The Changing Financial Landscape & its Impact on Crypto

As the CoinShares is Europe’s largest digital asset manager with $3B in AUM.

Dogecoin run-up

As retail investors pile into momentum trades, cryptocurrencies are an easily accessible market that any investor with a smart phone can trade easily on Robinhood, CashApp, and other retail oriented investing sites. Dogecoin has been a meme-coin since its inception in 2013, but in recent months TikTok has exploded with videos from influencers promoting Dogecoin as the next big trade. When investors look at prices of cryptocurrencies, they sometimes forget that unlike stocks, it is possible to buy a fraction of a bitcoin. I think that Dogecoin's relatively low price (it used to trade at 1/10 of a cent) and its high memetic value with its Shiba Inu mascot proclaiming "much wow" have made it an attractive memecoin, just as Gamestock, AMC, and others were attractive "memestocks."

The run up in Bitcoin is quite different, in my view. Between Ray Dalio publishing a 14 page research brief g on bitcoin with the opening line "I believe Bitcoin is one hell of an invention", Elon Musk i.e. Papa Musk the original memelord who memed his way into being the richest man in the world changing his twitter bio to #Bitcoin and then tweeting "it was inevitable" and then Robinhood and other brokerages moving to limit activity from retail traders on their platforms - the set-up for bitcoin sentiment could not be more bullish. That sentiment translates into demand, and that demand coupled with yesterday's $3.3B options expiry on Deribit, a leading crypto trading platform, was reflected by a 15% uptick in price.

In my view, we have to look at sentiment, which drives demand, and market structure, which dictates where that demand will flow. For retail users who want to trade 24/7/365 and in markets where they won't be censored, limited, or blocked, crypto is a perfect home for that demand. From a market structure perspective, the easiest way for these traders to access crypto is through their existing Robinhood, SoFi, and CashApp accounts, so its not surprising that many of these services have been overwhelmed.

According to Messari, Dogecoin currently has a market cap of $7.1B, making it the 10th largest cryptocurrency. The last 24 hours have seen over $15B in traded volume. For context, Bitcoin has a market cap of about $700B and saw $21B in trading volume. So Dogecoin's velocity is about 66x higher than that of bitcoin today, an indication of how much froth we're seeing.

Crypto Trading

Unlike traditional markets which settle T+2 and enable margining (borrowing against securities), crypto markets settle T+0, in real time, and have no margin today, at least on traditional brokerage platforms. Structurally speaking, crypto markets are much better suited to handling massive numbers of users, massive amounts of trading activity, and can do this without requiring as many intermediary brokers and clearing houses as stock trading platforms. After seven years of growth, which has not been without challenges, market structure in crypto is simply much more robust and better suited to the fast-paced world of digital finance than legacy trading platforms used by retail traders. 

General Market Trends

In terms of other trends, here's what I take away. Financial censorship is actually the most destructive form of violence, and many retail investors have seen their savings decimated over the last year as the top 1% own increasingly more of US markets. What we are seeing is the tension between the legacy finance world and the new world of digital, disintermediated finance reaching a boiling point.

At its core, the events of this week are about free speech, censorship, and power. We are witnessing the fastest roll up of power in human history. As our lives become increasingly dependent on digital mediums, so does the ability of powerful entities like governments and corporations to censor our right to free speech, our right to gather, our right to protest, and more. There is an unprecedented amount of power up for grabs, and what we see is a battle for control. It already played out on the political stage, and is now playing out in financial markets, financial media, FinTech platforms, and social media.

By Meltem Demirors, CoinShares CSO