#12 Happy birthday Abacus Carbono, Q3 and mainstream adoption
Abacus Carbono turned 1, we share a small summary on the last quarter, and go over news from Twitter, banks and regulators.
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Happy birthday to us
This newsletter was never meant to be where we spoke about our products and services (actually, we probably need to improve at that: how many of you know what Carbono does?). But today, we wanted to celebrate: Abacus Carbono turned one last week, and we thought this could be an excellent occasion to share our story and experience and see how things have changed through the perspective of a crypto fund.
For those who don't know us well yet, Carbono is a crypto-focused advisory firm, and Abacus Carbono is its flagship product. Abacus Carbono is an investment fund designed to be a gateway for investors interested in cryptocurrencies but without the time to go down the rabbit hole. Instead, customers make their investment in dollars, and Abacus Carbono handles everything: portfolio design, custody, trading, and reporting.
We created Abacus Carbono as our contribution to mainstream crypto onboarding. Keeping up with projects, separating grain from the stalk, coping with volatility, dealing with FOMO... that is a full-time job. So many people around us showed interest in crypto but didn't have the time for all the work that picking, purchasing, and holding crypto assets involves.
Some of you might be familiar with the genesis story of Abacus Carbono. It took three years to overcome the regulatory and infrastructural hurdles, including months being delayed by global lockdowns, before we could finally launch.
Now get ready for a colossal cliché:
Things have changed a lot in a year.
They have. We all know this. But how have things changed from the perspective of asset management? The funny thing is that while some things have become much more straightforward, some others are getting increasingly complex.
Some things are simpler now...
Launching a fund would have been much easier now. The world now understands crypto much better, even in those places where they disapprove of it. Regulation is immature and will probably evolve quickly, but in 2021 we can say that it's primarily clear: jurisdictions know what they want and what they don't.
Investors are easier to find. Abacus Carbono's initial customers were trailblazers or lunatics, depending on who you asked. Many of them were already sure they were in this for the long run; many had already tried investing themselves but preferred to delegate it to professionals. To this day, our investors are interested in the space beyond just returns. They are informed and want to be up-to-date on trends and opportunities. As the crypto industry evolves, investors will likely become less interested and more passive.
The ecosystem of companies has blossomed enormously in a year. And, in particular, those who are offering professionalized services. The user experience and scope of the offer from exchanges, custodians, insurance companies, and other intermediaries have evolved positively.
Institutional investors can finally invest in crypto assets. Until recently, it was challenging for institutional investors to have crypto exposure. But this has changed lately: now they have access to regulated and insured custody solutions and trading platforms. And every country in the world is clear about they see crypto assets from the regulatory side.
...but some are more complicated
And, about the scope of the offer: this is where things have got more complex and more exciting. Abacus Carbono only invests in a list of approved assets, according to the regulation. The investment team can add assets to that list through a thorough approval process where an investment committee integrated by risk and investment experts has to validate every proposal.
Criteria for the inclusion of a new cryptocurrency include:
Liquidity. They must be available in sizeable volumes in already approved and regulated exchanges (in our case, Kraken and FTX).
Technical and economic relevance. Projects’ value proposition must fit identified relevant trends, and have a clear path for its cryptocurrency to accrue part of the value generated by the project.
Reputation. Team and project history, security criteria, and code analysis are involved in the process.
The variety of projects that could potentially be approved here is constantly increasing, and so is the speed at which new trends, new investment opportunities, come up. Some of them are off-limits (for example, Abacus Carbono can't invest in NFTs because of their lack of immediate liquidity). Still, DeFi, staking, and lending solutions are on our radar. And with the Cambrian explosion currently happening in different ecosystems like Solana, Avalanche, Terra, Polkadot, the number of projects we analyze is exponentially growing.
We've made our share of mistakes along the way. Most of them missing out on opportunities that could have reaped tremendous benefits. But we are proud to say that Abacus Carbono has consistently outperformed holding. Time proved that we had been right at being patient at some times and good at reacting quickly in others.
