Insights and analysis for the professional investor Was this newsletter forwarded to you? Sign up here. |
|
|
Welcome to Crypto Long & Short! This week, Kelly Ye, head of research at Decentral Park Capital, gives nine solid reasons why 2024 is looking up for crypto markets.
Then, Q Rasi explains how tokenization can aid investors in the search for tax efficiency.
As always, get the latest crypto news and data from CoinDeskMarkets.com. – Benjamin Schiller, head of opinion and features at CoinDesk |
|
|
Tis the Season To Be Jolly About the Crypto Market in 2024 |
As 2023 concludes, the crypto market emerges from failed ventures and outright fraud, embracing real progress toward mainstream adoption. As global tensions rise and regional banks falter, bitcoin reclaims its status as a reliable store of value. Meanwhile, TradFi giants filing for Bitcoin spot ETFs and tokenizing real world assets (RWAs) signify the convergence of the two worlds. With crypto now 15 years old, the year 2024 holds the promise of being a defining moment in its evolution. The recent surge in Bitcoin prices serves as a prelude to an anticipated bull market of 2024. And several other factors align to set the stage for a crypto resurgence. Macro Factors: Global liquidity conditions have been on the upswing since October 2023. The Fed's change in tone during the December FOMC confirmed market expectation of potential rate cuts in early 2024, creating more favorable conditions for risky assets. |
Mainstream Adoption: The advent of spot ETFs (expected to be approved as early as January) and tokenization represents a pivotal moment in crypto's integration into the broader financial landscape. Allocating a small percentage of US wealth management assets to Bitcoin ETFs could yield significant ETF sizes. Simultaneously, DeFi protocols are diversifying their yield sources into RWAs like U.S. Treasuries, attracting more crypto-native capital. Technological Advancements: Major upgrades in blockchain scalability and UI/UX development are breaking barriers in the transition from Web2 to Web3. If Web3-based apps offer the ease of use found in Web2, coupled with the advantages of self-sovereignty, user migration is inevitable. Is crypto heading towards mass adoption, or experiencing irrational exuberance? Three plausible scenarios for 2024 emerge: Cambrian Explosion: BTC could surpass its all-time high (above $69,000) in January 2024, with selected sectors witnessing price actions reminiscent of the DeFi summer of 2021. Steady Growth: BTC might follow similar pattern as 2023, with 20-50% rallies driven by positive news and intermittent sideways movement, culminating a 50-100% return. Reset and Rebuild: Major market corrections could occur, pushing BTC prices below $30,000. The first two scenarios appear more likely, supported by macro tailwinds, mainstream adoption and technology advancements. Moreover, long-term BTC holders continue to accumulate, and stablecoin supply has rebounded, indicating potential external capital to flow into crypto. |
Looking forward, past cycle winners might not lead the charge this time. Successful projects often boast a robust community of developers and users, such as the exciting themes below: Solana Renaissance: Solana, riding high behind the FTX shadow, has established a flying wheel effect, attracting developers and users with its high-performance blockchain. A mini-DeFi summer in Solana is evident as its Dex monthly trading volume surges almost 10-fold this year. DeFi 2.0: Despite being a mature sector in crypto, DeFi remains ripe for innovation. Derivative DEXs, with enhanced settlement times and lower costs, could challenge CEX dominance in that field. Tokenized assets and re-staking could make DeFi yield attractive again compared to US Treasuries. Web3 Gaming: Past VC investments in Web3 gaming are poised to bear fruit. Platforms like IMX are gaining a network effect, providing the technology and resources for a thriving Web3 gaming community. 2024 is destined to be an exciting time for crypto investors and builders! |
|
|
TaxWraps: Unwrap the Financial Gift of Tokenization this Christmas |
