Welcome to 2021 everyone! I hope you and yours had a happy and healthy holiday season! After a short break, we are back with the Iconic Insider to share with you some insights on the crypto markets as well as take a look at all things Iconic.
To say the end of 2020 and the beginning of 2021 was big for crypto would be a catastrophic understatement. Bitcoin seemingly achieved a new all-time high every single day on its march to $42,000. While it has corrected to a measly $34,000 at the time of this writing, the possibility of the establishment of this level as a new floor is more exciting than the new ATH price is. Meanwhile, ETH nearly broke its ATH with most other leading altcoins realizing massive gains. The close of 2020 was massive for crypto, and there are a lot of signs the industry is just getting warmed up. To recap, let’s look back at the top-5 things that happened in 2020 I believe led to Bitcoin and crypto’s massive pump. We’ll then take a look at a few trends I believe we will see in 2021 and what Iconic’s strategy will be as we navigate the murky waters of a (hopefully) post-COVID world.
Top-5 2020 crypto value drivers
While this list isn’t intended to be in any sort of order, I would be remiss if I didn’t start with the primary catalyst for Bitcoin’s 2020 performance…
Or rather, I should say international government’s response to COVID-19. All politics and personal opinions aside, the forced shutdown of the global economy has had a tremendous impact on markets and our daily lives. Tech companies are booming, billionaires have had their best year ever and Main Street, forced out of work by their own government, is suffering. Predictably, the US government’s response to this was a stimulus package, albeit one that dwarfed all prior packages. Trillions were printed and given to corporates, asset managers, banks with a little bit left over to give the American people $1,200 each.
The Federal Reserve now has the world’s largest balance sheet and roughly 35% of all dollars in circulation have been printed in the last 10 months. There is no end in sight to the unilateral money printing, and you all know what that means… INFLATION. Money printing inevitably devalues the printed currency relative to goods and services. The uniliteral decision-making authority of the Federal Reserve to dictate this, while basically being held accountable to nobody, is frighteningly centralized. As a response, millions of people around the world, and even publicly traded companies, are turning to decentralized hard money, IE Bitcoin.
- The Bitcoin Halving
On May 11, the block reward for Bitcoin miners was cut from 12.5 BTC per block to 6.25 per block, an event referred to as the Bitcoin halving. This was built into Bitcoin’s core code as a deflationary mechanism which drives value to the overall network and its participants. Historically, the Bitcoin halving is met with an immense price appreciation in the following months with many believing the reduction to the Bitcoin inflation rate and resulting scarcity of newly minted Bitcoin being a primary value driver for it. This is what makes Bitcoin “Hard Money” with many proponents arguing this is the key reason Bitcoin is defensible as a digital store of value, IE digital gold.
While ever-limiting supply theoretically has an impact on an asset’s price, corresponding demand is required for meaningful appreciation to occur. Well, as our friend Dan Held at Kraken always says, “Bitcoin marketing works”, and he is right. While Bitcoin may have not (yet) capitalized on its initial intention of being a P2P, cashless e-money, it has found its current niche as a digital store of value in a world of fiat inflation and economic uncertainty. This functionality, coupled with Bitcoin’s brand recognition and narrative being pushed by influencers, is attracting millions of retail, and even institutional investors. While it always made sense for investors to have a small allocation to Bitcoin in any portfolio, as evidenced by one of Iconic Funds’ empirical research reports, what came next shocked even the most ardent Bitcoin supporters.
- Bitcoin in Treasury Management
Michael Saylor, CEO of MicroStrategy, announced Bitcoin would the primary treasury reserve asset of the firm, citing fiat-inflation and digitization of the economy as his rationale. They successfully executed a $250 million BTC purchase through a TWAP and over the course of the year and a $650M capital raise later, purchased over 70,000 Bitcoin in total, worth well more than $1 Billion. The MSTR share price sky-rocketed, and it was even announced Morgan Stanley had increased its exposure to MSTR to 10.9%, further validating the institutional demand for Bitcoin.
All of a sudden, Bitcoin wasn’t just a speculative retail, or even institutional, investor’s game but was genuinely being used as the primary treasury asset of a publicly listed company. In real terms, this means a company’s CEO trusts Bitcoin on his balance sheet than he does USD. There is no bigger validation of Bitcoin as a digital store of value or hard money than this.