These first twelve months of life have been gone by at an incredible speed, both for us and the whole ecosystem. And it doesn't look like it will slow down any time soon. Crypto seems to live in dog years: every year that goes by feels like seven years in traditional finance. We cannot wait to see what the next 12 months bring us.
By the way, we just published a new web for Abacus Carbono. Check it out.
⬡ Six Angles
We select six topics to illustrate the very different angles crypto can be approached from. We could choose dozens, but six is the atomic number of carbon… and otherwise we'd be writing for ages.
1. Macro | Q3 recap
The third quarter went by, and it ended like it had started: with China banning crypto.
Back in the second quarter, the Chinese ban on mining and exchanging activities led to the Great Chinese Migration and a downward pricing trend that even looked at times like a bear market. Fundamentals and on-chain metrics finally prevailed: back then, the price was going down while all cohorts of buyers made purchases and got ready to HODL. It took almost a month for the numbers to react to the behaviors. It wasn't until late July that we started riding a new positive curve, only interrupted by the end of September by a few incidents that caused a temporary hiatus in the optimistic general feeling: an unexpected oversized liquidation in the futures market, another ban from crypto, and Gary Gensler, chairman of the Securities and Exchange Committee, picking fights with Coinbase, Uniswap, and expressing his discontent with securities and DeFi.
Q3 was the quarter of the infrastructure bill: the time when the Biden administration threatened to tax crypto in a misguided way that could hamper innovation in the US, and when the crypto community responded with unexpected political power.
It was the quarter of EIP-1559: the Ethereum upgrade that gave deflationary powers to the protocol, responsible for obliterating $1.6B in ETH and making the remaining supply proportionally more valuable.
It was NFT summer, with the most popular NFTs making record-breaking sales, making it to the hands of celebrities and mainstream media headlines, and starting to flirt with DeFi.
And it was the time for scalability to take center stage: Layer 1 and Layer 2 solutions started gaining momentum. Solana, Avalanche, Optimism, or Arbitrum began to deliver their promise of relieving Ethereum from some of its burden (some say speeding it up, others say competing or even killing it).
Q3 ended up with crypto losing some traction due to off-chain news. But on-chain, things have remained jolly. Bitcoin, NFTs, DeFi, Ethereum, and its contenders, seem unstoppable and headed for a very positive Q4.
2. Regulation | USA gives crypto a break
On September 29th, Gary Gensler reiterated his preference for a future-based ETF. The SEC has been adamant about approving a Bitcoin ETF (unlike his neighbor, the Canadians), but Gensler thinks an ETF containing options makes more sense. That's cool
Just one day later, the SEC delayed at least two months its commitment to respond to the ETF approval requests from the different institutions who have brought forth their proposals. ETFs could open the floodgates of mainstream institutional investment to crypto. That's not so good.
Also, in late September, Federal Reserve Chairman Jerome Powell said the Fed had no intention to ban stablecoins, although he did call for some regulation. But that's ok.
Nevertheless, a few days later, we learned that the SEC issued a subpoena to USDC stablecoin backer Circle. Just like they did with Coinbase and Uniswap, the SEC is taking on the big fish in their attempt to get a grasp of how to regulate stablecoins and at the same time deliver a message to the whole industry. That is not nice.
But then, last Tuesday, when asked directly whether he would suggest the USA follow China’s path of banning crypto from favoring a government-issued digital currency (CBDC or Central Bank Digital Currency), Gensler answered he didn’t. That's good, Gary, thanks.
3. TradFi | VISA launches interoperability solution
VISA had already proved that they don't want to be left out of crypto. First, anecdotally, with the purchase of a punk for $150k that was bought “before anything, to learn”.
Now they have jumped to the headlines with a projected Layer 2 solution, for the moment built on top of Ethereum, that expects to become a global, multichain payment hub.
