Facebook is adding Crypto as FTX expands Empire

Hartmann Capital Newsletter, Monday October 25th, 2021

In this issue

  • Bitcoin, crypto all-time highs

  • Facebook is adding crypto… on Ethereum

  • DeFi 1.0’s underperformance is an opportunity

  • More VC money flows into crypto. FTX raises again to expand the empire

  • Blog this week: Decentralized Identity

Market by Numbers

The big story of the week has to be Bitcoin at all-time highs. Crypto markets have since pulled back to mixed on the week

Bitcoin, crypto all-time highs

Bitcoin hit all time highs this week, while Ethereum just missed that milestone.

The original cryptocurrency is up just over 5x in over 12 months, and with this new all-time high it’s worth recapping the journey. Even on a log scale, Bitcoin’s performance is impressive. A $1,000 investment in 2011 would be worth over $191 million now. 

Of course there were some dry periods in 2014-16 and 2017-18 but anyone who had the fortitude to stick with BTC has been amply rewarded.

It wasn’t an obvious winner from its price performance. There was the overall 80%+ drawdown in 2014-2015 that took a year to recover from. The 2018 drawdown was almost identical terms: around 82%. 

Since then, however, absent the small hiccups in March 2020 and spring 2021, Bitcoin has been straight to the moon, increasing 18x. That’s in 2 years and 9 months.

BTC has more than doubled tech darling Tesla’s performance in the last year.

In a world where meme cryptocurrencies such as Dogecoin and Shiba Inu often steal the thunder from the big dog of crypto, it’s always important to remember that the original battle-tested coin has been very consistent in delivering returns to believers, since 2009.

Facebook is adding crypto… on Ethereum

The central banking of the world panicked when they read the announcement that Facebook was planning its own cryptocurrency. 

Facebook began an in-house project in 2017 to create a coin that could be used across their centralized platforms. It was first called Libra, and the Libra Foundation that was to develop it attracted the biggest names in technology, including MasterCard, VISA, Coinbase and Paypal.

Central bankers scrambled to plan a response. China and Bermuda got the furthest: Bermuda with the crypto Sand Dollar, and China with digital money administered by the big commercial banks. Though both are considered Central Bank Digital Currencies, neither is on a blockchain and the Chinese digital Yuan is not even issued by the Central Bank.

Basically, governments are not thrilled to have competition for their fiat money. So in addition to considering its own options, governments put tremendous pressure on Facebook to reconsider. US Congress was especially recalcitrant. Such pressure was very effective in at least one respect: Partners quickly distanced themselves from the Foundation.

Eighteen months after first launching Libra, Facebook changed the currency’s name to Diem and announced it would be pegged to the USD on its own blockchain. 

Fast forward nearly a year later and it looks like facebook’s capitulation is complete. Facebook has announced it will launch a new cryptocurrency wallet, called Novi, but without a Diem stablecoin.

In what appears as a total victory for decentralized crypto platforms everywhere, but especially Ethereum, Novi will launch with only one digital asset, Paxos USD, an Ethereum-based USD-pegged stablecoin. Coinbase has been chosen to handle custody on Ethereum. If you can’t beat ‘em...

Facebook’s scaled-back ambitions remain wildly unpopular in Washington DC. Several US Senators demanded that Facebook end the project, given that it can’t ensure the integrity of its customers’ data.

Defi 1.0’s underperformance is an opportunity

We were pleased when pseudonymous Alchemix founder Scoopy Trooples was able to eloquently and simply express the belief that DeFi tokens had underperformed expectation and why. 

At Hartmann Capital, we have very little exposure to the OGs of DeFi, mainly because of tokenomics that don’t allow for value accrual (read: fees) and the tendency to reward users out of inflationary native tokens.

It remains to be seen if new liquidity management techniques and more efficient customer acquisition models can fix what is broken in DeFi. We believe they will, at least to some extent, and are long several of the names mentioned in recent “DeFi 2.0” posts from long before we heard that moniker used.

We are big fans of RGT, MPH, PERP and DYDX, 4 of the so-named DeFi 2.0 protocols. Most of these positions are not new, and many are also long-term holds. Yet we are pleased with the new attention on the space. Welcome!

More VC money flows into crypto. FTX raises again to expand the empire

Every day there is at least one new major fundraising announcement, but they rarely get bigger than when 29 year old billionaire Sam Bankman-Fried’s crypto exchange FTX is in the market.

According to Coindesk, this latest raise values FTX at $25 billion, 40% more than a little over three months ago. Crypto assets remain in demand, and picks and shovels CeFi infrastructure looks to be continuing to benefit.

This Week’s Blog: Decentralized Identity

This week our PriFi (private finance) analyst Rahul Patel explains decentralized identity, how it preserves users’ privacy and rights while facilitating digital interactions tied to one’s uniqueness, and why Signata is Hartmann Capital’s pick of the decentralized identity and payments infrastructure protocols.

Hartmann Capital Weekly written by Head of Communications, Rasheed Saleuddin, PhD, CFA


Disclaimers:

This is not an offering. This is not financial advice. Always do your own research.

Our discussion may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.