An equity analyst case for the value in cryptocurrencies. Thomas Lee of Fundstrat was lead equity researcher for JP Morgan before founding Fundstrat. He takes a market approach to valuing Bitcoin and other cryptocurrencies. Here is his presentation for the #UpfrontSummit 2018.
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Fundstrat Bitcoin & Blockchain presentation for Upfront Summit
1. Fundstrat Global Advisors
150 East 52nd St, 31st floor | New York, NY 10022
Bitcoin and Blockchain
Trust, Millennials and Wall Street
For Reg AC certification and other important disclosures, see Disclosures, Slide 54.
Thomas J. Lee, CFA AC
Head of Research
thomas@fundstrat.com
twitter: @fundstrat
Robert Sluymer, CFAAC
Head of Technical Strategy
robert.sluymer@fundstrat.com
twitter: @rsluymer
Sam DoctorAC
Head of Data Science
Research
sam.doctor@fundstrat.com
twitter: @fundstratQuant
L. Thomas Block
Policy Strategist
tom.block@fundstrat.com
twitter: @TomBlock_FS
Strategy Research
Portfolio Strategy
Quantitative
Strategy
Technical Strategy
Washington & Policy
Strategy
Sales
John Bai
Head of Sales
john@fundstrat.com
Bill Vasilakos
bill.vasilakos@fundstrat.com
Tzu-Wen Chen
tzuwen.chen@fundstrat.com
Thomas J. Lee, CFA AC
Robert Sluymer, CFAAC
Sam DoctorAC
Ken Xuan
www.Fundstrat.com | Bloomberg: FSGA <<GO>>
Crypto Currency
Strategy
Performance 1Q18 2Q18 3Q18 QTD YTD
Bitcoin (28%) – – (28%) (28%)
FS CryptoFX 10 (28%) – – (28%) (28%)
FS CryptoFX 40 (20%) – – (20%) (20%)
FS CryptoFX 250 (9%) – – (9%) (9%)
FS CryptoFX 300 (26%) – – (26%) (26%)
FS CryptoFX Agg. (26%) – – (26%) (26%)
4. Slide 4
Figure: Trust in U.S. Government at 60-year lows
% who trust the US government in Washington always or most of the time
Trust in U.S. government at 60-year lows…
Source: Pew Research Center. Fundstrat, Bloomberg
5. Slide 5
Figure: Few countries see their citizens trust their government
Question is what % “Trust the national government to do what is right for our country”
Outside the US, trust in governments is even worse…
Source: Fundstrat, Bloomberg
U.S.
Few countries
score better
than the U.S., in
terms of trust by
their citizens...
…Note the
prevalence of
Asian and Latin
American
nations with low
trust ratings…
6. Slide 6
Blockchain and bitcoin growing faster outside the US
Bitcoin and blockchain are attractive
outside the US because of the inherent
structures of those regions.
• Regions with unstable financial
systems or governance make
bitcoin more attractive.
• Regions with currency controls
or strict regulations.
• Regions with uncertain economic
or financial outlook.
• Hence, we see bitcoin and
blockchain adoption as a global
story.
7. Slide 7
Earlier in 2016, Facebook IQ,
a team of researchers,
scientists and analysts funded
and supported by Facebook
Inc., published a white paper
entitled “Millennials +
money: The unfiltered
journey” to evaluate the
beliefs and thoughts of
today’s youth on traditional
banking and financial
systems. The paper found
that 92 percent
of millennials firmly
expressed their distrust of
banks.
92 Percent of Millennials Don’t Trust Banks
8. Slide 8
Blockchain enables digital money to exist with trust…
Paper money Credit card / Electronic
Digital money Blockchain
Double
spend…
Fraud…
Printing
press…
51%
protection…
9. Slide 9
Figure: Examples of fractionalization to digital asset tokenization
Not a complete list
Asset tokenization is an evolution of fractionalization….
Source: Fundstrat, Bloomberg
2008: Airbnb
Brian Chesky and Joe Gebbia came
up with the idea of putting an air
mattress in their living room and
turning it into a bed and breakfast.
2009: Uber
Founded ias UberCab by Garrett
Camp, the cofounder of
StumbleUpon, and Travis Kalanick.
2009: Kickstarter
Kickstarter launched on April 28,
2009, by Perry Chen, Yancey
Strickler, and Charles Adler.
1972: Frequent Flyer Miles
the very first modern frequent-flyer program was created in
1972 by Western Direct Marketing, for United Airlines.
1970: Mortgage Securitization
The U.S. Department of Housing and Urban Development
created the first mortgage-backed security. Ginnie Mae
mortgage loans.
1969:Time-shares
The first non-hotel timeshare in
the US was the Kaua`i Kailani,
started in Kauai, Hawaii in 1969
by the people who later founded
Vacation Internationale.
