DIGITAL ASSET MARKET
UPDATE_ Q1 2020
Going into the the year 2020 things looked quite promising. Also in the crypto world, the outlook for the year was very encouraging. This was particularly evident in the increased market capitalisation in the beginning of the year. It increased from ~$180 billion to over $300 billion in the first 6 weeks of the year. But only a few weeks after the COVID-19 outbreak happened which hardly stopped at any asset class.
Oil lost the most at -66% while various long-term government bonds benefited. Overall Bitcoin (BTC) lost around 10% in the first quarter.
Gold
When the worldwide pandemic occurred in mid-March also the price of gold drastically slipped. However, within one week afterwards the price recovered and reached new highs. This is probably because many institutional investors had to sell large parts of all asset classes at the same time.
Bitcoin
How about Bitcoin? We can see a similar picture for Bitcoin. Initially, the price slid from $9,000 to $5,000 before the price recovered to $7,000. As a result, Bitcoin is currently (April 2020) back at the starting value of 2020. On March 12th, Bitcoin experienced one of the worst days since its inception with a loss of -37%. On March 31st, the price was quoted at $6,400. As a result, Bitcoin lost -10.5% in Q1 2020.
Altcoins
Some altcoins such as ICON (ICX) +109%, Reserve Rights (RSR) +85%, Ethereum (ETH) +3%, Tezos (XTZ) +20% or Chainlink (LINK) +27% even managed to increase its price. For other altcoins such as Binance Coin (BNB) -8% or Cardano (ADA) -7% the quarter resulted in a single digit loss. Bitcoin’s market strength continued to decline over the quarter. At the beginning of the year Bitcoin still held a market share of ~67.5%. At the end of the quarter, this value has declined to ~64.5%. This shows a little increase in the market capitalisation of altcoins or an average outperformance of Alts compared to BTC.
“Unlimited” QE
The Federal Reserve pledged to do, in essence, whatever it takes to keep the economy from collapsing under the weight of the coronavirus pandemic. Delphi Digital published a great chart which shows the correlation between the Bitcoin price and the total assets of major central banks.
Bitcoin Halving & Stock-to-Flow Model
Many investors are looking forward to May 2020 when the next Bitcoin halving will happen. In 4 year intervals the supply of newly minted Bitcoins is getting cut in half (“The Halving”). According to the website https://digitalik.net/btc the halving will happen on May 11th. Next to the date the website also shows a very interesting model, namely the “stock-to-flow model” (S2F) which is inspired by this medium article. According to the model we potentially could see a Bitcoin price of ~$100.000 within the next 12 months. Historically, the bitcoin price has shown a correlation with Bitcoin’s S2F ratio.
J-Curve
After the little bull run in May/June 2019 the digital asset market has not left the bear market and couldn’t reach new highs since. However as long term investors we are interested in the underlying technology and its value generation. This is perfectly illustrated by the crypto J-Curve. In the beginning of a new project the “current utility value” (CUV) is low, but the “discounted expected utility value” (DEUV) is very high, which means that large parts of the price is determined by speculation on the future value. Over time the DEUV decreases, but for the best projects the CUV increases. That’s also the best time to invest in a project.
DeFi & Oracles
Exactly this pattern can be seen in the decentralised finance (DeFi) space. The first projects in the DeFi space have been launched in 2017 and managed to attract relatively huge sums of capital but failed to create initial value. During the last year this has totally changed and projects in the DeFi space have managed to create value for its users. This can greatly be seen by the assets locked into the different DeFi projects. In February 2020 over 3 million ETH or an equivalent of over $1 billion USD have been locked in distributed financial applications. At the forefront are lending projects like Maker, Compound, Uniswap and Aave.
In the beginnings most of the DeFi projects have emerged on the Ethereum blockchain. Meanwhile we can see a trend to more and more cross-chain financial applications, like KAVA, Ren Protocol or Thorchain. While various cross-chain protocols have been in the works since already 2018, DeFi could be the final trigger for the cross-chain applications and adoption.
The team behind the Thorchain project is creating a cross-chain liquidity network and is currently in the first phase of its testnet. Looking into the tokenomics and the potential market of the Thorchain it’s probably one of the most promising projects in the space. Competitors like Uniswap have already managed to lock-in assets worth ~$35 million USD, although it is only usable for tokens issued on the Ethereum network.
Also the decentralised network ICON is currently focusing its development resources on its cross-chain abilities and could be the first blockchain project with real world cross-chain usage (connecting private to public). A similar approach is taken by Fusion. With its open source DCRM (decentralised control rights management) solution, Fusion could manage to create an interoperable solution with a focus on financial applications.
