In this patch of your weekly Dispatch:
- Institutional money: from the sidelines to center stage
- In M&A we trust: the year’s most significant deals
- Redesigning finance: Nexo’s 2020 highlights
The Big Idea
The Year the Institutional Dominoes Started to Fall
For years, Bitcoin insiders have been discussing the veritable ocean of institutional money sitting on the sidelines. From family offices to traditional hedge funds to pensions and endowments, this money would represent a new force for driving demand (and consequently price) like nothing we’d yet seen.
Who knew it would be a pandemic that would finally drive these actors in?
It started when legendary hedge fund manager Paul Tudor Jones came out with a full-throated endorsement of Bitcoin as a salve for what he called the coming “Great Monetary Inflation.” That narrative – out of control central banks printing gobs and gobs of money without consideration for what might come after – has been the central driver of the new institutional participation in Bitcoin.
Stanley Druckenmiller, Bill Miller, Blackrock’s Larry Fink, and Rick Rieder all came out publicly as pro-Bitcoin, some suggesting that it might be a better bet than gold. Recently, another nut cracked with the announcement of MassMutual’s $100M Bitcoin buy. The balance sheet of global insurance companies is larger even than central banks, so the precedent of a risk-averse, 169-year old insurance company putting nine figures into the space is notable.
And then of course there is Michael Saylor’s MicroStrategy. Almost single-handedly, the firm has put the notion of corporations moving treasury reserves into Bitcoin on the map. Across a set of purchases, the company and CEO have bought more than a billion dollars worth of Bitcoin this year. Square announced a similar (albeit smaller) treasury reserve buy of $50M.
Heading into 2021, the question is whether these (comparatively) early adopter institutions are outliers or the first dominos to fall. In either case, there is no denying that 2020 has seen something remarkable and that the entrance of these new players into Bitcoin has kickstarted a new era for the industry.
The Biggest Story In…
Ethereum has two big stories this year: the rise of DeFi and the beginning of Eth 2.0. Since we’ve got a whole section dedicated to DeFi, let’s focus on the latter. For years, one of the great questions looming over Ethereum has surrounded the transition from ETH1.0 to ETH2.0. This year laid out a clear path to make that transition, and showed the community’s clear enthusiasm, with more than a million ETH being staked to launch the beacon chain, the first phase of development.
The Biggest Story In…
The biggest story in DeFi was the supercharging of DeFi itself. The concept of yield farming accelerated what was already an exciting space. Over the summer months, the total value locked in DeFi rocked from a billion in June to more than $10B by mid-September. Although the growth rate calmed somewhat, the field continued to grow, with nearly $14B currently locked. Uniswap grew spectacularly, seeing more volume than Coinbase Pro for the first time in September. Finally, Yearn Finance opened a new chapter in DeFi history by going on a string of acquisitions. Whatever your thoughts on DeFi, it’s clear that it’s one of the most dynamic crypto sub-industries heading into 2021.
The Biggest Story In…
For much of the year, the regulatory story was subtler than it has been in the past. The most impactful news came over the summer as the Office of the Comptroller of the Currency, led by ex-Coinbase legal chief Brian Brooks, clarified that banks could custody crypto and provide services to stablecoin issuers. That hugely influential decision actually aroused the ire of some in Congress, who countered with the much less friendly STABLE Act. To top these regulatory events off, the outgoing Treasury Secretary and SEC chiefs both took some last-minute action – around self-hosted wallets and Ripple/XRP, respectively – that has set 2021 up to be a real regulatory showdown for the crypto industry.
The Biggest Story In…
Stablecoins were quietly one of the most important crypto stories in 2020. Starting the year at just under $5B in total supply, stablecoins have more than quadrupled with a supply of nearly $23B today. What’s more, the COVID-19 pandemic found stablecoins acting not only as a tool for crypto traders but as a mechanism for businesses and individuals around the world to access dollars that were in short supply. With the introduction of the STABLE Act in the US and the rise of central bank digital currency efforts, it feels likely that stablecoins are going to be central to the “make crypto mainstream” battle.