1987: Netjets fractional jet ownership
In 1987, the NetJets program was officially
announced becoming the first fractional aircraft
ownership format in history.
2017: Venezuelan Oil
Venezuela plans to issue a crypto
currency backed by oil
10. Slide 10
Figure: Illustrative example of a token for a social media company
Simply a concept, please do not judge this to be a business plan
Would Facebook be an ICO today?
Source: Fundstrat, Bloomberg
Customer
Operations
Capital
Structure
Posts
engaging
content
user
Adds other
users
Speculate
on user growth
Equity
(FB owns 33%
tokens)
Speculate on
monetization
token
11. Slide 11
Figure: Illustrative example of a token for a digital based business
Simply a concept, please do not judge this to be a business plan
Should Amazon issue a token?
Source: Fundstrat, Bloomberg
Customer
Operations
Capital
Structure
Purchases
goods
customer
Writes
engaging
reviews
Speculate
on user growth
Equity
(AMZN owns 33%
tokens)
Speculate on
spending
token
12. Slide 12
Risks
• Mining conglomerates becomes too powerful and essentially
takeover the blockchain.
• Millennials decide they like gold and allocate away from risky
assets.
• A major blockchain is hacked by a nation-state.
• Governments decide they have to destroy blockchain.
• Citizens decide they trust governments and banks.
• Quantum computers hack encryption.
• Humor: A crypto-expose is featured on 60 minutes
14. Slide 14
Figure: Comparative size of generations
Population in millions
Millennials are largest population cohort ever
Source: Fundstrat, Census Bureau. Note, the population of each cohort exceeds the total births due to immigration.
43.2
44.1
79.5
65.8
95.8
Peak size of generation
(includes immigration)Generation
Year of
peak Peak size
As %
Pop # in cohort
As %
Pop
Avg
age
Greatest Generation 1910 1927 1930 43.2 35% 2.6 1% 92.9
Silent Generation 1928 1945 1974 44.1 21% 25.8 8% 78.5
Baby Boomers 1946 1964 1999 79.5 28% 73.8 23% 61.3
GenX 1965 1980 2018 65.8 20% 65.8 20% 44.5
Millenials 1981 2000 2038 95.8 25% 89.2 27% 26.5
Years of
birth
Statistics @ 2017
Generation
Year of
peak Peak size
As %
Pop # in cohort
As %
Pop
Avg
age
eatest Generation 1910 1927 1930 43.2 35% 2.6 1% 92.9
ent Generation 1928 1945 1974 44.1 21% 25.8 8% 78.5
by Boomers 1946 1964 1999 79.5 28% 73.8 23% 61.3
enX 1965 1980 2018 65.8 20% 65.8 20% 44.5
llenials 1981 2000 2038 95.8 25% 89.2 27% 26.5
Years of
birth
Statistics @ 2017
Greatest Generation
Silent Generation
Baby Boomers
Generation X
Millennials
15. Slide 15
Figure: What did each generation look like in their 20s
Fundsdtrat and public information
Demographics: Looking at the world through the eyes of a millennial…
Source: Fundstrat, Bloomberg
Baby Boomers
Generation X
Millennials
1980 1990 2000 2010 2020
16. Slide 16
Each generation sees innovations… its mostly digital today
Source: Fundstrat
Figure: Innovations seen when each generation was in their 20s
General sources. Wired magazine.
Each generation is also characterized by innovations that differentiate that generation from prior generations.
• As shown below, what differentiates the millennial experience (in their 20s) is the growth of social media and
digital businesses. Notably, we believe blockchain is the newest innovation.
Baby Boomers in their 20s
1970s-1980s
GenX in their 20s
1990s-2000s
Millennials in their 20s
2000s-now
Woman entering workforce
Mail order business
PCs/Apple
Microsoft/GUIs
GPS
Game consoles
Mobile phones
Laserdisc/CDs
email
WWW/ e-commerce
Digital Cellular
Mobile email
Mobile data
Text messaging
Google
Paypal
Video Games
Digital photography
MP3
Facebook
Uber
Airbnb
Instagram
Kickstarter
Digital video streaming
Blockchain/Bitcoin
Electric cars
Online dating
Disruptive and
misunderstood
by prior
generation
Disruptive and
misunderstood
by prior
generation
17. Slide 17
Figure: Topix vs S&P 500
Boomers: By 1975, many would have said Japan stock bubble peaked…
Source: Fundstrat, Bloomberg
Baby Boomers
40X rise from
1950 to 1972
18. Slide 18
Figure: Topix vs S&P 500
Boomers: Good thing “bosom buddies” didn’t listen to bubble talk…
Source: Fundstrat, Bloomberg
Baby Boomers
400X rise from
1950 to 1990
40X rise from
1950 to 1972
19. Source: Fundstrat, Bloomberg, Updata
Slide 19
Figure: Life cycle of Millennial spending and income
Survey of Consumer Finance for 2017 “real income” levels (born between 1981-2000)
Source: Fundstrat, Bloomberg, Census Bureau
Millennials average age is 26.5… still early in life cycle
The oldest millennials are 36 but the average age is 26.5. As shown below, this means the peak of millennials are driving the
automobile market but just beginning to impact the housing market. And early in the investing market.
