Crypto 2024 SOTU Summary —State of Foundational Assets
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Summary of Brad’s presentation on January 24, 2024
HEADER SLIDE (1)
Welcome everyone. Excited to be here and talk more about where crypto stands today. We’ll review 2023, and look ahead to 2024.
INTRO SLIDE (2)
First a quick intro. In 2017 I worked with my brother and Matt (8DC Partner) to run a syndicate investment group called Cluster Capital. A group of 40 of us sourced deals together, and sourced capital on these deals. We deployed over $40 million in capital, and saw over 20x return. This capital group started a huge network in crypto, which continues to be valuable today.
In 2021, I managed $100m in AUM for a yield product with Genesis Block. We returned 18% APY. In 2021 lots of people wanted me to start a fund, but it felt too frothy.
When the market turned in 2022, it felt like we were getting to the point in the crypto cycle, where it would be a good time to get people buying crypto. When the market crashed in May 2022, we launched 8DC, 8 Digit Capital. Since launching the fund, we’ve outperformed the market of holding BTC/ETH by 10x, and in Q4 2023 alone, 2x what BTC returned.
8DC FUND PORTFOLIO SLIDE (3)
Our Fund gives investors a balanced portfolio of crypto assets. Starting with making sure everyone has exposure to Foundation assets, BTC and ETH, as well as Frontier assets, everything else. We also have access to many early stage deals through our networks that we take advantage of in the fund. We call our fund the Foundation + Frontier Fund. We manage the balance and the assets based on momentum of the markets, and where we see the strongest innovation happening in the crypto tech space.
We want to use this same framework in talking about the state of crypto. I’ll focus on Foundation assets and Matt (other partner at 8DC) will focus on Frontier.
FIRST THEY IGNORE YOU (4)
I’m going to use the famous phrase “First they ignore you, then they laugh at you, then they fight you, then they join you, then you win” quote as an outline for my presentation. Though this quote could be used for decades of innovation, I’ll use it as a way to review the 2023 state of crypto.
First they ignore you.
MEME (5)
This is how I felt talking to people in 2022, and early 2023. People that wanted crypto exposure in 2021, we’re a lot more fearful in 2022 and early 2023. For good reason too. Coming off of the FTX fraud fiasco in late 2022, everyone wanted to bury their head in the sand when it came to talking about crypto.
But let’s back up a bit on some of the growth that has happened, that we can’t ignore.
USER ADOPTION (6)
This is a chart we’ve used for a while to help people understand how young the crypto markets are. When comparing user growth in crypto to the internet, we’re looking at late 90’s and early 00’s. It’s clearly still an emerging market, with much upside in technology and prices ahead. Last year, 150 million new users came into crypto, bringing the total crypto users to 575 million globally. Still a small percentage of people globally. Honestly, pretty strong growth of new users in 2023.
DEVELOPER ADOPTION (7)
Strong growth here as well quarter over quarter at 300%. We follow developer growth and activity, as we’re firm believers that developer adoption is an early indicator of future value. This is especially true of early innovations. The builders come and create the future for the late majority and late adopters. Despite percentage growth looking strong, we still are talking about a small amount of developers, tens of thousands, not yet hundreds of thousands. This is easy to ignore, but steady growth continues here. Ethereum outpaces every other chain by more by more than double the developer adoption rate. I wanted to pull this stat out as well, what type of projects/companies are these developers focused on? You can see over 70% of them are focused on Infrastructure or Security. They’re not building the tik-toks or the gmails, they are still building the roads and bridges of this new world. I think this matches up in a comparison to the internet in the late 90’s or early 00’s. Still building the infrastructure that the future will live on. Which from an investment standpoint, means you’re investing early.
BTC INTRO (8)
Speaking of investing, let’s take a look at BTC.
BTC PERFORMANCE (9)
This chart shows that BTC is the best performing asset 7 of the last 10 years. Now, with 2023 in the books, it’s 8 out of 11 years. I’ve been sharing this graph for the last 18 months with people, but in 2022, people were unsure if that pattern was broken, yet here we are in 2023 posting another top year for BTC. Though I’ve been sharing a version of this chart for awhile, this exact chart is actually what Blackrock put out a couple weeks ago with the launch of their ETF. So though i may have been ignored a bit last year, I think with Blackrock pushing it, it would be ignore in 2024.
