April 17, 2023
Greg Cipolaro

Research Weekly - US Investors Are Bullish


  • A key indicator shows that US investors are bullish on bitcoin and there may be an opportunity for those engaged in hedged trading strategies.
  • Returns of crypto industry equities highlight some important business model dynamics.
  • Unlocking entrepreneurialism across the Bitcoin ecosystem.

Futures Basis Show a Positive Bias for US Investors

The onshore, regulated futures basis (annualized rolling 1m), the price difference between futures trading on the CME and spot bitcoin, has been consistently in positive territory, an encouraging indication of US investor positioning throughout the recent rally. This is opposed to unregulated futures trading on offshore exchanges which have not been showing a consistent positive basis (the 1m rolling basis on Deribit was -0.09% as of the close on 4/13/23). We think this speaks to the differences in positioning between US and international investors and potentially offers an opportunity for relative value or market-neutral funds seeking to take advantage of this dynamic. The “cash and carry trade” or “futures arb”, shorting futures and buying spot, was once a popular trade during the last bull market. The annualized 1m rolling futures basis peaked at over 30% around the time of the ProShares Bitcoin Strategy ETF (BITO) in October 2021. Since that time, however, the bear market has given little opportunity for this dynamic to emerge again with the futures at times trading at deep discounts compared to spot, usually during times of market stress. The appearance and persistence of a positive basis are encouraging for the market's direction and may offer an opportunity for those engaged in relative value trades.

Weekly 2-Apr-14-2023-04-09-06-4310-PM

Equity Returns Highlight Leverage in Business Models

The public equities of crypto-related stocks soared during the first quarter, outpacing the returns of bitcoin and highlighting an important factor related to the entities, leverage in their business models. The first quarter market cap weighted returns for “crypto companies”, a mixture of service providers and ASIC manufacturers, was 87.1% and 158.3% for public miners, while bitcoin rallied 71.7% (using Bloomberg’s bitcoin price). Crypto-friendly banks were a different story, sinking 40.0%, with the banking crisis claiming Signature and Silvergate.

The outperformance of the stocks of crypto companies and public miners highlights some important facts about their business models – correlation to prices and leverage in their business models. Correlation to price is most obvious as revenue for miners is directly tied to the price per bitcoin (keeping all else equal) and the price is positively correlated to interest and trading volume at service providers, like exchanges. Many crypto business models have a higher portion of fixed costs than variable costs, leading to high incremental margins. This means that as revenue increases, profits can increase much more than revenue, creating leverage in business models, hence why crypto stocks have outperformed crypto prices this year. Unfortunately, this feature cuts both ways as seen last year when stocks were down more than crypto prices.

Weekly 1-Apr-14-2023-04-09-35-6138-PM

Link to PDF Version

Unlocking the (Entrepreneurial) Animal Spirits on Bitcoin

There has been an important technology movement afoot over the past few months in and around the Bitcoin ecosystem, one punctuated by the growing Lightning Network, the launch and success of Ordinal inscriptions (NFTs), and adjacent technologies, like Nostr, which is being leveraged to create a decentralized social media network. That change is re-underwriting Bitcoin as a foundational technology to be built around and on top of, and unlocking the entrepreneurial spirit associated with that.

Innovation can often be at odds with the idea of bitcoin the asset, the currency of the Bitcoin network, being most like gold, whose physical properties, like its durability and scarcity, have made it suited as both a store of value and a medium of exchange for civilizations throughout human history. We like the idea from the recent Bernstein piece that called bitcoin (the asset) a “faster horse” than gold, but it misses out completely on the technology and network aspect of Bitcoin. Our observation is that the economic promise of bitcoin the asset (finite supply, programmatic supply function, open, permissionless, and decentralized) has not changed while the underlying technology continues to evolve.

NYDIG was built to foster the adoption of both Bitcoin the technology and bitcoin the asset. While NYDIG itself is an entrepreneurial endeavor, there are far too many exciting innovations across the ecosystem for us to impact. This is why our sister company, Wolf, was created. Set up as an accelerator, Wolf supports early-stage entrepreneurial efforts across the ecosystem. With the close of applications for their second cohort last week and the news of their support of Nathaniel Whitmore’s new podcast spinoff Bitcoin Builders, again, another entrepreneurial effort, we couldn’t be more excited about their work.

Market Update

Weekly 3-Apr-14-2023-03-04-09-6007-PM

Bitcoin rallied again this week, up 8.4%, taking its year-to-date return to 83.5%. The rally comes after a brief pause in the $28K - $30K range amidst fears of increased regulatory scrutiny. But the move after breaching $30K was decisive, with investors continuing to follow positive price momentum. Equities were also up on the week, with S&P 500 up 1.0% and Nasdaq Composite up 0.6%. Gold continues to do well in the current environment as well, up 1.5% on the week and 11.8% on the year given the fears that rippled through the banking industry. Oil rallied 1.8% on the week. Bonds were mixed with investment grade corporate bonds down 0.5%, high yield corporate bonds up 0.8%, and long-term US Treasuries down 2.3%.

Important News This Week


‘Faster Horse’ Bitcoin Will Keep Outperforming Gold, Says Bernstein - Daily Hodl

U.S. Banking Crisis May Be Vindication for Crypto Ecosystem - CoinDesk

Regulation and Taxation:

SEC Takes on Crypto DeFi Exchanges With Refreshed Rule Plan - Bloomberg

The Real-World Costs of the Digital Race for Bitcoin - NY Times

The Absurdity of the NYT’s Latest Bitcoin Hit Piece - Bitcoin Policy Institute

Developing Web3 — Keeping Upright, Innovating and Moving Forward Steadily - Hong Kong Financial Secretary


Bitcoin Whitepaper Found Hidden in macOS - Apple Insider

Winklevoss Twins Lend $100 Million to Gemini Crypto Exchange - Bloomberg

Binance.US Struggles to Find Bank to Take Its Customers’ Cash - WSJ

EToro to Offer Crypto Trading Directly to Twitter Users - CoinDesk

Upcoming Events

Apr 22 - MIT Bitcoin Expo

Apr 28 - CME monthly expiry

May 3 - FOMC rate decision

May 10 - CPI release

May 17 - Bitcoin Builders Conference in Miami

May 18 - Bitcoin 2023 Conference in Miami

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