- PayPal enters the game
While institutions and corporates have service providers and OTC desks to facilitate their purchases of Bitcoin and other crypto assets, retail individuals have had to rely on largely unregulated and unknown exchanges. While this hasn’t stopped tens of millions of retail investors from getting in the crypto market, the means to do so and the technology involved are largely unfamiliar to the average person. Reluctance to onboard a new, unfamiliar platform is common and one of the primary reasons UI/UX is so vitally important for digital platforms.
Enter the world’s largest payment provider, PayPal, with a seamless and frictionless way to purchase Bitcoin and other leading crypto assets. Almost overnight, over 350 million people had immediate access to purchase crypto in the PayPal account they have had for years. While Bitcoin and other assets cannot yet be taken off PayPal for tax and compliance purposes, the ultimate onramp for retail investors was established. Even PayPal has noted they were surprised by the demand for Bitcoin on their platform.
- The Rise of DeFi
Decentralized Finance, more commonly referred to as DeFi, became the crypto theme of 2020 much like ICO and STO were before it. While Bitcoin undoubtedly won the year, massive strides were made in the crypto community as a whole as various applications were built and released on top of the existing blockchain protocols like ETH. Sparked by the release of Uniswap, assets in DeFi sky-rocketed from $600 million to begin the year to over $20 billion.
The promise of a permissionless, censorship-resistant and borderless financial ecosystem is an initiative we must all collectively strive for. We are currently living in the greatest wealth divide in modern history, but frictionless financial and capital markets will play a major role in reversing this trend. While many questions related to compliance and regulation still must be answered, it is undoubtedly true that not only is DeFi here to stay, but it has massive potential.
Top 2021 trends to look out for
As it does every year, January 1 marks the beginning of a new calendar year where we not only take a moment to reflect on the year prior, but look forward to what the future may hold.
- The economic turndown hasn’t yet begun
If you think an economic crisis sparked by the onset of the global pandemic has started, “You ain’t seen nuthin’ yet!” Corporate treasuries of non “Big Tech” are being depleted as large companies and SMEs desperately try to stay above water. Retail savings and investment accounts are being emptied to keep food on the table. The inevitable economic pain we will all feel due to the global pandemic has not yet reared its ugly head. When it does, trust me when I say, you will know.
- And governments will endlessly print fiat to stop the downturn
Governments and central banks have historically used the lowering of interest rates to ease credit freezes and reignite the economy through private sector investment with cheap capital. Well, this has kept a failing economy chugging along basically ever since the 08/09 financial crisis, but with rates now at 0 or even negative, this fail-safe option to keep the economy going has been all used up. With nowhere else to turn, the money printers were fired up.
Fiat money is not backed by anything except the trust people have in their government saying it is backed by the government. Said government can then unilaterally and endlessly print its own fiat currency to back the fiat previously in circulation. See the problem? Now, talks of printing and a stimulus package are heating up in Europe, and hints from the Biden administration point to another stimulus package to the tune of a few trillion. While this will ease the economic pain of many corporates and hundreds of millions of people, it will have devastating long-term effects on the economy. Inflation will be one thing, but corporates will always have the government to bail them out further established as precedent. With the economy failing and fiat losing its purchasing power…
- More corporates will turn to Bitcoin as a treasury asset
I would be surprised if less than half of the Fortune 500 doesn’t hold Bitcoin in some way by the end of 2021. Just like tens of millions of investors now have a position in Bitcoin or crypto in some regard, I believe nearly all corporates will opt in to using Bitcoin as a treasury reserve asset. Not doing so would be fiscally irresponsible at this point. While Michael Saylor’s approach has been a bit extreme, I believe it is inevitable that Bitcoin or Bitcoin-derived financial products will see investment from corporates fearful of the looming inflation. I don’t need to tell you what the supply/demand implications of this are on Bitcoin’s price, but coupling the halving with the pandemic economic fallout, my prediction from early 2020 about COVID bringing about the perfect storm for Bitcoin looks to be spot on. Enterprises won’t stop at Bitcoin though, as it is merely the gateway drug to the crypto-verse.