So this chart also highlights the cyclical nature of BTC. BTC’s supply is limited at 21M, and that supply has been inflating at a specific rate. The inflating supply (to get to 21M) is halved every 4 years. Don’t need to get into the details here, but on the 4th year, supply coming onto the market is cut in half, reducing the supply on the way to 21M. This creates a bit of a supply shock to the system, and it’s spurred bull runs and increased prices by nature.
Now that we’re entering a halving year (April 2024), many people who have been through multiple cycles, we look for the possibility of outsized returns from BTC. Quick side note, with Blackrock and other asset manager pushing this chart, creating more demand than ever, and supply getting smaller this year, what do economics say about what can happen?
BTC CYCLE CHART (10)
Let’s look at another chart. This is charted on a logarithmic growth curve. Showing diminishing returns over time. Though we don’t hit tops and bottoms on this chart perfectly, it’s been a very good indicator on where bottoms and tops could be. In 2022 and 2023 we were looking for a bottoming out of prices, and the opportunity of buying in the buy zone. Over time the buy zone actually gets higher, this chart says anything below $41,000, at this time is still a good buy. But the point of sharing this chart is to show what happened in 2023. We hugged the line on the low end of this curve, and we’ve started to move above it. This means we put in a bottom of 2022, and 2023 growth is setting up for a move to new potential highs.
BTC CYCLE BY YEARS (11)
This next chart shows the cycles more on yearly candles. Candles are just showing the volatility of price during that year. The body is where the price opened, and closed, and the wicks above or below shows how high or low it got within that year. As mentioned before, year 4 is a halving year (supply shock). Year 4 typically breaks through that cycles year 1 candle close.
First, 2023 did what it is supposed to do, recover from 2022. We saw strong price action recovery, setting up what can happen in the halving year (2024/candle 4), and the next year (2025/candle 1).
Let’s look at the growth of previous cycles with where we are at today. In 2016/17 we saw 1400% growth, in 2020/2021 we saw 360% growth. 200–300% growth from here would take us into the $100k+ range with BTC.
BTC CYCLE BY MONTH (12)
This might be my favorite chart to look at for BTC Cycles. This is showing monthly price action. The blue vertical lines are the halving (every 4 years). They key part of the pattern is breaking out of the monthly downtrends that occur. And that is exactly what happened last year (2023). In March of 2023 we broke out of a 15 month downtrend. As investors, its what we should be looking for as a signal that deploying capital has been derisked.
Now you can also see that after each blue line (halving) there is a couple months of sideways action followed by parabolic growth. We’ll have the halving in April. This, among other data points, is why we urgently tell people that now is the time to get exposure to BTC.
BTC PREDICTIONS (13)
We don’t know what will happen with price. But when we look back at 2023, we saw some really positive indicators on what can come in the next few years. We think BTC can reach all time highs this year, somewhere in a range of $85k-$100k. And the total crypto market cap can grow from ~$1.5 trillion, to ~$5 trillion. Conservatively we think BTC can reach above $130k this cycle, and the total crypto market cap can reach ~$10 trillion. We think towards the end of this cycle, other assets with outperform BTC. Matt (other partner at 8DC) will talk about these Frontier market opportunities.
THEN THEY LAUGH AT YOU (14)
This happens with many innovations, and crypto is no different. Though this was mainly in 2022, it certainly bled into early 2023.
QUOTES FROM PREVIOUS INNOVATIONS (15)
Keeping the same mindset of user growth in late 90’s and early 00’s, I want to point out this quote from Blockbuster CEO in 2008. Which doesn’t feel that long ago. He said Redbox and Netflix aren’t even on their radar in terms of competition. Established players, rarely see the innovation happening that will eventually overtake them. They make fun of it. They laugh at you. This happened with television, internet, and mobile phones.
BITCOIN IS A JOKE IN 2023 (16)
Bitcoin is no different. And it’s been that way for the last 10 years. But unsurprisingly, this continued in 2023 with some headlines here. Bitcoin’s obituary has been written countless times, and it continued in 2023.
