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In This Issue:
Wall Street’s Biggest Blind Spot
The Impact Of US Regulations On Cryptocurrency - IntoTheBlock
Bitcoin Thoughts And Analysis
Legacy Markets
Larry Fink Gets It
Is Blur To Blame?
Wall Street’s Biggest Blind Spot
Twenty years ago, in July 2003, a certain company was born with a vision to propel humanity towards sustainable energy.
That company was Tesla, the renowned American electric vehicle and clean energy company that forever transformed the automotive industry. Today, Tesla electric vehicles have gained a global reputation, with the recent accolade of the Tesla Model Y being recognized as the world's best-selling car. Despite an abundance of accolades, the journey to its current outstanding position was fraught with substantial challenges and pervasive skepticism that deemed its success inconceivable.
Volumes of books could be devoted to the criticism and doubt Tesla has had to face.
Bob Lutz, the former Vice Chairman of General Motors, stated in June 2008: "I don't think Tesla has any long-term future."
In March 2009, Dan Neil, a journalist at The Wall Street Journal, said: "There is still a gulf of manufacturing knowledge between Tesla and companies that mass-produce vehicles."
Edward Niedermeyer, an automotive journalist, commented in June 2010: "Tesla is trading on hype, as they have been since day one. This is just another reminder that Tesla has never been a real car company."
Even Martin Winterkorn, former CEO of Volkswagen, asserted in September 2011: "I highly respect Tesla and its CEO Elon Musk for what they have achieved. Still, I do not see Volkswagen losing its No. 1 position, even to Tesla."
Michael Kanellos, an editor at GreenTech Media, doubted in August 2012: "I think it's very unlikely that Tesla can meet its production targets... I'll be astonished if Tesla is able to sell 15,000 units next year."
But surely Wall Street investment firms had better insight, didn't they?
Brad Rubin, an analyst at BNP Paribas, posited in October 2008: "Tesla is more likely to be a financial failure, in our view, even if it proves to be a technological success."
In January 2009, Himanshu Patel, an analyst at JPMorgan, stated: "We are downgrading shares of Tesla from Neutral to Underweight due to increased execution risk for the company’s Model S program."
Craig Irwin, an analyst at Wedbush Securities, announced in March 2010: "We are lowering our price target on Tesla shares, as we have increasing reservations about the commercial success of the Model S."
Rob Enderle, the principal analyst at Enderle Group, opined in May 2011: "Tesla’s biggest problem is that electric cars just aren't that attractive to most people."
Even Aakash Doshi, an analyst at Citigroup, doubted in May 2012: "We think shares of Tesla are dramatically overvalued, and while Tesla’s technology is interesting, we do not believe it will be a volume player in autos."
The underlying lesson from this saga is that innovators are often misunderstood.
The Model S was launched by Tesla in 2012, shattering industry norms as promised, yet the company faced a barrage of criticism and doubt in the years that followed. It took several years for Tesla’s stock to make its ascent, but once it did, there was no looking back.
Here's a brief history of Tesla:
Tesla made its initial public offering (IPO) on June 29, 2010, at a price of $17 per share, valuing the company at roughly $2 billion.
By December 31, 2013, the stock had surged to $150.43 per share, and Tesla's valuation had swelled to over $20 billion at the year's peak.
On August 31, 2020, just prior to a 5-for-1 stock split, Tesla's market cap breached the $400 billion mark.
Following a 3:1 stock split on August 25, 2022, Tesla's valuation as of today stands at an impressive $885.14 billion.
After experiencing some turbulence, Tesla's stock in 2023 has risen to $282, propelling the company's valuation back to $885 billion.
Despite leaving critics in its wake, Tesla continues to face a barrage of skeptics even today. So, what is the connection with cryptocurrency?
The answer lies with Coinbase. The bulk of critics failed to grasp Tesla’s long-term vision when making projections about its future. One of the most insightful analyses I found from the early days of Tesla was this quote from an investor named John Petersen in 2011: “Tesla is one of the most polarizing companies I have ever followed. It's either the next great thing or the next great disaster." I share a similar sentiment towards Coinbase and our industry at large.