In addition to the full decentralised projects we can also see huge advancements of centralised financial networks in the crypto ecosystem. The world’s largest exchange Binance is moving more and more in the direction of a full financial network with a wide product range. Started in 2017 as a pure crypto to crypto exchange, Binance meanwhile offers services like lending, staking and payments. It is also the largest provider of fiat-on-ramps and operates even his own startup accelerator. Still in its early shoes is the Swiss blockchain bank Mt. Pelerin. A leading pioneer in the Swiss blockchain ecosystem and a major contributor to the token legal situation.
Another emerging technology which has grown in attention exponentially over the last couple of months are decentralised oracles. Solutions like Chainlink, Oraclize, Band Protocol or Witnet are either already live or are about to launch shortly. The emerging need for oracles also results out of an increased adoption of the DeFi space. Smart contracts are in the need of reliable off-chain data (e.g. financial data, …).
Project Updates
Looking into the project fundamentals we can see that the whole digital asset market has improved impressively over the last 3 months. Some projects even have managed to outperform our expectations!
Thorchain
The decentralised cross-chain liquidity network has an impressive community and the highest staked supply in the whole market! Over 90% of the supply is being staked by more than 1.100 stakers. What awesome numbers for a project which will present its testnet in the following weeks. The market cap is still below 20 million USD.
Over the last couple of weeks the project has managed to link up their own chain with Ethereum and Bitcoin. The project is well funded for at least the next 23 months and has managed to built a strong community which is integrated into active parts more and more!
ICON
ICON with its ICX token is currently the eighth most utilised blockchain globally. It is a top 50 project in terms of market cap, and is the second best performing token with over $100 million value during Q1 2020. ICON ist continuously innovating and has recently announced an improved and very impressive new consensus algorithm, named LFT2. Details can be found here.
The project is already fully decentralised since 6 months. Meanwhile there are more than 120 nodes in the network. We are very proud to be one of the top 25 nodes in the ICON network.
block42 is currently working on a big improvement for all ICX stakers and bring more liquidity to the ICON network.
Here is a quick list of other applications we built for the ICON network:
- ICX Stakr (Staking Calculating tool)
- Whale watcher (Vote distribution visualisation)
- ICON Europe Initiative
- ICON Europe Voting dApp
- LICX token (the basis for our DeFi solutions)
Fantom
With an impressive roadmap for 2020 (look here) and a runway of at least three and a half years (treasury of $5.4million), Fantom has built an awesome foundation. Over the last couple of weeks, Fantom made improvements to validator metrics, launched fantom.finance’s site and increased wallet security. The team behind Fantom has announced that it’s in integrating Chainlink as the official oracle solution for Fantom-based networks and provides an additional integration with Band Protocol, the #2 Oracle solution.
Our solution for fantom stakers has received a prize from the Fantom foundation (Link). We are very proud and big thanks to our amazing team! The tool has attracted more than 2.000 users from 92 different countries over the last couple of weeks. The average session duration is over 3 minutes. In total we have registered over 13.000 sessions!
Binance
One of the winners in the current COVID-19 crisis is for sure Binance. During the sell-off mid March Binance registered high trading volumes. This resulted in the largest quarterly BNB burn since its inception. According to the latest burn and the average burn rate we have calculated a PE ratio of <5 (see here) which makes Binance, together with its extensive financial ecosystem and its fulminant growth rate, a top investment pick.
Terra
With over 1.3 million users counts the Terra ecosystem to one of the most used decentralised ecosystem. The team behind Terraform Labs. has managed to grow its ecosystem from 0 to > 1 million users in less than 12 months.
We are proud to announce, that block42 is now one of the 55 nodes securing the Terra network. As it is our main goal to provide active value to the most promising decentralised networks, we are currently working on an easy and comprehensive node setup guide. This will make it much easier for future nodes to enter the network and even make Terra more decentralised. In the future we will, together with the community, deliver more value through new innovations.
DYOR — do your own research
During our due diligence process we are always looking for possible valuation methods. Over the last weeks we have published two valuations of two interesting projects. In both cases we used the widely-known Price-to-Earnings Ratio (P/E ratio).
See our latest valuations:
Conclusion
With the global pandemic started in Q1 2020, the world was shut down and the the economy hit hard. In the months ahead we will certainly face difficult times. We will see how the world will handle it and how much the extreme relief packages can prevent an unstoppable recession. The worldwide pessimism could be extremely damaging to the current financial system and could see the final breakthrough of digital blockchain assets.
Disclaimer: block42 is not a registered investment advisor, broker/dealer, financial analyst, financial bank, securities broker or financial planner. The information is provided for information purposes only. The information is not intended to be and does not constitute financial advice or any other advice, is general in nature and not specific to you.
We are not paid or mandated to do any of our reviews/valuations. This is just our own opinion. Please always do your own research before making any investment decisions.
