FMF: BTC TESTS $50K, TRUSTLESS DEFI VS. TRUSTED FINTECH, SOLANA SOARS

Five Minute Finance

9 min readSep 3, 2021

The 5-minute newsletter on the important stuff in finance — reporting what’s going on, and why.

Let’s see what’s going on this week:

Long-Anticipated US Bitcoin ETFs on the Horizon
Bitcoin’s Battle with $50k: Where We Are
DeFi’s Trustless Nature vs. Trusted FinTech
Second NFT Wave Lifts Solana and Ethereum
Can Robinhood Maintain Its Dominance?

Bitcoin ETFs — New Floodgate for BTC Price Breakout

After dozens of denials, SEC Chief Gary Gensler is likely to approve futures-based Bitcoin ETFs ahead of those handling physical BTC. Canada is experiencing what looks like a ‘first mover’ advantage with Canadian Bitcoin ETFs — will the US see the same? (link)
While the wait for a Bitcoin ETF continues, institutions are turning to businesses with crypto-heavy business models for exposure to digital assets. (link)

Futures-Based Bitcoin ETFs are Still Better than None

If there’s one persistent trend out there, it’s that people older than 65 are the least likely to onboard the crypto train. This hesitancy applies even when they understand the blockchain backbone and have a favorable view of cryptocurrencies. That age bracket also holds more than double the net worth of the median US household, at $266k.

With inflation fears entrenched, Bitcoin ETFs would provide the means to catch two fish with one worm. By mimicking BTC’s performance without needing to hold any deflationary Bitcoin, ETFs would allow an easy entry into the United States ETF market worth $6.6 trillion. The exponential growth of ETF popularity speaks for itself, largely owed to fewer tax liabilities.

Total net assets of exchange traded funds (ETFs) in the US (source: Statista.com).

On the flip side, Gary Gensler is hesitant to provide this popular investment vehicle, citing Bitcoin’s volatility issues and custody security. As he keeps stalling, 5 Canadian BTC ETFs have accumulated $2.5 billion in half a year’s time. Seeing investor demand rise, Gensler seems amenable to a compromise.

After signaling that a more regulated futures-based Bitcoin ETF is preferable, ProShares and Invesco were the first to jump on the opportunity. By the year’s end, if anything could push Bitcoin beyond its previous ATH price of $63.5k, an approved ETF might just do the trick.

Bitcoin Struggles to Breach $50k Resistance

Coinbase Bitcoin balance reaches a nearly 4-year low, at just over 700k BTC in total. (link)
Bullish factors vie against Bitcoin’s poor historic September performance. (link)

Whales Keep Accumulating BTC Since the $30k Level

On Wednesday, Bitcoin closed at $48,279. On Thursday, Bitcoin crossed (several times) into the beloved $50k territory only to retreat. Having reached the highest price point since May 15, it is now safe to say that Elon Musk’s tweeting massacre has been nullified (let’s keep it that way). The question is, what comes next?

Governed by whales, the Bitcoin space is difficult to predict. However, Coinbase’s BTC drought — not seen since December 2017, when we had less BTC in circulation — dropped some bread crumbs. The first conclusion we can draw is that institutional investors — hedge funds, pension funds, and even large banks — are starting to view Bitcoin as a refuge from the Fed’s infinite money supply machine.

Source: TradingView.com

That would explain the accumulation phase, with supply shock as a happy side effect. If its momentum continues to build, Bitcoin could even break out beyond $50k. However, if that turns out to be the case, it would be a rarity.

After all, historic data clearly shows that September is the part of the year when Bitcoin performs poorly, having previously traded in the red 70% of the time between 2014 to 2020. Maybe this September will be different.

FinTech Handing the Innovation Torch to DeFi

1inch, DeFi decentralized exchange aggregator, to reach $2.2 billion valuation. This marks a faster valuation growth than seen in three iconic FinTech firms — PayPal, Square, and Robinhood. (link)
As a gateway to DeFi, MetaMask wallet’s user count surges by 1,800% over the past year, topping 10 million accounts. (link)

Trust Is High in Demand

Everyone loves how FinTech simplified finance. With a few taps on your phone’s apps, you can send and receive money, exchange it for crypto, or engage in stock trading. PayPal, Square’s Cash App, and Robinhood each represent the streamlining of finance that was difficult to envision just a few decades ago.

As FinTech exemplar, Cash App added $11 billion to Square’s coffers since 2019, source: MacroTrends.net

Yet, this is only the superficial layer. Blockchain-powered DeFi goes deep to cleave two kinds of platforms: trustless vs. trusted. We have seen how PayPal and Robinhood handle trust when you give it to them. PayPal can deplatform at a whim as any bank could, and Robinhood could do the same by implementing trading restrictions on select stocks (lookin’ at you, GME and AMC).