It's challenging to comprehend what Wall Street thinks about our industry beyond the occasional comments from a few recognizable figures, but Coinbase serves as an excellent proxy. Wall Street may be reluctant to engage with Bitcoin, but Coinbase's status as a publicly-traded company has compelled analysts to pay attention to crypto. The results have been quite eye-opening.
If Wall Street is skeptical of Coinbase, one can only imagine their thoughts about Bitcoin and the broader industry.
Recently, Piper Sandler, a leading investment bank, downgraded Coinbase from neutral to overweight, triggering this newsletter. Their reasoning was: “rising crypto prices have not translated to increased trading volumes for COIN in recent quarters and the timing of a spot bitcoin ETF approval is anyone’s guess.” They also noted, “the SEC’s case and the U.S. crypto landscape have created too much uncertainty to prudently project revenues in future years.”
Compared to three months ago, Coinbase is facing significantly less uncertainty today. Piper Sandler’s analysis serves as a perfect illustration of Wall Street’s shortsightedness or propensity to miss the mark. A look at a few current critics of Coinbase further illustrates this. There are many more out there.
The cases of Coinbase and Tesla offer valuable insights into Wall Street’s blind spot: innovation. Individuals from older generations, who still struggle with gas-powered cars and bank wires, are unlikely to invest in electric vehicles and digital assets, right? Twenty years on, Tesla still faces doubters, which says all you need to know about Coinbase and the broader industry. It indicates that we can anticipate great things, but also potential obstacles.
Innovation invariably poses a gamble: it can either be the next big thing or the next big flop - choose your bets wisely.
The Impact Of US Regulations On Cryptocurrency - IntoTheBlock
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB). ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data.
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
The Impact Of US Regulations On Cryptocurrency
The cryptocurrency markets experienced significant ups and downs during the second quarter of 2023. The range of emotions felt by investors went from fear of missing out (FOMO) during the meme token craze to despair when the SEC filed lawsuits against major crypto exchanges. These events, combined with the Blackrock ETF filing and the Ethereum Shapella upgrade can be considered the most noteworthy occurrences in the crypto world over the last three months.
When considering its on-chain impact, the meme token phenomenon led by PEPE emerged as a highly influential event. Notably, it wasn't limited to Ethereum alone, as meme tokens also spurred increased activity on the Bitcoin network. Despite the BRC-20 standard's being controversial within the Bitcoin community, it facilitated the development of tokens valued in the hundreds of millions on the Bitcoin blockchain. As a result, Bitcoin experienced great on-chain activity.
Source: IntoTheBlock’s Bitcoin Indicators
During the height of the meme token craze, Bitcoin achieved an unprecedented milestone as its daily transactions surged past 600,000, reaching a new all-time high.
In the first quarter, Bitcoin transactions were already gaining momentum, driven by the introduction of Ordinals, which allowed the creation of "inscriptions." These inscriptions are similar to non-fungible tokens (NFTs) and are built upon satoshis, the smallest units of Bitcoin.
In the latter part of the first quarter, an anonymous developer expanded the capabilities of Ordinals by enabling the creation of BRC-20 tokens. These tokens operate similarly to Ethereum's ERC-20 tokens but have a unique characteristic where the token supply consists of sets of satoshi inscriptions.
In less than four months, the number of BRC-20 tokens has exceeded 30,000, with the majority of them being meme tokens.
Another notable event that marked this quarter was the Ethereum Shapella upgrade. CEXs experienced a substantial outflow of Ethereum (ETH) amounting to more than $5 billion. A notable portion of this outflow originated from Kraken and Coinbase's staking services, as investors sought liquid staking alternatives.
Source: ITB's stETH financial indicators
Following a period of over two and a half years, Ethereum (ETH) validators gained the ability to withdraw their funds once the Shapella upgrade was implemented in April. Although there was a temporary outflow of funds, it can be seen as a minor occurrence preceding subsequent inflows.
The quantity of ETH staked experienced a brief decline lasting only two weeks, primarily due to withdrawals from staking products offered by centralized exchanges (CEXs). However, it soon resumed its upward trajectory and continued to expand.
Liquid staking platforms such as Lido experienced substantial growth in the quantity of ETH staked. These services attracted both new deposits and funds that shifted from centralized exchanges (CEXs) to these platforms.
