Good morning. Here’s what’s happening:
Insights: Revenue at BC Technology Group’s OSL crypto assets platform, which accounts for most of its business, rose significantly but the company’s share price has lagged bitcoin and other assets.
Technician’s take: BTC appears to be overbought, although pullbacks cold be brief.
Bitcoin (BTC): $47,225 -1%
Ether (ETH): $3,365 -0.6%
Bitcoin and ether are flat; other major cryptos drop
After a week of gains, some rain fell on crypto prices, even as a few rays of good news beamed in from Ukraine.
Bitcoin, the largest cryptocurrency by market capitalization, was recently holding steady at about $47,250, slightly down over the last 24 hours. Ether was also treading water at about the same $3,350 mark it held a day earlier. Other major cryptos were largely in the red with popular meme coins DOGE and SHIB registering two of the biggest declines during certain points of the U.S. trading day at more than 6% each, respectively. Late in the day, Axie Infinity’s AXS token had fallen 9%, while Cardano’s ADA was off over 3.5%.
The declines came after seven consecutive days of mainly increases among major cryptos, which market analysts have struggled to explain although many have highlighted rising interest among institutional investors, including announcements by financial services powerhouses Goldman Sachs (GS) and BlackRock (BLK). The purchase over the past six days of $1.3 billion in bitcoin by the Singapore non-profit Luna Foundation Guard (LFG) as a reserve asset for UST, which is Terra’s decentralized dollar-pegged stablecoin, and commitment to buy at least $1.7 billion more in BTC, further buoyed markets earlier this week. Terra’s LUNA token reached an all-time high of over $109 on Tuesday.
Crypto’s performance veered from stocks, which took a small swing upwards on Tuesday amid faintly brightening hopes of a ceasefire in Ukraine. A senior Russian defense minister said Russia would ratchet back its attacks on Ukraine’s capital city Kyiv, which has been a primary target of the unprovoked invasion. Also, Russia’s lead negotiator, in talks with Ukraine diplomats, said that Russia would be willing to have a meeting between the presidents of the two countries. Oil prices fell 2% at one point during the day, although they were recently up slightly.
Jeff Dorman, the COO of asset manager Arca, told CoinDesk TV’s “First Mover” that investors may have felt encouraged by an increased sense of certainty in economic and wider events. “Markets hate uncertainty,” said Dorman, who noted a possible de-escalation in Ukraine and clearer direction by the U.S. Federal Reserve in taming inflation through interest rate hikes this year. Dorman also mentioned the poor performance of the bond market.
“The bond market is uninvestable right now, half of Europe and Asia is not investable,” Dorman said. “So where’s money gonna go? It’s not going to sit in cash forever. It’s going to go into safer places, which is U.S. equities and real estate and also, perhaps ironically for some, digital assets.”
He added: “So when you start to see inflows, you start to remove those negative overhangs, you look at the places that are heavy, positive catalysts or somewhat recession-proof. I would argue for Bitcoin specifically we’ve seen a massive, positive catalyst in the last eight weeks.”
A good year for Hong Kong Technology Group, but where are the investors?
BC Technology Group is doing a lot right to meet strong, ongoing demand among investors for cryptocurrencies, but its stock price still hasn’t reflected the gains of its digital assets platform OSL, which accounts for most of the company’s revenue.
Whether BC Technology Group trades higher in the weeks and months ahead remains uncertain despite its apparent resiliency to increasing Chinese oversight of the administrative district.
In its annual earnings, released Tuesday, BC Technology said that OSL revenue increased by 63% to $35 million year-over-year, while platform volume increased 73% to around $40 billion annually, according to the BC Technology Group announcement. Overall, the company reported a 44% increase in revenue which it largely credits to bumps in trading income from OSL.
Digital assets now account for 75% of all of BC Technology Group’s revenues, meaning that it’s not as weighed down by its exposure to macro issues in China’s equities market as it was before.
As an incidental note, the company said it would be changing the currency used in its financial statements to the Hong Kong dollar (HKD), not China’s yuan (RMB). China is hostile to crypto so using HKD as a denomination for reporting makes more sense.