TECHNOLOGY ADOPTION YEARS (17)
But despite the media and naysayers laughing, adoption happens. Here’s a look at the innovations that have happened previously, and how long until they were adopted. So where is Bitcoin on the adoption curve?
BITCOIN ADOPTION (18)
We are early. If the “laugh at you” wasn’t enough of an indicator, this chart shows global adoption as a percentage. Most technologies don’t make significant market penetration until they can cross a 10% global rate. We’re currently sitting around 1%, and most predictive models showing adoption hitting that 10% hurdle in 2030.
Just as a reference to other investment opportunities that skyrocketed after more adoption we can look at Apple or Amazon. It’s easy for us to sit here in 2023 and say I wish I would have invested in Apple/Amazon 20 years ago. If you would have invested in Apple 20 years ago, you’d have gotten a 50,000% return on that money. For Amazon, it’s an 8,000% return. Those would be early 00’s investments. This is where we think Bitcoin is right now. We think in 20 years we’ll have seen an 8,000% to 50,000% return. That’s the point of adoption we’re at, and where we think this is going.
THEN THEY FIGHT YOU (19)
This was actually a big theme of 2023. Coming out of 2022, I think one of the biggest unknowns was regulation. What’s going to happen, and how will it affect the markets? I continue to believe that regulation is good for the space, and some short-term pain ultimately will allow uncertainty to settle. But early 2023, regulation felt like a risk to crypto prices and the market. Let’s talk about the fight in 2023.
REGULATION SEC> CRYPTO PART 1 (20)
As was somewhat expected, the white house issued a roadmap on how to mitigate crypto risks in early (January) 2023. This wasn’t a surprise after FTX collapse in late 2022. It’s impact in 2022 touched more than just crypto people, FTX had weaseled it’s way into politics as well, and really had tentacles everywhere. It was a big enough story, that reactions were expected.
In late Q1 we had what many people know as the Silicon Valley Bank collapse. But the first bank casualty was actually Silvergate bank. The strongest crypto friendly bank in the US. 8DC banked with Silvergate, and it’s collapse wasn’t as sudden or dramatic as SVB, it was nonetheless a big deal in the crypto space. Many companies, funds, and institutions had to find somewhere else to bank, but no one lost money. When Signature bank was shut down by regulators shortly after SVB, the air smelled a little off. It felt like crypto on and off ramps were being choked out of the market. The 2 biggest crypto banks we’re shut down in a matter of weeks.
Within a week after this happened, Sen. Warren publicly announced she’s building an anti-crypto army (end of Q1). She says the quiet part out loud, she wants crypto gone, and says she’s going to fight it. The reason this is a big deal, she oversees the banking and securities commissions. She pushes her agenda in banking and the SEC.
REGULATION SEC> CRYPTO PART 2 (21)
In Q2 of 2023, the fight heats up. Gary Gensler, SEC Chair, becomes a main character in crypto. Gensler files lawsuits against Coinbase and Binance, stating that they are offering unregistered securities. He names several crypto tokens as unregistered securities. These named tokens take a nose dive in price. Other exchanges are quick to react, and delist these tokens trying to avoid US scrutiny. The market, quickly reacts negatively as prices fall hard.
The SEC is throwing some strong punches at crypto, and making a huge impact on the markets. But we continue to believe that this will force conversations at the highest levels that are needed for fair regulation to get ironed out. Coinbase publicly states they look forward to seeing the SEC in court, and refuses to acknowledge the named unregistered securities are securities at all. This case continues in court today, and like I said, it’s forcing really good conversations and putting the line in the sand on the future.
REGULATION IMPACT AT THE TIME (22)
The SEC’s lawsuits, orchestrated by Sen Warren, and executed by Chair Gensler create global reactions around crypto. International banks in Hong Kong, Europe, Japan, all announce how they are crypto friendly, and are trying to attract more US money. You see more and more articles like this one in the Japan Times, talking about how the uncertainty of crypto in the US could be an opportunity for them and other countries. The world is watching, and trying to swoop in. The numbers, where money is flowing in crypto, confirms these articles.
