It's About Damn Time

We look at the Spot Bitcoin ETF on the day of the real approval, as part of our dissection of Messari's Crypto Theses for 2024.

MoneyNeverSleeps

and

Pete Townsend

Jan 17, 2024

Listen to the podcast

Before diving into what happened this week, this is just a quick ask: if you're enjoying this newsletter, please share it with friends!

Share The MoneyNeverSleeps Newsletter

New Year, New Format

To give all of you, dear readers, even more insight into what I do beyond the podcast, I’m adding two simple sections to this newsletter. I’ll still do the breakdown of each episode with further analysis of the topics we covered that week, but from here on out, you can also expect:

X-Posts (Tweets) of the Week - My commentary on what grabbed my attention the most on Elon’s evolving beast of a social media platform.
Sharing Dealflow - Updates on the portfolio companies that form part of the Techstars Web3 accelerator that I lead, as we’re now building our third class of 12 web3 companies/projects.

This Week’s Podcast

Listen to the podcast

Lizzo Is Right

I knew we were taking a risk recording at 10am GMT on January 10th, which was about 10 hours before the SEC finally approved Spot Bitcoin ETFs. We recorded anyway, and I then dropped in an emergency break-in post-production snippet sharing the big news in the first few minutes of the episode.

As the approval was pretty much a done deal for a while, all of the ETF sponsors (the technical name for asset managers running ETFs) were ready to go as soon as the SEC sent up the white smoke (with a bit of a premature unauthorized oopsy the day before), and 11 Spot Bitcoin ETFs started trading in the market 12 hours later on the morning of January 11th.

Asset managers have been fighting the good fight to get a Spot Bitcoin ETF to market for nearly 10 years in the face of rejection after rejection after rejection from the SEC, who were finally ruled to be “arbitrary and capricious” by the DC Circuit Court in August 2023 in their rejection of Grayscale’s application, a ruling that paved the way for Wednesday’s long-awaiting approvals.

On the long-awaited big day, a record $4.6bn in trade volume was transacted in Spot Bitcoin ETFs from sponsors such as Fidelity, BlackRock, Invesco Galaxy, Van Eck, Franklin, Wisdomtree, Bitwise and Grayscale.

Although guest co-host Alejandro Gutierrez (CEO of Defactor Labs) and I called it during the episode, no crystal ball was required as this was bound to happen, and we’ll have more on this next week.

For now though, in the words of the great Lizzo, “It’s about damn time!”

Roundup of Messaris’ Crypto Theses 2024

The meat of this episode is a roundup of Messari’s Crypto Theses for 2024. We riffed on our respective Top 5 out of the 100 or so predictions from Messari CEO Ryan Selkis’s 194-page super-insightful read.

Alejandro and I each selected the 5 key trends, people, companies, and projects to watch in 2024 that were the most meaningful to each one of us. In short, these are the 100 topics that Ryan Selkis highlighted in his excellent analysis of how he expects 2024 to play out in crypto, blockchain, and wider digital assets. As you read on below, please note that we’ve numbered our Top 5 to correspond to the actual Messari document.

Pete’s Top 5

1.8 AI & Crypto: Money for the Machines

The crossover of blockchain and AI - can blockchain save AI from running amok? There are some very intelligent people living at the intersection of blockchain and AI, and I’m excited to see what they come up with. Here’s a good primer from CoinMarketCap.

1.9 Three New De’s: DePIN, DeSoc, DeSci

Decentralized physical infrastructure networks (DePIN), decentralized social media (DeSoc) and decentralized science (DeSci) all have been bubbling up over the last 6-8 years (or longer), but the investment community / VCs have finally given them names. I’ve been waiting and watching for 10 years (since I went down the blockchain rabbit hole) for blockchain to reach a maturity level where applications in the real world are possible like this, and I’m particularly excited about DePIN and DeSci.

2.4 Senator Elizabeth Warren (and her Minions)

The American political system stops innovation. When faced with the emergence of new technology that could become disruptive to their businesses and industries, corporate titans flinch and make weighty campaign contributions to their favorite politicians. Faced with the fear of not getting re-elected, these politicians help to erect obstacles on the path of the innovators to make it more difficult for them to scale. After the corporate titans either 1) learn about the emerging tech they were worried about to begin with or 2) see their competitors working successfully with those technologies, the incumbents back down and innovators can move on with fewer obstructions. (h/t to Nic Carter from Castle Island Ventures for inspiring the thoughts on this one).

