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Digital Derivatives WeeklyMay 1, 2020

Digital Derivatives - Listed Digital Asset Companies

Jitender Tokas
Chief Business Officer
May 1, 2020
What's in this post?

    Digital derivatives is a weekly newsletter bringing you the latest research, information and analytics from the cryptocurrency derivatives space brought to you by Delta Exchange.

    For last week’s edition, click here.

    Market Moves

    • Bitcoin (BTC) – $8,884.43 (+10.18%)
    • Ethereum (ETH) – $213.31 (+3.07%)
    • Ripple (XRP) – $0.219 (+1.27%)
    • Bitcoin Cash (BCH) – $256.01 (+3.26%)
    • Litecoin (LTC) – $47.81 (+2.29%)

    Derivatives Insights

    Performance of Listed Digital Asset Companies

    In this week’s newsletter we look at the performance of listed companies in the digital asset space. Since public companies are required to disclose business data on a regular and timely basis, we look to explore if there is any insight that we can get from the price performance of these companies, as we approach Bitcoin halving.

    We find that listed companies in the digital asset space track the performance of Bitcoin but have slightly underperformed it. None of the examined companies outperformed Bitcoin on a YTD basis and only ARGO Blockchain returned higher than Bitcoin on a 12 month basis.

    This underpermance should however not be deemed as market’s fear into the halving, as it has been persistent over a longer period of time. It is quite possible that investors attach a discount to the listed companies because of the illiquid nature of these stocks and because unlike for Bitcoin, trading in these stocks is not available 24×7.

    These stocks exhibit a strong short term correlation with Bitcoin price and have been rallying alongside Bitcoin, since late March. ‘The price action indicates that public market investors are “believing” the ongoing Bitcoin rally and are not pricing-in a decline in BTC price post-halving.’

    6 Month % performance of listed Bitcoin companies correlated with Bitcoin (black)

    Of the 8 companies research, only 3 have seen their stock price up year-to-date – QBTC.U, GLXY & GBTC. These companies are all investment-focused (as opposed to mining-focused) and their stock prices reflect this through close correlation to the price of Bitcoin. As Bitcoin has risen in price so have the stock prices of listed companies providing access to digital asset investment products – regardless of corporate financial performance.

    12 Month % performance of listed Bitcoin companies correlated with SP500 (Black) / Bitcoin (Green)

    Stock MCAP MCAP % of BTC YTD % YTD % vs. BTC 12 Month % vs. BTC YTD % vs. SPX 12 Month % vs. SPX
    Bitcoin (BTC) $161.66 B
    63.99% 34.96% 65.24%
    Galaxy Digital (GLXY.V) $60.5 M 0.037% 22.64% -1.72% -26.79% 33.24% 38.45%
    Grayscale BTC Trust (GBTC) $1.68 B 1.04% 20.31% -4.05% -32.84% 30.91% 32.4%
    3iQ Corp (QBTC.U) $19.6 M 0.0121% 14.52% -9.84%
    RIOT Blockchain $37.55 M 0.023% 2.54% -21.82% -138.07% 13.14% -75.33%
    Global Unichip (3443.TW) $1.09 B 0.67% 0.41% -23.95% -55.73% 11.01% 9.51%
    ARGO Blockchain (ARB) $20.23 M 0.0125% -3.57% -27.93% +11.39% 7.03% 76.63%
    Taiwan Semiconductor Mfg (TSM) $258.93 B 159.94% -9.26% -33.62% -43.06% 1.34% 22.18%
    HUT 8 (HUT) $59.3 M 0.036% -13.33% -37.69% -105.6% -2.73% -40.36%
    BC Group (0863.HK) $264.6 M 0.16% -21.75% -46.11% -47.42% -11.15% 17.82%

    Listed Digital Asset Companies

    Galaxy Digital

    Galaxy Digital is a US digital asset merchant bank dedicated to the blockchain industry. Their focus is on the following four business lines: Trading, Asset Management, Principal Investing and Advisory Services. Galaxy is headquartered in New York with offices in San Francisco, Tokyo, Hong Kong, London, Vancouver.

