Focusing on Messari Annual Report: Top Ten Investment Themes of Cryptocurrency in 2021

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The core content of Messari’s 134-page ” Encrypted Currency Theme Report 2021 “: ” Top Ten Investment Themes: Real and Relative Value “, will show you the unique insights of the research institution on investments in the cryptocurrency field.

Bonus : Messari team members also shared their positions.

Written by: Ryan Selkis, founder and CEO of Messari, a cryptocurrency research organization
Translation: Perry Wang
Messari authorized Chain News to publish the Chinese version of the report.

Is it wise to invest in the top 50 crypto assets currently?

The crypto asset market reached its peak in late 2017 and early 2018, when everything was overvalued, and most assets did not even have a clear purpose. Today, half of the top ten cryptocurrencies based on Proof of Work (PoW) may have become bad debts on the balance sheet, and Bitcoin currently accounts for about 90% of the total market capitalization, and there are some interesting, Privacy-conscious cryptocurrencies are racing to get a share of the market. ” Privacy funds ” networks protected by the Lindy effect (such as XRP and XLM) are still among the top ten, and there are currently eight stable currencies with a market value of more than $250 million.

In today’s top 50 asset encryption, about a dozen contracts intelligent platform in the fight for market share. Most platforms generate online cash flow (at least in theory), and investors earn gas transaction fees and seigniorage by pledged assets in the corresponding blockchain to guarantee transactions. Can this field accommodate multiple blockchain winners? Even the core Ethereum developers don’t think that the eth2-based blockchain can settle 100% of transactions in the future, so it can be understood why ETH’s market share in this field is only 70%.

What other layer 1 or layer 2 network tokens can benefit from the explosive growth of encryption applications? Are they also worth investing in?

Even if you feel confident about these issues, are you sure that your investment income will still outperform BTC and ETH after deducting Gas transaction fees, taxes, accounting fees and your time value?

Maybe. However, most of your performance may come from insider status (the rich become richer); from your engineering ability (you understand the rules of the game better than others, and are willing to play this kind of lucrative but extremely competitive chain investment Game); or boldly and firmly place heavy bets to prove that your investment target is ignored by the market and misunderstood by most people. In essence, this strategy is extremely difficult.

There are many subtle branches of crypto investment, and the complexity is increasing day by day. If you can swing trade, it may still be the best way to bet by one or more of its encryption Monetary Fund. Like gray (Grayscale) such funds or passive like active investment institutions Paradigm can be, depending on whether you think this is only the fund can outperform the Bitcoin market, and whether fund managers can get the green light.

Passive and active investor performance in recent years are quite impressive signs (except for those investors because of reckless leveraged positions but swallow the bitter pill of), but did not slow down, but outperformed the blue-chip very difficult to beat the giant Whales are more difficult.

Stablecoins lay the status of depositing coins, adding to the flame

One aspect of the recent bull market is the most promising, which is almost entirely made outstanding grand narrative facilitated.

Since the last cycle, although BTC has lost its status as an exchange quote currency (replaced by stablecoins), BTC has continued to thrive; ETH has lost its status in ICO and DeFi (it is still stable). Currency replaced it), but still survived. As it happens, these two encryption commodities (BTC as a digital gold, ETH fuel as a new computing platform) have reached an important milestone, from the perspective of a store of value, it can be achieved to the investment risk of.

Except for a brief exception (the Black Thursday liquidity crisis in March), BTC is still an investment target that is not related to the macro financial market and has an excellent Sharpe ratio. Its recent production rate of inflation for the first time in half so that it falls below the Fed’s target rate.

Ethereum’s inflation rate will be similarly reduced with the migration to eth2, and ETH holders will capture value from the migration: tens of millions of dollars in pledge seigniorage, and almost burned through transaction fees (Gas) Equal value.

Other platforms may attract the attention of institutional investors, but for now, the crypto asset market is still a situation where BTC and ETH are competing for hegemony .

Contrary to intuition, the rise of stablecoins is one of the potential catalysts for this market cycle. Because fiat money tends to flow one way to take advantage of cryptography sustained high interest rates, so that a stable currency assets will be locked in encryption ecosystem. In the event of an unfavorable situation (collateralized deposits are confiscated or regulatory crackdowns lead to loss of stable currency support), this may attract investors to re-enable BTC and ETH as deposit coins.

