RESEARCH
BEQUANT Crypto&Coffee
It is a particularly interesting time to be involved in financial markets, both from traditional standpoint of view and also the new up and coming digital assets market. On the one hand, equity markets are getting more anxious about looming inflation prospect, as evidenced by the US bond yields and also supported by the oil super cycle expectation. Thus, the spectre of hyperinflation will again resurface but it is worth remembering that past appearances of inflation were promptly quenched and yields reduced over time. However, this time it is different because the economy is trying to escape the covid-19 lockdown syndrome, that's in addition to the stimulus funds. It is true that the upcoming data, especially year over year readings, will need to be taken with a huge pinch of salt. On the other side of the spectrum is the fast-growing digital assets market place, that continues to attract the attention of larger financial institutions. These firms are now not only exploring the so-called core digital assets, namely Bitcoin and Ethereum, but also other assets and even DeFi. Last week, it was noted that a number of financial heavyweights including the likes of Goldman Sachs, ICAP, JPMorgan, and UBS have bought the first exchange-traded product (ETP) that offers exposure to Polkadot's (DOT) cryptocurrency. These banks and brokerages purchased small amounts of shares in Switzerland-based 21Shares' ETP. Furthermore, Bitwise Asset Management launched a DeFi index to capture deep-pocketed investors' bets on the corner of the crypto markets challenging traditional financial rails. Initial constituents include the following: AAVE, UNI, SNX, MKR, COMP, UMA, YFI, ZRX and LRC. It is worth noting that Uniswap makes up 25% of the index, followed by Aave at just over 23%, while LRC is the smallest at 3.6%. The size of the aforementioned platforms is still relatively small and any buying by traditional firms will have an outsized impact on the valuation. One just has to look at how Bitcoin reacted in the wake of reports of traditional asset managers taking a long position. It will take a fraction of effort to achieve similar results in DeFi and when positioned this way, non-believers can quickly convert to full time maximalists. Back to the market and over the weekend, Bitcoin traded all the way through $58,000 level, while Ethereum also traded briefly above $2,000 level. The falling vol is positive for risk on sentiment, thus the bid tone is expected to remain in place. But yet again, it was DeFi that stole the show and the likes of Uniswap (UNI) and Sushiswap (SUSHI) traded higher by over 20%. However, even so the largest DeFi platform that is Uniswap is still valued at $8.4 billion, while BitcoinCash (BCH) which is being delisted by OKCoin is valued at just over $13 billion.
