Institutional Digital Asset Newsletter - June 2020

Newsletters Jun 28, 2020

Once a month, we summarize the best crypto news for Institutional Investors

In this monthly newsletter, we plan to answer questions institutional investors may have about Digital Assets. We won’t offer investment advice, but we hope to make it easier for you to develop your own strategy, and to keep abreast of the fast-paced evolution of an emerging asset class.
In each newsletter, you’ll get a smattering of links from Trakx and from other reputable sources that reveal trends and developments for our sector. We’ll also fill you in on movements of people and companies (we might even mention you!).
We hope that you find this useful. Constructive criticism is welcome, feedback is valued, and praise will just make our day. Please send comments to [email protected]

INVESTING

Grayscale Bitcoin Trust sees growing premium over spot BTC

Each share of the Grayscale Bitcoin Trust (GBTC) accounts for roughly one-thousandth (0.00096788) of a total Bitcoin. At the time of writing, the GBTC is trading at $10.31 a share. This means that investors in the trust are effectively buying Bitcoin at well over the current market price. Jason Williams, general partner at Morgan Creek Digital, pointed to this premium in a recent tweet, saying:

“To own 1 Bitcoin in the Grayscale Bitcoin Trust it will cost you about $11,240 or about 1000 shares of GBTC. That’s the premium.”

This premium elucidates that the trust has seen booming demand in recent times, with investors potentially “fomo-ing” into BTC in order to gain exposure to an asset that could be inversely correlated to the traditional markets.

GBTC’s premium may also be driven by increasing demand for Bitcoin amongst institutional investors.
Their interest in the nascent asset could have potentially been sparked by recent comments from legendary macro investor Paul Tudor Jones regarding the vast potential BTC has to see massive growth.

According to Keegan Toci, a partner at Vertical Ascent Capital Management and former Blackrock Director, those high premium to the NAV in GBTC Trust are often at the expense of retail investors. When the market will mature, we will probably observe a decrease in price premium.

$930M in Bitcoin Options Expire Next Friday

To date, more than 100,000 Bitcoin options totaling $930 million are set to expire on June 26. This figure represents nearly 70% of Bitcoin’s entire open interest. On June 15, the Bitcoin price pulled back to $8,900, leading investors to question whether professional traders have turned bearish as the June 26 expiry date approaches.

Although open interest doesn’t allow one to predict a market trend, it is possible to gain more insight by analyzing additional data such as the put/call ratio. This indicator provides a clear picture of investors’ sentiment as call options are mostly used for bullish strategies.

BTC options open interest
BTC Options open interest

Total BTC options open interest. Source: Skew

Data from Skew shows that open interest reached ~$1.5 billion — a 100% increase over the last two months. Currently, Panama-based derivatives exchange Deribit accounts for 77% of the options market, although regulated venues such as CME and LedgerX are consistently gaining relevance.

NEW ASSET OVERVIEW

UMA Protocol & UMA Token

UMA is a protocol to create synthetic assets in a permissionless fashion. In short, anyone can create a token pegged to an underlying data point so long as that token is sufficiently overcollateralized by ERC20 tokens such as ETH, DAI, or USDC. The first synthetic asset created on UMA protocol is a Synthetic Token that tracks ETHBTC and is collateralized with DAI

To operate this platform in a decentralized and community-driven way, UMA created a Voting Token.
It is a governance token that grants stakeholders the right to participate into important aspects of the platform including the type of contracts that can access the system, which assets to support, key system parameters, and upgrades.

In April 2020, UMA was the first player to kick off an Initial Uniswap Listing, of its voting token, in which 2% of the total supply was being sold to the public. Seed investors entered the listing at a low rate of $0.267/UMA. Subsequently, the price appreciation of this token was really quick as they were sold on a bonding curve. Matteo Leibowitz – a research analyst at the Block, pointed this out perfectly with the following chart.

UMA Token Bonding Curve

UMA token bonding curve
UMA token bonding curve

With just:

$30k UMA purchase, buyers pay 10% premium

$56k = $20% premium

$237k = 77% premium

$513k = 156% premium

$1m = 300% premium

PLATFORM

REGULATION

500 Estonian Crypto Companies Lose Permits After $220B Scandal

According to a Bloomberg report, Estonia has revoked licenses from 500 crypto companies. This is an estimate of 30% of the entire number of approved crypto companies in the country. Regulatory authorities embarked on such a massive action as part of combating illicit financial transactions after Danske Bank was associated with a $220 billion money-laundering scandal.

PEOPLE MOVE

Gary Rebibo

CMO @Trakx