Focusing on Messari Annual Report: Top Ten Investment Themes of Cryptocurrency in 2021

Passive investment

If you are asset rich qualified investors, but do not want to waste time on the encrypted transfer funds to do the best, or do not want to gamble on a long tail DeFi assets, the best choice may employ leveraged investment trusts gray.

If you can accept a lock-up period of 6 to 12 months, you can inject the underlying assets (BTC, ETH, LTC) into the gray trust related funds, and you may be able to sell these shares at a significantly higher premium than the spot.

GBTC market capitalization is currently trading at a premium compared to its net asset value by 30% in four years with no discount to net asset transaction. ETHE premium of up to 60%, and never less than 15% of trading at a premium. LTCN trades at a level that is several times the underlying spot price. Even if the premium may go down, it is unlikely to slip to a negative value. Therefore, with this investment method, you can not only obtain blue-chip asset positions, but also actually reap the additional benefits enjoyed by the whale investment project.

Focusing on Messari Annual Report: Top Ten Investment Themes of Cryptocurrency in 2021

Follow-up speculation: tracking the positions of crypto fund managers

What if it is not a qualified investor? A cool reality cryptography is possible to identify funds purse address, track their cash flow, and track their positions deployment.

I believe that with the passage of time, various fund institutions will do better in terms of privacy, but before the official announcement of the fund, we only searched for on-chain data and have captured many private equity projects of venture capital VCs, such as Numerici , Arweave and Synthetix .

We have compiled a portfolio tracker that matches the positions disclosed by many top VCs, so if you cannot become a limited partner of a16z or USV, or cannot invest in Blockchain Capital, Digital Currency Group, Multicoin, Pantera, Polychain, Placeholder, Crypto venture capital such as Paradigm or exchange funds such as Binance Labs, Coinbase Ventures and Huobi can at least copy and paste their portfolio!

Focusing on Messari Annual Report: Top Ten Investment Themes of Cryptocurrency in 2021

I don’t recommend copying without a brain. These investors support the return of many projects for the first transaction at a 10% discount, so the return may be significantly higher than the income derived from the exchange price. I bet this way is the top fund managers in the next year’s performance will outperform the BTC and ETH, even if the latter of these blue-chip assets acquired 5-10 times the rose will still be the case. This is my early emergence as a major reversal of the encryption fund skeptic stance, but this copy approach also means that you will rain descends excess returns of the Fund. (So ​​please be cautious when copying its position into your own position)

Directional correction: open a position and go long

When I started working on encryption full-time, one of the worst advice I received was that I should not receive a salary from an encryption company, and should invest heavily in the underlying assets of the crypto market. This approach is too concentrated and there is no safety net buffer. Fortunately, I ignored this suggestion, and I think other entrepreneurs will do the same.

The reason is simple: the Internet has created trillions of dollars in wealth for entrepreneurs and innovators. Most of these values is to grow into a large public company start-ups captured (whether it is or is Facebook, Amazon, Microsoft, Google and Apple and other giants FAMGA acquisition through an initial public offering IPO). But this award is highly concentrated, should also see the network and experience the ups and downs of the value of hundreds of thousands of other entrepreneurs, it is not appropriate to obtain such benefits. To become a successful technology entrepreneur or investor, you must be correct in your judgments about the market and the specific company you support. In the field of encryption, you just need to correctly judge the market trend.

The remaining will each other to heaven.

The popularity of rewards is what drives curious observers to quit their jobs and invest in the construction of the crypto community. It helps those who have failed to move to the next project more seamlessly. It keeps the entire crypto tribe united and moves towards a larger ultimate goal. You can stand on the current generation’s most promising assets and markets passive bets can earn money, but if there will be greater competition in the incoming harvest.

Traditional VC for entry and betting

The claim that traditional VCs are dead is exaggerated, but I suspect that “traditional” VCs can do a lot in the next cycle of cryptocurrency, unless institutions that are already active in this field (such as USV, a16z).

First, make sure that a large number of serious wealth effect of the early contributors to the encryption seed capital can become a contributor in the early stages of a variety of community projects. Many of the most prestigious crypto funds (Paradigm, Placeholder, Polychain, etc.) have industry reputations that match or exceed those of traditional VC institutions.