Source: https://app.rwa.xyz/treasuries With increased institutional interest in crypto on the horizon, we expect tokenization to continue growing exponentially in 2024. With that in mind, this article introduces a new concept that could amplify tokenization's growth: TaxWraps. To understand TaxWraps, let's explore dividend taxation. When companies pay out profits as non-qualified dividends, recipients face immediate tax liabilities. ETFs (exchange-traded funds) are one tool to defer tax obligations. ETFs often reinvest dividends back into the fund, allowing value to grow tax-deferred until investors sell their ETF shares. This allows investors to defer tax obligations while compounding their wealth. With TaxWraps, our goal is to broaden the ETF-style deferral mechanism via tokenization. Consider a tokenized asset fund or trust (TAFs). A family office wishing to minimize their tax burden can perform in-kind transfers of income-generating stocks/assets to TAFs and, in return, receive tokens representing their ownership in the trust. Like ETFs, these tokens derive their value from the pool of assets in the fund. When the stocks/assets generate income, the fund will acquire more of the underlying asset (e.g. reinvesting the dividends) and the existing token pool's value will increase. When the family office is ready to liquidate its holdings, tokens can either be sold or burned, at which point only the overall gains or losses are considered for tax purposes. Without getting into the complexities of tax codes and appropriate structuring of the TAFs, this simplified model could act as a beacon of tax efficiency achieved via tokenization. TAFs can delay tax liabilities connected with investing in digital assets and align with long-term wealth preservation strategies that were previously available via ETFs/ETNs and other structured products. Tokenization can even be considered as a way to democratize ETF-like products. Our team at Lindy Labs is behind the wealth management platform Sandclock. We have been exploring TaxWraps along with instruments like total return swaps, dividend swaps and ETNs to develop a derivative portfolio that would maximize tax efficiencies for family offices and high net worth individuals via tokenization. TaxWraps offer an intriguing blend of modern technology and existing tax law through ETF-style wrappers to empower the next massive surge in adoption and growth of tokenization. |
|
|
From CoinDesk Deputy Editor-in-Chief Nick Baker, here is some news worth reading: |
- ETHEREUM LAGS: A little over a year ago, Ethereum went through the monumental upgrade known as The Merge, making the blockchain's operations much more energy efficient. At the time, an idea was floating around – one that I probably repeated too often – that this might boost the investment case for its ether (ETH) token among conventional investors. This was because Ethereum's shift to proof-of-stake meant there were now cash flows associated with owning ETH – meaning traditional financial analysis tools were suddenly relevant. And I think that's certainly playing out and institutional interest is there. However, that doesn't mean ETH was the best investment option out there. Here's a story about how the tokens for Solana (SOL) and Avalanche (AVAX) – other layer-1 blockchains that, like Ethereum, offer smart contracts – are doing well as "traders have increasingly preferred these networks over Ethereum for their much lower transaction fees and faster speeds." The high fees and sluggish speeds that have plagued Ethereum spurred the creation of layer-2 blockchains tied to it, ones like Polygon (MATIC) where Ethereum transactions can be offloaded to make things cheaper and faster. But just this week, Vitalik Buterin, a member of the Ethereum Foundation's executive board, proposed bringing some layer-2 goodies onto Ethereum. It seems doubtful he's reacting to SOL and AVAX zooming higher, but the timing makes his comments stand out.
- QUOTE OF THE WEEK: I don't usually highlight quotes here, but this one captures so much about the crypto landscape that I cannot resist. Dog-themed meme coins have, of course, long been a thing. There's a new one called Dogwifhat, named for a meme involving a dog – you'll never believe it – wearing a hat. A trader just turned $1,000 into $100,000 buying that WIF token. How'd he do it? "The secret is to be an idiot I think," he said. "I should have probably sold several times, but the dog had a hat."
- INSIDER TRADING: CoinDesk's Danny Nelson did a deep dive into well-timed DeFi trades that, according to the experts he spoke with, could attract U.S. Securities and Exchange Commission scrutiny because they might be illegal insider trading.
|
|
|
Consensus is the biggest and most established hub for everything crypto, blockchain and Web3. Join us at the 10th annual Consensus May 29-31 in Austin, Texas for dialogue, discovery and dealmaking alongside developers, investors, startups, executives and more.
Register with code CLS15 for 15% off. Grab your pass.
|
|
|
|
TradFi Adopts Crypto 2024