“The concept of serving societies and being elected as a privilege has completely changed; now, it’s about power, influence, and personal benefit more than anything else.” Alejandro Gutierrez on MoneyNeverSleeps ep 244

6.4 The ETF Race(s)

We saw the SEC approval and subsequent launch of Spot Bitcoin ETFs the week of January 8th, and over $4.6bn in volume of these fund products changed hands on the first day of trading last week.

While I agree with the pundits on this one and their expectations that these products will reach between $20bn and $100bn in assets (in aggregate) for 2024, I still only see a 6-8 year lifespan for these products, perhaps maxing out at $500bn. While $500bn is a huge chunk of the crypto markets today ($1.67tn as of today, 16-Jan-24), that pot of mainly institutional capital will be less material to the crypto markets overall in the year 2030.

What we’ll see happen over the coming 5 years is twofold:

1 - The US introduces crypto regulation right-sized for what Europe refers to as Crypto Asset Service Providers, including centralized crypto exchanges. This US regulation will be separate and distinct from existing regulations for traditional securities exchanges.

2 - The inflow of new capital into crypto, with ETF products (watch out for the Ethereum ETF next) pushing crypto assets more into the mainstream, will enable the investment required to fund the next wave of entrepreneurs building easier-to-use crypto wallet infrastructure. This investment will come from early-stage venture capital funds investing in founders who are building the utilities with better UX now, but with institutional benefits still a few years away.

This big improvement in UX (without sacrificing the security of crypto assets) combined with regulatory evolution, will enable registered investment advisors (RIAs) and institutional investors such as pensions, endowments, and charities to buy crypto assets directly through institutional wallets or centralized exchanges, rather than paying an ETF sponsor to buy, hold and sell it for you.

Of course, institutional investors will have to make the case to their compliance teams to relax their investment restrictions to include direct crypto asset investing (instead of through regulated ETFs), and they’ll feel more comfortable doing so because the entry points and trading venues are regulated.

And, just to say it once again, as I’m always summoning the spirit of Roy Amara who said this (in the 1960’s!):

“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” Roy Amara

So, we will not see traditional institutional investors going direct into crypto markets en masse outside of ETFs during the expected 2024-2025 bull run, and perhaps not even in the one after.

Let’s shoot for the year 2030 for traditional institutional investors and registered investment advisors (RIAs) to have their preferred UX-rich technology at their fingertips, alongside the regulatory clarity, for these investors to buy and sell crypto assets in the way they were intended to be bought and sold: direct in the crypto markets.

7.8 Solana’s Resurgence + MOVE It or Lose It (Layer 1 Network Trends) - I went to the Solana Breakpoint conference in Amsterdam in November, and I liked what I found. It’s a thriving ecosystem that is supporting those building everything from Triple-A MMORPG games to DePIN such as Helium and USDC stablecoin settlements on the Visa network. The people are fascinating as well, with this blend of take-on-the-world ambition and real-world pragmatism that is befitting what is now the 5th most valuable crypto asset by market cap.

Alejandro’s Top 5

1.2 ETH & The World Computer(s)

Alejandro thought it interesting how ETH is not seen as a store of value but as a technical solution. In the Messari document, Selkis expressed his view that the long-term investment case for Ethereum is more of a Visa or Mastercard analogy than a Microsoft or Google one. Alejandro points to this as support for his belief that Ethereum will become the rails for financial development, fintech, and overall, a new foundational system for finance.

I share this view with Alejandro, and although he was not suggesting a winner-take-all future with Ethereum as the only rails for finance, I think we’ll see an oligopoly of sorts across Ethereum and a handful of existing or not-yet-developed protocols.

Don’t get us wrong though, the Ethereum analogy to Visa or Mastercard is not a like-for-like comparison, as the capabilities of Ethereum make it a quantum-leap improvement over the world’s current financial rails.

(Again, think long-term, folks!)

1.4 The Resurgence of Private Crypto Markets?

Alejandro is optimistic that we’ll see a resurgence in the private crypto markets (crypto venture capital-driven) but he is seeing a lot of recycled money (VCs reinvesting gains from their winners/exits) instead of new venture money coming into crypto VC funds. In 2020 and 2021, we had a lot of Covid-fueled money-printing going on, and that helped to spur the last crypto bull run. In 2024, the macro situation is far less favorable.

I agree with Alejandro on this one - the longer investment decision-making process in private markets means that the private market capital engine takes longer to warm up than the public market engine. I’m not sure that we’re going to see crypto VCs flooded with new capital in 2024, and I’m looking to 2025 for the funding situation to improve for early-stage startups building in crypto.