To be sure, BC technology still isn’t profitable. But the company attributed a net loss on the need to use the capital for global expansion.
Its mid-year earnings in August, showed equally impressive gains in revenue and volume. But is this enough to satisfy the market?
Investors have been cool on the stock, which has significantly underperformed bitcoin during the last six months.
While Coinbase (COIN) stock has also underperformed bitcoin – Singapore’s QCP has noted that investors are no longer prescribing much of a premium to licenses – the gap between BC Technology Group and bitcoin is much wider, with the company underperforming both the digital asset and the Hang Seng Index itself.
Granted, the company isn’t profitable, but tech investors are usually fine overlooking lack of profitability in the early years of a company with growth potential and won’t punish a stock for it.
Part of investors’ reluctance may have to do with the grand debate on whether Hong Kong or Singapore is the right home for digital assets in Asia. FTX called Hong Kong quits last fall, with its CEO calling the regulatory environment uncertain and quarantine measures stifling to business.
Stakeholders have complained about Hong Kong’s approach to the asset class with contradictory rules and advice on crypto from the city’s different regulators, praising Singapore’s whole-of-government approach that’s centered around the Monetary Authority of Singapore its hybrid central bank and regulator.
A sign of Singapore’s institutional endorsement of crypto can also be found in partially state-owned DBS’s digital asset trading desk – which OSL’s technology powers.
Investors hate uncertainty.
BC Technology Group’s decision to take the regulatory approach that authorities in Hong Kong prefer for crypto was wise. OSL currently has the only SFC-licensed digital asset trading platform in Hong Kong.
But whether the market agrees with its overall strategy is still unclear. Its stock has a long way to climb.
Upside momentum is starting to fade on intraday charts, which could keep buyers on the sidelines into the Asia trading day. Still, lower support at around $45,000 could stabilize pullbacks.
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Galaxy Digital Managing Director Robert Bogucki joined “First Mover” to explain how his firm has facilitated Goldman Sachs to launch the Wall Street bank’s first over-the-counter crypto options trade. Bitcoin’s price was charging ahead while Terra’s LUNA token was setting new highs. Jeff Dorman of Arca provided insights into the market rally. Plus, bitcoin’s ESG debate continues. Bitfarms Chief Mining Officer Ben Gagnon weighed in.
“In the less than 24 hours since megastar Will Smith permanently damaged his public image by slapping Chris Rock, a man half his size, the cryptosphere has launched at least two projects purporting to somehow put the event on the blockchain. Despite no obvious logical connection between crypto and The Slap Heard Round the World, the newly minted digital assets even appear to have generated some sales.” (CoinDesk columnist David Z. Morris) … “At a ‘Metaverse Cocktail Hour for Fashionistxs,’ hosted by Cash Labs, it was abundantly clear who had MANA and who didn’t. My avatar was dressed plainly, with a default hairstyle and a default black turtleneck. Users with fancier gear – massive sets of wings, bear costumes, swarms of digital butterflies – stole the spotlight.” (CoinDesk columnist Will Gottsegen) … “Among the digital asset rules the administration is looking to update are amending the mark-to-market rules to include digital assets; requiring reporting by certain taxpayers of foreign digital asset accounts; providing for information reporting by financial institutions and crypto brokers; and treating loans of securities as tax-free to include other asset classes and “address income inclusion. The administration estimates that modernizing these rules will bring in almost $11 billion in revenue between 2023-2032, with more than $4.8 billion coming from the first year of applying mark-to-market rules to digital assets.” (CoinDesk) … “After falling during the peak of COVID-19 lockdowns in 2020, the rates at which so-called prime-age workers –those aged 25 to 54 – are working or seeking work has rallied back to pre-pandemic levels. Yet, with the economy growing faster than in decades, demand for labor has outpaced the availability of workers – at least at the wages and benefits employers are offering.” (The New York Times)
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Damanick is a crypto market analyst at CoinDesk where he writes the daily Market Wrap and provides technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also an equity/fixed income portfolio manager and does not invest in digital assets.