Furthermore, FinTech’s trust is invested in the hiring of thousands of costly personnel. Then, that personnel could close your account, a reputation Coinbase already gained. In contrast, DeFi relies on smart contracts to offer a trustless service. The trust then shifts from humans to technology itself, something that even those trapped in Afghanistan can attest to.

This is why 1inch gained so much value in less than a year, outpacing titans of the FinTech industry. In turn, FinTech is there to provide an on-ramp for DeFi, raking in the crypto profits along the way. To boot, Gensler’s proclamation that “half of our markets” tap into dark pools doesn’t inspire trust either.

NFTs: The Best Blockchain Marketers Imaginable

Solana, one of half a dozen potential “Ethereum killers”, recently outperformed Ethereum by over 500%. (link)
OpenSea, a top NFT marketplace covering 98% of NFT trading volume, exceeded $3 billion in August trading volume — with a team of just 37. (link)

The NFT Phenomenon Continues to Excite the Crypto Market

Many crypto opinion makers portrayed the NFT craze in the first half of 2021 as a one-off phenomenon. To their surprise, July and August saw an increase of more than 850% in NFT traffic, largely subsumed by OpenSea. It had even been reported that a 12-year-old earned $400k from selling a “Weird Whales” NFT collection.

Source: Dune Analytics

At this point, it is safe to say we have passed the point of “in the eye of the beholder” narrative and entered deep into the ultra-speculative market. Notoriety is the name of the NFT game. The fact that a tween could earn $400k itself gives his NFT collection a boost as he breached a societal expectation.

As with the previous NFT frenzy, the blockchains hosting them are the biggest winners. Predictably, Ethereum is the top beneficiary, reaching its highest price since May and closing in on $3,800. However, people have begun to notice faster blockchains with drastically smaller transaction fees.

Solana doesn’t need to complete a Proof-of-Stake upgrade because it has been built upon it from scratch. Although it hosts 7X fewer dApps than Ethereum, this just may be Solana’s breakaway moment, with the helping hand of Degenerate Apes, selling for $66 million.

Robinhood’s Eroded Reputation is Catching Up

Fidelity Investments announced the doubling of its workforce to handle an intake of 1.7 million new retail accounts, adding 9,000 new jobs to meet the demand. (link)
Robinhood (HOOD) stock plummets by 7% when Gary Gensler signaled that a ban on payment for order flow (PFOF) is on the regulatory table. (link)
PayPal has announced plans to expand its service to stock trading. Could this be a mortal blow to Robinhood? (link)

Dubbed as Overvalued by Analysts, $HOOD Gains Meme Stock Properties

Not many traders have experienced greater betrayal as GME/AMC retail investors. Putting faith in Robinhood’s “democratize finance for all” motto, they counted on the popular broker to provide a neutral platform to short squeeze Wall Street hedge funds. In the aftermath of placing sell restrictions on those very same stocks, Robinhood’s core business model was revealed to be at odds with its customers.

Robinhood makes a significant portion of its income by routing trades to market maker Citadel Securities, which is either part of — or closely related to — the Wall Street bigwigs that WSB’s apes were trying to squeeze. This is the price for zero-commission trading, previously ignored as unimportant. At the mere suggestion that this business model could be cut off, HOOD took a nosedive.

source: Yahoo Finance

Yet, Robinhood competitors have a lot of catching up to do. The market share inertia behind HOOD is immense, with 21 million users to draw from. Nonetheless, both eToro and Fidelity are closing in. Last summer, Fidelity Go removed fees for accounts trading under $10k. With a 156% rise in new Fidelity accounts from last year, it seems Robinhood’s reputational baggage has a price tag of its own.

Throughout H1 2021, Robinhood has been struggling to break even, with both diminishing revenue per user and greater net income losses per quarter. Then again, come rain or shine, there is always a new crop of retail investors looking for an easy-to-use trading app, carefree about it its past misdeeds.

Tweets of the Week

“48k in February:- GBTC Premium (Grayscale buying) - Long term holders (LTHs) selling - Mkt leveraged long BTC w/ BTC- 30% annualized futures basis
48k in August: - GBTC discount (no buying) - LTHs accumulating - BTC margined derivs decreasing - 10% futures basis Different.”

@DylanLeClair_

“Aside from a one-off spike 2 weeks ago, long-term holders aren’t taking exit liquidity. Imo the dead cat bounce narrative is dead.”

@WClementeIII

“Most people don’t appreciate how valuable the underlying metadata of NFTs is. Imagine being able to see how the Mona Lisa traded hands over centuries. It adds a whole new dimension of value to digital art that is hard to find in antiques. Quite excited to see punks in 50 years”

@santiagoroel

“In 100+ years data: Such depressed earnings’ yields have always led to very significant market meltdowns. Great Depression. 1937–8 Recession. Tech Bust. Average return for the subsequent 3 yrs being close to -53%. Thinking the Fed can sustainably taper here is just nonsense.”

@TaviCosta