2.8 Lucas Vogelsang (Centrifuge), Denelle Dixon (Stellar) & Christine Moy (Apollo)

Alejandro is passionate about real-world assets (RWA) and he and his Defactor colleagues have been working with Centrifuge since inception. Before Defactor, Alejandro worked with Consol Freight to create one of the first RWA pools on Centrifuge, working alongside Lucas and the Centrifuge team on developing a lot of the concepts.

Alejandro points to Lucas as one of the leaders in the RWA space, and that his dream of creating these fully decentralized on-chain marketplaces has been successful so far.

However, Alejandro posed this question: how decentralized can these protocols be?

We’re still talking about the real-world asset component which, at the moment, is fully centralized, i.e., backing the on-chain token is an off-chain asset held in custody with an individual firm with traditional financial services providers.

At the same time, Alejandro is giving kudos to Lucas and to Martin Quensel as it’s been a difficult path to get the RWA market to this stage and they’re finally getting the attention and recognition that they deserve.

5.10 MiCA & TFR: Europe’s “Leadership”

Alejandro pointed out that Europe is the guiding light for other jurisdictions when it comes to crypto regulation, and he took a different stance than Selkis did. In the Messari document, Selkis suggested that MiCA could be more hurtful than helpful to crypto firms. However, Alejandro and I both thought that the pros outweigh the cons and that at least we have *something* in Europe.

83% of major global hubs and the G20 have either passed national crypto legislation or have crypto regulation in place. The US is not included on this list (see 2.4 above) and Alejandro and I agreed that US legislators should be embarrassed, not even as an also-ran, but as a non-runner. Europe, on the other hand, is way out ahead, with more to come with MiCA 2.0 in the coming years.

8.8 Oracles/8.9 RWA Diversification

Alejandro’s final prediction in his Top 5 is a prediction in its own right - RWA diversification will not happen without oracles. I thought that oracles providing prices of RWAs into the on-chain asset was a no-brainer. Still, Alejandro took it a step further: he’d like to see the proof that the real-world asset actually exists sourced from an oracle as well, which allows a big step forward with the true decentralization of these protocols.

I didn't think I was going to write this much about our Top 5, but once I’m on a roll at the keyboard, these things happen. Either way, I highly recommend you give the Messari’s Crypto Theses for 2024 a read - 194 pages go a lot quicker than you think!

Don’t forget to follow MoneyNeverSleeps on Spotify or Apple Podcasts to get into the flow of the full conversation!

Listen to the podcast

X-Posts (Tweets!) of the Week

Since this is my first time sharing the posts on X that caught my attention, I’ll call them X-Posts, and let’s see if it catches on. “Tweets of the Week” is so much more fun to say, but the world is changing at the pace of Elon these days….

That’s Nic Carter, Founding Partner at Castle Island Ventures, with his take on Gary Gensler’s parting shot in his statement on the approval of Spot Bitcoin ETFs.

(And yes, I can imagine 10-year-old Nic Carter, headphoned and moustached, flipping over the Monopoly board…can you?)

Gary Gensler is a smart man, and I’m sure he knows the most widely used asset for illicit activity is the US Dollar.

However, he can’t possibly underwrite bitcoin when his expected ambition is to underwrite the US Dollar - literally. When his political allies finally enable his appointment as US Secretary of the Treasury, Gary Gensler will, in fact, have his signature embossed on every piece of US currency (fiat) printed during his tenure.

Sharing Dealflow

As most readers are aware, I lead the Techstars Web3 accelerator program, investing at the pre-seed level up to $120,000 into each of 12 web3 companies/projects each year. Here’s an overview from the Techstars blog post where I announced the 2024 program back in September.

As an update on the class of 2024, we are in serious crunch-time mode right now, having reviewed over 600 applications in the last few months. Everything is taking shape with our Top 50, and we’ll have our Class of 2024 put together by the end of January.

The program starts on March 11th with a week of orientation in Dublin, and then we go virtual for the rest of the accelerator program, except for one week in London at the end of April and then in-person end-of-program events in early June.

So, to all of my fellow investor friends out there, please keep an eye on this space, as we’ll be announcing the Techstars Web3 Class of 2024 in mid-March, and giving early access to investors in our network.

Also, as this is our third class since 2022, we have 21 active web3 portfolio companies, many of whom are in fundraising mode as we speak. Here are the class announcements from 2022 and 2023 to have a look at the companies, and drop me a line if you’re interested in learning more about any of the founding teams.

That’s all for this week, thanks for reading!

-Pete