Encryption start-ups need honest stakeholders, their initial goal often is to win a public supporter of the beginning, not the sale of its 20% equity to a single investor. The mentality of ” peak IPO ” has normalized, which makes it untimely for VC institutions to pursue investment in the subsequent rounds of the B round.

Many traditional investors may find that investing in crypto funds is easier than direct investment. For traditional funding agencies to seize encryption currency this particular period of the window is closing.

Almost all VC organizations are ignorant of this.

Crypto startup IPO schedule

As far as the candidate projects for large-scale IPOs in the United States are concerned, there are a few to be aware of, but perhaps the most noteworthy projects are those that seem the least likely to be IPOs.

The market value of Coinbase in the secondary market is US$7-12 billion . This valuation is reasonable considering that the giant has raised funds at a valuation of US$8 billion during the recent market boom and has driven back numerous competitive threats since 2017. Coinbase has four advantages to enter the list of potential listings:

  1. This is a household name, Coinbase with its fraud prevention, safe custody and good design and seize a dominant market position;
  2. The company’s cost model is still very resilient, its core market in the wallet ramp reserved 1% of the transaction cost model and the separated lower costs Exchange Pro is a wonderful chess move of genius, I do not know of other lower cost Encrypted transaction options, such as Square and PayPal, can threaten Coinbase’s retail brand advantage;
  3. Coinbase has become a major player in the managed services market institutions, and with the pledge to be encrypted staking ownership innovative and important part of the business to generate a lot of revenue from Coinbase;
  4. The company is the darling of regulators. BitMEX, Huobi, OKEx, and Binance each encountered regulatory issues this year. Coinbase does not.

Kraken is an interesting potential IPO company. Their acquisition and integration of British crypto derivatives platform Crypto Facilities may be one of the most lucrative mergers and acquisitions in the industry to date. The company just launched a bank in Wyoming. They have an emerging data platform called CryptoWatch , which is quite impressive. The exchange remains one of the top five exchanges in the world for spot trading of cryptocurrencies. For a company with tradition, strong global influence and a wonderful inorganic growth story, the valuation of US$4 billion at the time of their last financing seems to be a conservative figure.

Since earlier this year, BlockFi has been vocal about plans to go public, and it has grown (and raised funds) at an alarming rate. BlockFi encryption is currently the market leader in retail loans, but I personally do not know is:

  1. Whether they have a sustainable competitive advantage, or whether competitors such as Coinbase can carve up their market if they enter the loan field;
  2. As the net interest margin of encrypted loans has rapidly narrowed, whether the company’s unit economic efficiency faces extremely severe challenges;
  3. Whether its risk management policy is effective. As Cred, another crypto lender, recently filed for bankruptcy, a bad quarter is enough to bankrupt such companies.

Non-IPO calendar: DCG

Frankly speaking, I personally doubt whether DCG will go public, so we may never know how much this company is worth. DCG founder Barry Silbert does not look like the CEO of a listed company in my eyes (if Charles Koch “Chairman and CEO of Koch Industries, a leading U.S. non-listed company”, why should he be Warren? Buffett), the company will never need additional funds.

A presentation in 2018 showed that the company had assets of US$500 million and had no debt as of June of that year. Since then, the price of BTC has tripled, while the revenue of the DCG operating branch has increased 4 times. The combined business’s EBITDA for EBITDA this year will exceed US$150 million. Due to Grayscale ’s monopoly on the encrypted “ETF” market, DCG’s growth is accelerating. More importantly, these figures are essentially fixed annuities. Because of Grayscale’s structure, the AUM of the asset management scale cannot actually be calculated. Only new products approved and / or encounter some difficult regulatory issues, will make their fee income threatened by competitors.

really? What is the liquidity of its early investors?

In fact, they already have a logical solution to this.

In DCG’s predecessor, SecondMarket (a private equity trading platform founded by Barry Silbert in 2004), bidding for non-listed companies is an integral part of the business. It is also precisely targeting the private equity market, helping Barry Silbert and DCG determine another way to sell Grayscale Trust . As part of the company’s restructuring, DCG actually completed several private equity tenders in the second half of 2017. If DCG prepares to conduct more private placements in 2021, I personally will not be surprised.