    3iQ Corp

    3iQ Corp is an investment manager providing access to a multi-asset cryptocurrency investment fund for global accredited investors. 3iQ was founded in 2012 and is headquartered in Toronto, Canada.

    RIOT Blockchain

    RIOT Blockchain provides exposure to the digital asset ecosystem through its mining operations in addition to blockchain technology investments. RIOT Blockchain is headquartered in Colorado, US.

    Global Unichip

    Global Unichip Corp is a Taiwanese ASICS manufacturer to meet the needs of global technology corporations. Global Unichip develops energy and resource efficient mining infrastructure for a global market.

    ARGO Blockchain

    ARGO Blockchain develops clean power digital asset miners with a strong focus on energy efficiency. ARGO offers mining-as-a-service to institutional investors entering the digital asset space.

    Taiwan Semiconductor Manufacturing

    TSMC develops a broad range of technologies including semiconductors and integrated circuits used for digital asset mining. TSMC was founded in 1987 and is headquartered in Taiwan.

    HUT 8

    HUT 8 is a digital asset mining company established in Toronto, Canada, in 2011. HUT 8 provides access to a mix of proprietary hardware and software to develop market-leading miners.

    BC Group

    BC Group is a publicly-listed digital asset company providing custody, marketing and growth solutions for projects in the cryptocurrency space. BC Group was founded in 2003 and is headquartered in Hong Kong.

    RIOT, ARGO, BC Group and HUT 8 have all seen their stock price drop in 2020 as Bitcoin approaches its third halving. These four companies all have their operations centered around mining – as semiconductor manufacturers, infrastructure developers and pure miners. Miners are, like most others, positively affected by a rising Bitcoin price. Many other factors go into miner profitability however, including network competition (hash rate), infrastructure efficiency and, not least, the block issuance reward.

    % Performance of listed Bitcoin mining companies correlated with Bitcoin (Black)

    The three listed mining companies analysed – HUT8, ARGO and RIOT – are all down year-to-date even though Bitcon is up ~24%. However, these stocks are still positively correlated with Bitcoin price. Moreover, the rally in BTC price since 15th March bottom has been seen in these mining stocks too. Since stock prices reflect market expectations about future earnings of companies, this price action indicates that public market investors are “believing” the ongoing Bitcoin rally and are not pricing in a decline in BTC price post-halving.

    The Bitcoin network is quickly approaching its third halving, estimated for around May 12th. Upon this halving, the Bitcoin network will see its block issuance reward cut in half, from 12.5 BTC to 6.25 BTC issued per block. This effectively cuts Bitcoin miner profitability by 50% overnight – assuming a constant BTC price – leading numerous mining operations being forced to either shut down or switch to mining a different asset.

    Whilst the recent BTC price jump has eased the pressure off miners, a sudden drop could quickly prove fatal. Inefficient and low-margin miners will be forced to shut down following the halving and the market will consolidate amongst a few larger players. In the short term we will see a drop in the Bitcoin hash rate as unprofitable miners switch off. In the medium to long term we will see reduced selling pressure due to the relative strength increase of remaining miners. The remaining players, with improved cash flow and hedging capabilities, will be able to survive short-term price swings instead of being forced to regularly liquidate assets.

    Bitcoin Hash Rate

    A higher hash rate is a measure of increased competition between miners within a given network, with more competition contributing to a more secure network. As the hash rate drops and miners switch focus towards more profitable opportunities, one might expect the Bitcoin network to become vulnerable to potential security risks. However, as a self-adjusting ecosystem of sorts, the mining difficulty will adjust, rewards will rise and miners (and the hash rate) will return.

    Delta Developments

    Development of MOVE Contract Tutorials

    We’ve put together a collection of MOVE Contract tutorials to walk our traders through how to effectively trade Bitcoin and Ethereum volatility. Check out our MOVE Contract support center here:

    MOVE Options

    Launch of XMR-USDT Perpetual Contracts

    We’re stoked to launch the XMR Perpetual contract, settled in USDT, with up to 100x leverage. View the markets here.

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