- Ethereum will be discovered by enterprises
With ETH 2.0 theoretically solving the scalability issue, just wait until the enterprises buying up Bitcoin as a treasury reserve asset learn what kinds of decentralized applications they can offer consumers on Ethereum and other leading protocols. After getting their toes wet, a new world of opportunities and business applications will be opened to them as they explore ways they can integrate blockchain and crypto into their existing and new product and service offerings. ETH and other crypto will be eaten up in company’s treasuries, much like Bitcoin, so they will have higher purchasing power relative to ongoing operational costs on these layer-1 protocols at a future date. Iconic portfolio company, Unibright, is actively building enterprise blockchain solutions precisely for this through their work with Baseline Protocol, and I expect 2021 to be a massive year for them and enterprise blockchain adoption as a whole.
An Iconic 2021
Well, I obviously believe 2021 will be a massive year for crypto and the adoption of decentralized/censorship-resistant applications. Iconic’s mission is to drive the adoption of crypto by giving investors a trusted and familiar way to invest and investing in the best and brightest minds building in the crypto ecosystem. While this hasn’t changed, the opportunity is now bigger than it ever was before.
- New Investment Vehicles
At Iconic, our core business is the management of crypto asset investment vehicles. While this began as purely passive, index exposure, it has grown to the issuance of actively managed vehicles through our Multi-Manager platform that launched this past fall. I am beyond excited by the imminent launch of multiple investment products that offer various means of exposure to crypto assets. While I cannot share much as the products are highly regulated, I have high anticipation for the day when I can finally share what we have been working on all this time.
- International Expansion
Iconic was proudly born in Germany and currently has team members in New York and Singapore. We are excited to announce we will now be opening an office in Dubai within the next month! Having explored the region for the entirety of last year, meeting with local infrastructure, royal family members and investors, we have decided that now is the time to enter the MENA market through the Dubai International Finance Center. We are excited to launch new, Sharia compliant investment vehicles in the region and help drive the adoption of crypto assets to a largely underserved area of the world.
- Iconic Lab as a company builder
It is true that our team almost exclusively focused on the development of Iconic Funds in 2020, seemingly neglecting Iconic Lab. As the Iconic Funds group becomes more established, this will be changing as we refocus our efforts on not only investing in some of the most exciting crypto projects through Iconic Lab but building our own internally.
After the resounding success Captain Bitcoin has had, currently averaging 10,000 daily users and becoming cash-positive on a relatively thin budget, we have tasked our bizdev lead and his team with building and developing new DeFi related products. You can expect the first of these projects to be rolled out in late January/early February with a target of a new product every quarter. While we are still testing this as a construct and it will be largely dependent on the successes of the initial projects we are funding, I have never been more bullish on Iconic Lab and what the future holds for it as it ventures further into the DeFi space.
Unarguably, one of Iconic Lab’s greatest portfolio companies is Unibright and its UBT token. We have realized massive returns on UBT over the past few years, and I am personally beyond excited for what is in store for UBT in 2021 and beyond. Alas, the target holding period Iconic Lab has for any portfolio company is three years, and as such, we must begin slowly liquidating a portion of our UBT position over the coming months. Rather than doing so OTC, or dumping the assets all at once like some large investors do, we will very slowly and gradually liquidate small positions daily to cost-average the position over time and affect UBT as minimally as humanly possible. Before anyone jumps to any conclusions, I would like to reiterate how much Iconic believes in UBT, its team and vision. We have hodl’ed since April 2018 and will continue to hodl, and we are excited that UBT is enabling us to invest in the next cohort of crypto entrepreneurs through Iconic Lab. I will still remain actively involved in not just the community, but with the Unibright team as we continue to build and drive value to UBT and its community. UBT is VIP, after all, and massive, massive things are coming for it.
- ICNQ in 2021
Honestly, not much changes for ICNQ in 2021 from a utility standpoint, but the launch of new investment vehicles and a refocus on Iconic Lab could drive immense value to ICNQ holders. Iconic Funds’ investment vehicles will continue to contribute liquidity to ICNQ and pay their fees in ICNQ bought and burned, and ICNQ still acts as a membership token for Iconic Lab.
However, all the projects we will be investing in out of the refocus on Iconic Lab, as well as developing internally, will airdrop a substantial amount of their native tokens to ICNQ holders. Similar to the CAPT airdrop from late last year, all ICNQ holders will have the opportunity to participate in the emerging company and DeFi projects in our portfolio. There are currently 3 projects that have been in development within this new Iconic Lab model since last year, and I have a feeling you will like what you see once we unveil them.
Bitcoin, Iconic and crypto were just getting warmed up in 2020. 2021 is the year all our efforts are capitalized on. New opportunities abound for Iconic and its community, and I cannot wait to see what the future may hold.
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