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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Has crypto industry crossed the Rubicon? Launching crypto theme basket
Peter Garnry
Chief Investment Strategist
Summary: Coinbase's listing yesterday was overall a success despite the close was below the open price, but relative to the initial reference price at $250 per share the direct listing was a success for the world's largest cryptocurrency exchange. We take a look at what it means for the industry and potential regulation, but also the key risks to be aware of in Coinbase. In addition, we are launching a new theme basket focusing on crypto and blockchain companies. This basket provides inspiration and alternatives for investors that want exposure to cryptocurrencies but do not want to own ETNs or physical cryptocurrencies.
When Bitcoin futures launched in December 2017 it was a huge milestone for the industry and the institutional finance industry’s validation of cryptocurrencies. Then followed almost a three-year hibernation of cryptocurrencies before the Bitcoin prices took off again. The price increases have dramatically increased trading activity of cryptocurrencies and mining activity increasing demand for computer chips. It all culminated yesterday with the direct listing of the world’s largest cryptocurrency exchange Coinbase with its shares opening at $381 per shares up 52% from the $250 reference price set in the initial auction before the first trade. Coinbase shares traded as high as $429.54 below trading lower throughout the session closing at $328.28.
The crypto and blockchain theme basket comes with very high risk
With the listing of Coinbase the size a matureness of the crypto industry has finally reached a level where we can introduce a crypto and blockchain theme basket. The basket is our smallest to date consisting of only 18 companies across segments such as trading exchange, crypto services, crypto mining, investment holdings, blockchain applications, and crypto mining equipment.
| Name | Segment | Market Cap (USD mn.) | Sales growth (%) | P/B | Diff to PT (%) | Correlation to BTC price |
| Coinbase Global Inc | Crypto exchange | 65,393 | 139.3 | 64.5 | 52.3 | NM |
| Signature Bank/New York NY | Bank | 13,236 | 1.7 | 2.1 | 9.8 | 0.24 |
| Galaxy Digital Holdings Ltd | Crypto services | 9,025 | NA | 10.6 | -5.1 | 0.49 |
| MicroStrategy Inc | Investment firm | 7,051 | -1.1 | 12.7 | -5.0 | 0.54 |
| Marathon Digital Holdings Inc | Crypto mining | 4,246 | 267.6 | 11.3 | 16.4 | 0.43 |
| Riot Blockchain Inc | Crypto mining | 4,219 | 76.7 | 14.2 | 27.6 | 0.64 |
| Silvergate Capital Corp | Bank | 3,320 | NA | 9.0 | 15.6 | 0.60 |
| Voyager Digital Ltd | Crypto broker | 3,114 | 2,555.5 | 3,711.2 | 50.6 | 0.23 |
| Canaan Inc | Mining equipment | 2,429 | -68.5 | 383.3 | NA | 0.55 |
| Monex Group Inc | Financial institution | 2,383 | 21.1 | 3.2 | -15.2 | 0.51 |
| Hive Blockchain Technologies Ltd | Crypto mining | 1,279 | 12.5 | 22.1 | NA | 0.59 |
| Argo Blockchain PLC | Crypto mining | 1,052 | 1,027.0 | 28.3 | NA | 0.49 |
| Hut 8 Mining Corp | Crypto mining | 769 | -50.3 | 6.9 | 70.5 | 0.43 |
| Bit Digital Inc | Crypto mining | 685 | NA | 14.8 | NA | 0.35 |
| Bitfarms Ltd/Canada | Crypto mining | 636 | 7.0 | 25.3 | 45.7 | 0.57 |
| Bitcoin Group SE | Crypto broker | 349 | -44.4 | 9.6 | NA | 0.53 |
| Future FinTech Group Inc | Blockchain e-commerce | 274 | NA | 8.0 | NA | 0.24 |
| DMG Blockchain Solutions Inc | Investment firm | 198 | NA | 20.5 | NA | 0.33 |
Source: Bloomberg and Saxo Group
The basket does not have a five-year history due to lack of quality names going back five years. Total return has not surprisingly been strong the past year and year-to-date due to the rally in crypto prices, but the basket has recently been a bit under pressure. Since this is an emerging industry and something that is a bit difficult for many investors to grasp, we will soon have a piece out by our crypto analyst going through the different companies in this basket.
The three main risk sources for this basket are new regulation which could severely impact further adoption of cryptocurrencies, valuations across crypto related companies are quite aggressive which makes these stocks more sensitive to changes in sentiment, and finally the Bitcoin price itself is a key risk. The average correlation to Bitcoin prices is around 0.45 which means that the returns of this basket will fluctuate with Bitcoin prices.
Previous notes on equity themes:
The commodity sector and the reflation trade in 2021
Bubble stocks go into ‘hyperdrive’ mode
Introducing Next Generation Medicine basket
Updating our Green Transformation theme basket
Launching Saxo’s E-commerce theme basket as more growth lies ahead
Be careful of bubble stocks and updating bubble methodology
Gaming is a long-term winning industry
Black energy takes the lead as green transformation stocks turn negative
Is the market getting too excited about travel stocks?
India has tremendous upside in the 21st century
It takes $300bn to join the mega cap club
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