This is a stablecoin chart (coins pegged to the US Dollar on the crypto payment rails), it’s comparing two of the most popular stablecoins. USDT, predominantly used in Asia, and USDC, predominantly used in the US. By end of Q2 (following crackdown on crypto banks, and SEC suits) we see an outflow of $14B from USDC, and an inflow of $16B to USDT. USDC jurisdiction is in the US, and as you can see, money flowing away.
REGULATION CRYPTO > SEC (23)
After what felt like a constant negative barrage from the regulation side, things start to shift in 2nd half of 2023. Like I said before, forcing discussion, though a bit uncomfortable to start, can result in more clarity, and a path to move forward.
First, in July of 2023, Ripple (XRP) wins a milestone win in court against the SEC. I won’t go into all the details, but a huge decision comes through on XRP not being a security when listed on exchanges. This ruling hands the SEC a huge loss, and reverses the sentiment in the market around all the tokens that the SEC named as unregistered securities. The market absolutely sends up, reaching all time highs on year for many tokens.
A month later the SEC takes another huge loss in court, Grayscale wins in their appeal for regulatory support on a long awaited Bitcoin ETF. This ruling infers some downward pressure from the SEC on allowing a BTC ETF is not only wrong, but an overreach of power.
Blackrock, and 8 other asset allocators and large financial institutions file to launch ETFs with the SEC. Name brands in the financial industry are wanting to offer Bitcoin to their clients, and this landmark case will ultimately pave the way for this to happen in 2024.
Then in Q4, Binance settles with the DOJ. Binance has been a bit of a looming uncertainty in the crypto industry since FTX. Is there fraud here, will it collapse, will it be shut down by the US. This settlement, over $4B dollars, gives some resolution and ease to the uncertainty that seemed to hang around for a while. Along with this feeling somewhat settled, many of the fraudsters from 2022 (Luna, Celsius, FTX) are now in jail, putting a lot of 2022 behind us.
A true tale of 2 halves of the year. First half of the year, the negative feelings of crypto uncertainty were sky high, and in the second half of the year, we had more clarity and resolution than ever before.
Now I don’t think we’ve solved crypto regulation because of what happened last year. But I don’t think it was jam packed with discussions that will continue to pave the future. There are bills in the senate, there will be more resolutions in court, and there will be a lot of discussions to continue to add clarity to the regulatory side of the industry. But a takeaway from 2023 is the forced discussions at the highest levels, drive the industry forward, even when uncomfortable at times.
QUOTE (24)
To end this section, I have this quote from Fred Wilson about innovative technologies.
“When they want to shut it down, I say double down. The most powerful technologies send waves of fear through the establishment. When you see that fear in their eyes, invest in the cause of that fear.”
The interesting thing here is that the “establishment” is the US Government. Lol. But the point here is that Bitcoin and crypto is a powerful new technology, it’s disruptive, and this fear or fight, is just an opportunity to invest in it’s future.
THEN THEY JOIN YOU (25)
The last section of my presentation, ‘Then they join you.’
ETF IMPACT (26)
ETFs carried the regulatory momentum into Q4 of 2023. The build up, and expectations continue to rise. I want to address a couple of points on why this is impactful to Bitcoin, and the crypto industry.
BITCOIN ETF — FRANKLIN TEMPLETON (27)
Franklin Templeton, a global leader in asset management, over $1.5 trillion in AUM posted this on Twitter recently. Implying that what was once a recommended portfolio 60/40, is now needing to adjust to 60/40+ BTC.
This is a name that many people recognize in the asset management space. Add in Blackrock, Fidelity, Invesco, etc, we have name brands entering the space. This elevates the conversation around crypto, and moves from nerdy kids in the basement talking about crypto in online chat forums, to respectable institutions recommending, or even selling, why BTC should be a part of your portfolio. Respectable brand named institutions promoting BTC will have a lasting impact for years to come.
BITCOIN ETF — NAME BRANDS (28)
Name brands joining the space will continue to grow. Currently 55% of the top 100 banks are investing in the crypto and blockchain space in some capacity. Brand names coming into the space drive customer confidence, and change prospective customer perception. In a recent study, over the past 12 months, 90% of financial advisors have received client questions about crypto. We expect that to continue to grow because of these ETFs.
