

Looking forward to Q4 — key factors

• Technology — November, taproot (major upgrade)…enhance privacy of transactions and enable new types of transactions, and some scaling benefits
• User adoption — use cases and adoption as medium of exchange…(beyond store of value)…lightning network, El Salvador adoption (became legal tender on 7 Sept 2021), etc. Pizza Hut, McDonald’s, Starbucks processing transactions.
• Macro: Bitcoin not strongly correlated to other asset classes…trying to time macro typically lags performance by 50%+
• Lightning network: addon to Bitcoin network itself. Transactions in lightning as fast as the internet itself.

What needs to happen for more corporations to adopt the asset?

1. Unfavorable accounting treatment (treated as intangible…value is written down but never up)
2. Low duration, low risk assets are no longer generating much return

Institutional adoption?

• Most institutions interested…see trend in where society is going (digitization)
• Most cited risks: regulatory, technology

Other points

• Lowest rolling 5-year annualized compounding of Bitcoin = 29%
• When Bitcoin ETF? Historically 33-act funds with spot. SEC has signaled more comfort with 40-act funds that hold futures. Gensler looking forward to reviewing futures-based products. November 14th is first date for filed application.
• Bitcoin market share: c. $1T, gold = $12T, monetary bases $18T M2 in US…$400T global debt, etc. 100x TAM / opportunity...backdrop of $18T negative nominal yielding debt.