The Biggest Story In…
Central Bank Digital Currencies
In 2019, the announcement of Libra jump-started an invigorated conversation about central bank digital currencies. This year, the big story was most definitely China’s live trials of their digital currency exchange protocol, or DCEP, which has processed hundreds of millions in transactions. Around the world, however, the challenges of distributing financial relief in the wake of COVID-19 shutdowns had central banks thinking more actively about CBDCs, with Europe suggesting a digital euro is likely. This is poised to be an even more important part of the conversation in the year to come.
The Year in a Data Story
The State of Crypto M&A Dealmaking in 2020
In 2020, the crypto market incorporated two mighty important tenets of its traditional counterpart: institutional investment and inorganic growth through mergers and acquisitions (M&A). The nascent industry saw a record M&A volume with 83 transactions, according to The Block, up from 69 in the second-best 2018.
According to Nexo’s in-house research, some dealmaking trends included the emergence of crypto-focused M&A advisers, the maturing of certain subsegments, like exchanges, where the largest players are increasingly growing through acquisitions, a staunch competition to serve institutional clients and break into the prime brokerage market, and demand from traditional finance players to enter the space.
Three M&A deals stood out in our analysis:
- In April, Binance – arguably the largest crypto exchange by volume – acquired retail-focused cryptocurrency price aggregator CoinMarketCap for a reported $400M. While the plausibility of the deal value remains subject to debate, one thing is clear – the purchase is vertical integration done right for Binance.
- Another mammoth exchange, Coinbase, was behind an equally important deal in May when it unveiled the acquisition of crypto prime brokerage platform Tagomi for an estimated $90M. Coinbase is obviously targeting institutional clients with the deal as crypto prime brokers could be a digital finance entry point for institutional investors.
- Last but not least, Japanese financial services group SBI Holdings offered further proof of traditional players’ appetite for crypto when it struck the acquisition of crypto market-making firm B2C2 for an undisclosed sum. B2C2 is expected to lay the groundwork for a new cryptocurrency dealing desk by SBI.
The below chart outlines the sub-industries most targeted in M&A in 2020.
What the Community Is Discussing: The Year’s Most Epic Threads
“Just an update” on our economic future by Raoul Pal.
Unroll this thread, save it, and reread it every time someone throws the need for a better financial system into doubt.
‘Tis the season to be bullish.
Nexo This Year
This year has been one hell of a ride for all of us at Nexo. As 2020 comes to an end, we look back at our milestones over the past 12 months and can’t help but feel very, very proud of ourselves. In a (big) nutshell:
- We hit $2B in AUM; we also hit that coveted 1M users; we became a 150-strong team; we cracked mainstream media for good, with @AntoniNexo now an authority on all things Bitcoin and crypto to the likes of Bloomberg and The Independent, and we sent out the first edition of Dispatch (new newsletter, who dis).
- We also launched our Earn on Crypto product; distributed $6,127,981 in dividends to NEXO Token Holders; added USDC, LINK, HUSD, PAXG, and TRX as collateral options for our tax-efficient credit lines, and started offering savings interest on PAXG.
- In the final quarter of 2020 alone, we launched our tokenomics overhaul Nexonomics, boosting the utility of the native NEXO Token and driving its value to a new $0.76 ATH. That’s a price increase of up to 440% since we unveiled Nexonomics on October 27.
- Nexonomics in itself was a series of biggies: we bumped interest rates on all assets and introduced the Earn in NEXO opt-in, giving you industry-leading yields of 8% on crypto and 12% on stablecoins and fiat, respectively. We also launched our four-tier Loyalty program, giving NEXO Token holders even more bang for their NEXO buck. The cherry on top of that 2020 cake – a $12-million buyback program.
Ain’t that something.
But while we’ve been on a roll, our core mission hasn’t changed. If anything, this exceptionally eventful year, with its good, bad and ugly, has made us even more determined to keep Nexo at the forefront of digital finance. Our 2020 milestones are the new normal for Nexo that we intend to stick to and keep staying ahead going into 2021.
What to Watch for Next Year:
- Bitcoin at $200K?…At $400K?
- Will the flurry of institutional activity carry on in 2021?
- Will regulators catch up with cryptocurrencies?
- Is market consolidation through M&A here to stay?
- The NEXO Token going to the moon.