BITCOIN ETF — INCREASED MARKET (29)
The ETFs will increase the addressable market for Bitcoin. Just looking at retirement accounts, there’s over $300 trillion. Of that $300 trillion, 23% go to alternative investments (20%) and gold (3%). If only 0.5% of it went into Bitcoin, it’s market cap would potentially 15x. The ETF allows more of these types of allocations to slowly make their way to Bitcoin. Over time, we will see more and more of this market get allocated to Bitcoin.
Another important point to note here is the accessibility. Bitcoin is not an easy asset to hold or to buy, until these ETFs. Now it’s as simple as buying Apple stock on Fidelity, which services infinitely more people than the crypto focused exchanges.
BITCOIN ETF — GOLD ETF (30)
Access brings greater liquidity to the markets. You can see here what happened when the first gold ETF was launched back in 2003. More access, more demand, without more supply. Prices went up over 400% over the next decade. This type of growth is a good indicator of of what can happen with the Bitcoin ETFs. Weirdly enough, we see Bitcoin prices pull 400% moves in a year already, so this scale might be too small of what can happen with Bitcoin, which has even more limited supply.
BITCOIN ETF- MARKETING UPGRADE (31)
Lastly, a touched on this a bit already, but these institutions are a big marketing upgrade from where the industry has been. It’s mainly been memes. Poking fun of the industry while trying to convince people that “numba go up.” Since the ETF we see real ads on the Wall Street Journal, and more boring commercials with guys in suits. This will mature the industry and add a lot, let me repeat, a lot more respect to the space. It’s growing into an investment class, not a toy for kids on computers in their moms basements. This type of impact is just getting started, and besides the public marketing that we’ll continue to see, there will be thousands of sales people pushing these ETFs. There will be conferences, research pieces, keynotes around BTC and why it should be in your portfolio. Over time, it will be must have.
BITWISE REPORT ON BTC (32)
One example of great marketing, Bitwise, who launched an ETF, came out with this research paper, on why Bitcoin should be a part of every portfolio. They compared a traditional portfolio to adding a small percentage of BTC to that portfolio, and the impact it would have. Adding 2.5%-5% to Bitcoin, would 2–3x the returns of a traditional 60/40 portfolio.
BITWISE REPORT ON BTC (33)
They even did research on the value of when you bought and how long you held Bitcoin in your portfolio. They wanted to research the impact of volatility on a portfolio, since that is one of the biggest worries on BTC. The conclusion was no matter what date you bought (meaning no cherry picking dates), if you held for over 3 years, it positively impacted your portfolio. We summarized this research here.
This is great marketing for BTC, and we expect this type of marketing to grow throughout 2024.
BITCOIN ETF — BY THE NUMBERS (34)
I don’t want to get into the details of the ETF performance, but here’s a quick snapshot after 7 days of trading. What stands out to me is that Blackrock and Fidelity quickly went from holding 0 BTC, to now $3 billion worth of Bitcoin. The new Bitcoin ETFs did more volume in the first 3 days of trading then the 500 new ETFs from all of last year. The point here is that there is demand, and the demand will continue to grow, all the while, the supply available is shrinking.
INVEST NOW — CONCLUSION (35)
All this to summarize 2023 was a very impactful year to move away from the fear and fraud of 2022. We put in a bottom when looking at the charts, and we moved regulation forward. ETFs are just getting started, and the future looks bright. It’s still early to invest in the space. You’re investing in innovation decades ahead of it being a part of every day life.
The one comment I’d add on investing in the space or holding Bitcoin/Crypto is this: Cycle timing outperforms buy-and-hold exponentially. Buy-and-hold is better than nothing. But you really can make a difference when you manage the cycles just a little bit. At 8DC, we actively manage these cycles for people. You can do it on your own, but make the time to do it. Find a crypto friend that you can ask questions to, to try and time things better. Use data, not emotions. Find active managers, or be active yourself, it’ll make a huge difference in your returns in this space.
Thanks Everyone.