DCG was valued at USD 650 million at the time of its private placement in December 2017 , although the assets on its current balance sheet at that time may be higher than this figure (it coincided with BTC’s record high). I bet Barry will make a gradual management buyout before DCG goes public (and maybe even work with his billionaire board member Glenn Hutchins), or never need to go public.

Don’t expect to buy DCG shares next year. My fellow Messari analyst Jack Purdy once stated in his report that the valuation of DCG can reach US$4 billion. I personally think that the market value may be close to $ 15 billion in the current market bubble premise. But these are not important. If the BTC price reaches US$100,000 next year, DCG may deliver an annual report with annual EBITDA revenue exceeding US$1 billion next year, and it will continue to develop as a non-listed company.

Focusing on Messari Annual Report: Top Ten Investment Themes of Cryptocurrency in 2021

Preferred target for M&A

In terms of profitability, DCG may be the case, but it is certainly not the only crypto company with abundant cash.

Bull created a wealth effect, major exchanges and generate seigniorage encryption project is likely to be a significant investment in the next market cycle. At the same time, Wall Street’s appetite for acquisitions may be generated encryption infrastructure, which has brought three different types of buyers, its acquisition strategy may be ready to invest billions of dollars in budget.

If the market value of BTC reaches the magical mark of US$1 trillion in 2021, I don’t see a few banks that can withstand the impact of the crypto market without inorganic growth through mergers and acquisitions. And some of these financial institutions need to grow at a negative interest rate risk exposure of the macro environment.

My preferred target for mergers and acquisitions?

Prime broker (BitGo), escrow (Anchorage), data (CoinGecko, Etherscan).

Hit the workers: funding, voting, construction

In the final analysis, cryptography requires people to work for the construction. Fortunately, this is an unprecedented and excellent time to join the encryption field (part-time or full-time) for construction. This usually means that you can bring one of three things: code, money, or content .

This year due to the rise of liquidity mining, non-VC contributors eventually get their due benefits. But most projects have also begun to share revenue with content producers, consultants, marketers, and even supervisory agencies and voting agents to sponsor educational resources, sort out communication with stakeholders in the market noise, and ensure that people actually review proposals and vote. System parameters.

Our HODL assets

Don’t tell me what assets you like, show us your position.

Traditional research analysts may not like to take risks on some of the assets covered by the research. However, we deliberately avoid imposing cumbersome trading restrictions on analysts (with notable exceptions) because we believe that doing so would be counterproductive. If you do not roll up their sleeves to participate in these protocols, encryption can really understand how money?

TBI (referring to Messari founder Ryan Selkis) likes: BTC, ETH, ZEC, YFI, FIL, LTC (investing through Grayscale instead of buying spot), LUNA, SIA, ANT, NXM, REN, and a small number of other positions are not counted.

Ryan (refers to Me ss ari senior analyst Ryan Watkins) Like: ETH, RUNE, YFI, HNT, CVP, ANT, LUNA, CREAM, RPL. Do more DeFi, more ETH 2.0, and more governance innovation.

Wilson likes: ETH, BTC, HNT, UNI, Blue coins, cross-chain liquidity (RUNE) and liquidity bet (RPL) networks, DOT/KSM (the first parachain launch will bring a frenetic atmosphere similar to the 2017 Ethereum ICO, KSM can get out of a bull market).

Aidan likes: BTC, ETH, renZEC, CVP, HEGIC, CHI (to dismantle more gas tokens in the ETH block space market), YAX, and AXS (obsessed with cat CryptoKitties, meets electronic pet chicken Tamagotchi: Who would not love? ).

Mason likes: ETH, BTC, UNI, YFI (long YFI founder Andre Cronje), ANT (post-ANJ merger era), cash-generating governance tokens, AXS (see Aidan), community-owned trading markets and networks (such as RARI, AUDIO), application-specific blockchain (HNT), tokens (NFT and ERC20) with unique partnerships (NBA top players, SoRare, CHZ).

Jack likes: HNT, BTC, ETH, YFI, ALPHA, HEGIC, PERP. Decentralized derivatives are equivalent to the decentralized exchange DEX in 2019. The hype is extremely hot but has not yet been substantively used (not yet ). They are expected to make waves in 2021.

Eric likes: BTC, ETH, ZEC, YFI, MLN, RUNE, CVP (any aggregated liquidity, revenue, governance, etc.) to facilitate people’s easy entry into the encryption field.

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