SMM (ed.14) Crypto yields are sucking in trad-fi (copy 01)

SM (ed 14) Crypto yields are sucking in trad-fi

September 02, 2021

Friends and associates,

This month's note

is a follow-up on last month's note

Before we describe how Stablecoins are sucking traditional financial markets into crypto, an

  • After reaching a low of $29,800 in late July, BTCUSD has recovered to almost $50K, to mark a 61.5% gain from the July lows.

  • As expected in the latter stages of a bull-market ETHUSD has outperformed bitcoin during the recovery, gaining 72% from its lows below $2K.

  • Network health improving after challenging June/July confirming that the bull-market will likely continue. Hash rate is recovering after the Chinese miner migration.

  • We asses bitcoin to be 25% undervalued with price risks tilted strongly to the upside

Follow the

for a more detailed market update.

Onto this months note,

Traditional investors are confounded by the yields available in crypto. We earn next to nothing on traditional dollars but earn 5%+ on crypto dollars. I can imagine traditional investors look in from the outside and think

“this is too good to be true!”

,

“Those bright shiny lights in the distance are going to blow up in their faces!”

In reality those bright shiny lights are slowly sucking tradi-fi into crypto. (Now that I am working full-time in crypto I like to call traditional finance, "trad-fi")

I encourage you to pause and take notice! I do not think these are a flash in the pan. There is a different structure between yield determination in traditional financial markets vs. crypto and there are various explanations for the crypto yield premium.

TLDR:

Bitcoin’s incredible investment opportunity trickles out into numerous sources of yield, enticing new pools of capital into the space.

Conclusions

  • Unprecedented opportunity in digitally scarce assets drives yield differential

  • Crypto investors pay higher yields for scarce capital - How much would you pay for 100% returns annually?

  • Traditional capital charges premium to crypto - of course a premium exists!

  • Stablecoins are more useful than trad-fi USDs, warranting higher returns

  • Volatility is a major risks but is mitigated through collateralisation

  • Counterparty and protocol risks are a more important risk vector than trad-fi

  • Yields will narrow when the opportunity is exhausted - in my opinion - 5 years+ from now

It is "peddle to the metal" on my end - in a controlled manner, though... I have realised that I have nothing if I lose my balance. I have never felt as motivated, focused and grateful as I work to serve you.

Have a great September! Chat soon.