Since the occurrence of the Shapella fork on April 12, 2023, the amount of ETH staked with Lido has increased by over 1.5 million ETH, equivalent to $2.8 billion.
Bitcoin Thoughts And Analysis
Yesterday I shared confirmed bearish divergence, which saw price continue to drop, but barely. Today I am watching for hidden bullish divergence (higher low on price, lower low on indicator) to “cancel” the bearish divergence. A hidden bullish divergence is a continuation signal. I mentioned yesterday that I would be watching for this. We need to see the clear elbow up on RSI at the close
Having these conflicting divergences is usually a signal of indecision and a pause, which is what we are clearly seeing. The newest divergence takes precedence.
Not confirmed yet.
Legacy Markets
Global stock markets have experienced a decline as investors react to hawkish commentary from the Federal Reserve. This includes widespread decreases in European and Asian stocks, and predictions for further losses in the S&P 500. In the UK, 10-year government bond yields have increased to their highest level since the gilts crisis of the previous year. This is due to traders fully pricing in a Bank of England interest rate of 6.5% by March, a quarter-century high.
Investors in the US are also apprehensive about policy tightening, with the June Fed meeting revealing divisions over the decision to pause rate hikes, and traders expecting higher rates this month. There is also anticipation around the release of US job data, which could influence future policy.
Meanwhile, in China, the central bank is supporting the yuan via a stronger daily reference rate. This is following a publication in the central bank's flagship newspaper stating that the country has enough tools to stabilize the weakening currency. Despite disappointing data, Chinese investors do not expect significant economic reforms or aggressive stimulus from policymakers at an upcoming key meeting.
Key Events This Week:
US initial jobless claims, trade, ISM services, job openings, Thursday
Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday
US unemployment rate, nonfarm payrolls, Friday
ECB’s Christine Lagarde addresses an event in France, Friday
Some of the main moves in markets today:
Stocks
The Stoxx Europe 600 fell 0.8% as of 8:35 a.m. London time
S&P 500 futures fell 0.5%
Nasdaq 100 futures fell 0.6%
Futures on the Dow Jones Industrial Average fell 0.4%
The MSCI Asia Pacific Index fell 1.3%
The MSCI Emerging Markets Index fell 1.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0861
The Japanese yen rose 0.6% to 143.72 per dollar
The offshore yuan was little changed at 7.2575 per dollar
The British pound rose 0.1% to $1.2717
Cryptocurrencies
Bitcoin rose 1.1% to $30,818.73
Ether rose 0.8% to $1,926.47
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.96%
Germany’s 10-year yield advanced four basis points to 2.52%
Britain’s 10-year yield advanced seven basis points to 4.57%
Commodities
Brent crude was little changed
Spot gold rose 0.3% to $1,920.32 an ounce
Larry Fink Gets It
Just last Friday, I mentioned that major Wall Street firms, such as BlackRock, led by individuals like Larry Fink, wouldn't publicly advocate for Bitcoin until they had strategically positioned themselves to profit. I argued that their actions would speak louder than their words. Now, fast forward to yesterday, and we have an official endorsement from Larry Fink himself. BlackRock is poised to succeed, and Larry Fink has officially declared his support for Bitcoin and cryptocurrency. This marks a significant victory for the crypto community. I've copied what Larry Fink said during an interview below - it's indeed a momentous statement.
“I do believe the role of crypto is digitalizing gold in many ways. Instead of investing in gold as a hedge against inflation, a hedge against the onerous problems of any one country, or the devaluation of your currency, let’s be clear, Bitcoin is an international asset. It is not based on any one currency, it can represent an asset that people can play as an alternative. The foundation of BlackRock is about hope. You invest for retirement because you believe tomorrow is better than today.”
Is Blur To Blame?
I hope that by now, given the coverage I've devoted to NFTs this week, you don't attribute the recent slump in the NFT market solely to Blur. The reality is that there's no single entity or factor to blame, other than perhaps unchecked greed. While Blur, along with everyone else in the NFT community, has made some missteps that contributed to this steep correction, it's incorrect to say that a competitor to OpenSea, regardless of its quality, is single-handedly causing a sector to crash. That's an oversimplification. The NFT market was due for a correction, and investors needed a reality check. Ultimately, this adjustment could prove beneficial for the community.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.