Prime brokerage activity continued to heat up the crypto space the past week, while financial giants, Bloomberg and Fidelity made a bullish case for bitcoin. Dr. Marc Fleury, CEO of Two Prime, a fintech company that designs and manages institutional-grade crypto products with its flagship FF1 token, discusses the following topics this week, with full commentary below.
Q1 2020 hedge fund letters, conferences and more
- Bloomberg betting big on bitcoin — “Something needs to go really wrong for bitcoin to not appreciate”. Bloomberg has called it - bitcoin will approach the record high of about $20,000 this year, based on historical halving trends and the increasing maturity of the digital asset. To what extent is this assessment accurate?
- S.-based institutional investors are increasingly open to crypto, says Fidelity — In a recent survey by Fidelity Investments, 40% of the over 400 U.S.-based institutional investors surveyed are open to making crypto investments over the next five years. Are we increasingly seeing a maturation of interest for crypto? What are the main appeals of digital assets over traditional assets? What are some obstacles stifling investments in crypto assets?
- Blurring of lines between crypto and traditional finance institutions — Last week, leading Swiss private bank Maerki Baumann launched a crypto trading service for institutional investors and high-net-worth individuals. What does this boils for the legitimacy and growth of the crypto industry? As crypto continues to mature, will we see further blurring of lines between crypto and traditional finance institutions? What opportunities and challenges will this present?
Bloomberg Bets Big On Bitcoin - $20,000 Not A Far Fetched Target
Bitcoin and cryptocurrencies as an asset class have outperformed traditional hedges like gold and oil during the COVID-19 pandemic. In a further sign of maturity, several types of cryptos have emerged — some of which are volatile, offering great upside potential (BTC, ETH); some are stablecoins (USDT, DAI); whereas others are new hybrids offering both downside protection and upside potential (FF1 by Two Prime). The COVID-19 pandemic has fostered the emergence of a new asset class within cryptos. While cryptos have remained volatile as an asset class, they have allowed decorrelation from broader economic cycles and market turmoil as aethereal stores of value, without endogenous cash flows or little intrinsic economic value (like gold or fine-art) — a welcomed characteristic by many investors. Cryptos, in particular, have featured prominently in smart money allocations, especially as equities continued their rally on market monetary demand with equity supply, against economic fundamentals. Aside from high-net worth individuals, crypto investments have a long retail tradition, with institutional interest lagging global demand. The COVID-19 pandemic has accentuated cryptos’ potential role as transnational stores of value and financial hedges. The devil is always in the details and trying to read the short price action with BTC, is a fool's game. The mid term fundamentals are, however, promising. Stock to Flow analysis of supply and demand for BTC reveals a diminishing new supply post halving, a numerus clausus cap, increasing and rapid mass adoption, and expanding monetary demand. As equities continue to rally on the supply demand shock, this is a positive for cryptos, particularly bitcoin.
Fidelity Investments: U.S.-based Institutional Investors Are Increasingly Open To Crypto
The COVID-19 pandemic has piqued investors’ interest in crypto — as financial instruments for trading, as well as aethereal instruments offering uncorrelated returns from traditional capital markets. Excessive monetary policies and unlimited stimuli from Central banks should further benefit cryptos in the long term, particularly as investors weigh possible inflation and devaluation of fiat currencies. Cryptos as stores of value as well as financial hedges will likely come up more on investors’ playbooks as COVID-19 continues to plague global markets. The emergence of prime brokers in the crypto space also signals ongoing maturation. Money, like water, wants to flow and it needs a conduit for this to happen. The industry is rapidly maturing by building the pipes to the pockets of money and offering simple bridges to brokers and investors. The challenge continues to be on financial implementation, details relating to legal, technical, security, custodianship, key management as well as increasing ease for investors and their money managers to purchase and hold their cryptos. The crypto markets infrastructure comprising exchanges, custodians, traders, market makers, institutionals, and retail investors is maturing rapidly and proving it's mettle through the crown crisis.
Crypto Prime Brokerages: The Blurring Of Lines Between Crypto And Traditional Finance Institutions
The emergence of prime brokerages in the crypto space is a welcome sign in the ongoing maturation of crypto’s financial infrastructure. Crypto, as part of an investor’s portfolio, is increasing in prominence today for its dual functionality — both as an effective hedging instrument to systematically shelter portfolios from market fluctuations, and as a transnational store of value to safeguard their wealth. As more institutional investors enter the crypto space, so will the number of prime brokerages seeking to capture a slice of this rapidly expanding pie. Money is meant to flow. The prevalence of crypto assets and their many facets — from volatile moon coins to stable coins (pegged to a fiat), and newer hybrid stablecoins — is testament to this. Aside from driving consolidation within the industry, the ‘one-stop shop’ approach to broking will benefit the end users by increasing liquidity to and from FIAT currencies, enabling lending facilities for yield creation, and offering custody as a basic (almost loss-leader) service. While the future of crypto banking is definitely with the exchanges, lenders and custodians — details relating to the financial, legal, technical side of the crypto infrastructure needs to be better ironed out for crypto to become increasingly attractive to a larger pool (along the likes of traditional investment managers).
About Two Prime
Two Prime designs and manages institutional-grade crypto products.
About Dr. Marc Fleury, Chief Executive Officer of Two Prime
Dr. Marc Fleury is the Chief Executive Officer and Co-founder of Two Prime, a fintech company that focuses on the financial application of crypto to the real economy. Building upon his financial expertise, spanning from his role advising private equity firms to his academic pursuits in modern monetary theory and banking theory, he provides the strategic direction for core vision investment strategy and partnerships for the firm.