The concept, called "Universal Payments Channel" (UPC), outlines how various blockchain networks can be interconnected to allow the transfer of CBDCs. It shows how Visa can help exchange various CBDCs built on different blockchains in the future.
This way, VISA shows itself as a savvy participant in crypto (they even have launched their first smart contract) while taking positions to become a trusted infrastructure partner whenever Central Bank Digital Currencies decide to show up.
Welcome, VISA. Crypto is inherently meritocratic, so here they don’t enjoy the same privileged position they enjoy inside TradFi, but any initiative helping gain mainstream adoption is welcome.
4. TradFi | Banks increasing exposition
Banks are being extremely nice and productive about crypto recently, and in an interesting variety of ways.
Crédit Suisse is using Ethereum to tokenize a ski resort. Swiss law allows tokenized securities to trade on a blockchain with the same legal standing as traditional assets. Tokens will be available for purchase through a private sale that will help the Alaïa resort raise funds.
Societé Générale wants DAI to accept on-chain bond tokens issued by the bank as collateral in Dai loans. Dai is Maker’s stablecoin, a cryptocurrency with a fixed price of $1. To keep that price, Dai is collateralized with different cryptocurrencies, from bitcoins and ether to other stablecoins. Everyone can lock these cryptocurrencies at Maker’s smart contracts to mint Dai. Interestingly enough, Societé Générale presented their proposal using Maker’s official governance forums. Well played, SocGen.
US Bank, the fifth-largest bank in America, is launching its own custody service in collaboration with crypto native company NYDIG. The service could be an on-ramp for institutional investors, who still expect more safety signs from the industry.
Bank of America has been incredibly enthusiastic in a recent report. Bank of America Global Research's latest report, Digital Assets Primer, shows excitement about crypto in ways that prove their commitment. DeFi, NFTs, Layer 1 and Layer 2 scalability solutions, smart contract platforms, stablecoins... They still don’t understand Loot, but to be honest, we neither.
5. Mainstream adoption | Twitter
The last weeks have brought great news from mainstream companies. TikTok (diving into NFTs), Revolut (designing their own token), Robinhood (ready to launch wallet features)...
The biggest news from a crypto outsider probably come from Twitter, who, in the same day, announced two breakthrough features that are going to open the hearts of many to crypto:
Bitcoin tips: Twitter will allow users to reward their favorite content creators in BTC through a payment system called Lightning Network: a Layer 2 solution built on top of Bitcoin that makes small payments more convenient, fast, and, more importantly, incredibly cheap.
NFT profile pictures: profile pictures are one of the killer applications of NFTs: in a 100% digital world, changing your profile picture to an NFT has become the way of showing the art you own to the world. Very soon, users will be able to connect their wallets to Twitter and validate and show their NFTs. This is an argument against rightclickers: those people who claim buying NFTs is silly because you can just rightclick-save any digital image.
6. History | Coin lost, coin found
Every one of us has found a forgotten $20 bill in a trousers’ pocket, and we know the joy it brings. Now, multiply that by two million, and maybe you can understand what a man in California felt.
Back in 2011, you could buy a physical coin like the one you can see above. A Casascius, it’s called. Bitcoins don’t have a physical form, but a Casascius does actually store bitcoins in them. In the case of the Gold Casascius above, 1,000 of them. It was bought for almost $5000. Now it’s valued at $54 million.
"This is the greatest return on investment for any numismatic item, a staggering 9,786 times the purchase price in just ten years. It may be the world's greatest investment in that time span," stated Ian Russell, President of GreatCollections of Irvine, California, whose client owns the gold 1,000 Bitcoin physical coin. (WisTV)
Funny anecdote, isn’t it? But it comes with a backstory. It tells the story of an invention that is not even 20 years old, that used to be taken for a scam or a geek toy, but is now a vehicle for vast amounts of value. Satoshi would be (is?) proud.
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