• As the following slides show, millennials are now the most important cohort to follow for several key segments.
$15,080
$21,684
$27,924
$40,456
$50,440 $49,556
$51,324
$48,932
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67
Averageannualearnings
Age of Millennial
Age 21-35
Automobile
+ Drinking age
Age 25-45
Home
purchasing
Age 30-60
Prime Income
years
2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058
Millennials
Average Age
today
20. Source: Fundstrat, Bloomberg, Updata
Slide 20
Figure: Composition of Generations by age group
Census bureau
Source: Fundstrat, Bloomberg, Census bureau
Millennials maturing autos, peak homebuying and early prime income
To highlight the life cycle of various generations, we have highlighted population distribution and shown the various generations
and their respective distribution. Additionally, we shaded the various life cycle behaviors (auto buying, etc.).
• Millennials are now dominating Automobile purchasing, entering homebuying and beginning to generate prime
income.
8.9
22.1
20.1
16.9
5.8
2017
12.6
19.7
21.0
12.6
2017
12.8
22.2
23.5
22.0
8.7
2017
20.2
20.3
20.7
12.6
2017
20.2
20.3
20.7
21.1
22.2
23.5
22.0
21.3
19.7
21.0
21.4
22.1
20.1
16.9
12.9
8.8
6.0
3.9
1.9
0.6
Age 0 ~ 4
Age 5 ~ 9
Age 10 ~ 14
Age 15 ~ 19
Age 20 ~ 24
Age 25 ~ 29
Age 30 ~ 34
Age 35 ~ 39
Age 40 ~ 44
Age 45 ~ 49
Age 50 ~ 54
Age 55 ~ 59
Age 60 ~ 64
Age 65 ~ 69
Age 70 ~ 74
Age 75 ~ 79
Age 80 ~ 84
Age 85 ~ 89
Age 90 ~ 94
Age 95 ~ 99
Age 100 ~ 104
2017 GenerationZBoomers GenX Millennials
1st time Car
buyer (21-35)
1st time
homebuyer
(25-49)
Prime income
(30-64)
Retirement years
(65+)
Peak per capita
Healthcare costs
(75+)
21. Source: Fundstrat, Bloomberg, Updata
Slide 21
Source: Fundstrat, Bloomberg, Factset
Housing follow generations and implies peak starts 2029 or so…
We believe the prime market for homebuyers is age 25-45 and as shown below, this cohort size seems to explain housing cycles.
• If precedent generations are a template, housing starts should rise through 2029 towards 2.5 million starts.
1973
1989
2010
2026
1.0
11.0
21.0
31.0
41.0
51.0
61.0
71.0
81.0
91.0
101.0
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
#age25-45(millions)
Silent Generation:
1929-1945
Baby boomers:
1946-1964
GenX:
1965-1980
Millennials:
1981-2000
Millennials only now
starting to buy
homes and should
boost the market
past 2026…
BULLISH
Housing SAAR
Figure: Housing starts and comparative size of generations age 25-45. Starts reported in thousands.
Since 1960
22. Source: Fundstrat, Bloomberg, Updata
Slide 22
Figure: Composition of Generations by age group
Census bureau
Source: Fundstrat, Bloomberg, Census bureau
Millennials are just entering their prime income years
Of the 96 million millennials, about 30 million are just entering their prime income years.
• Thus, the key question from an investment perspective is how the millennials will impact the investment market in
the coming decades. After all, each generation seemed to prefer a different investment product.
8.9
22.1
20.1
16.9
5.8
2017
12.6
19.7
21.0
12.6
2017
12.8
22.2
23.5
22.0
8.7
2017
20.2
20.3
20.7
12.6
2017
20.2
20.3
20.7
21.1
22.2
23.5
22.0
21.3
19.7
21.0
21.4
22.1
20.1
16.9
12.9
8.8
6.0
3.9
1.9
0.6
Age 0 ~ 4
Age 5 ~ 9
Age 10 ~ 14
Age 15 ~ 19
Age 20 ~ 24
Age 25 ~ 29
Age 30 ~ 34
Age 35 ~ 39
Age 40 ~ 44
Age 45 ~ 49
Age 50 ~ 54
Age 55 ~ 59
Age 60 ~ 64
Age 65 ~ 69
Age 70 ~ 74
Age 75 ~ 79
Age 80 ~ 84
Age 85 ~ 89
Age 90 ~ 94
Age 95 ~ 99
Age 100 ~ 104
2017 GenerationZBoomers GenX Millennials
Prime
income
(30-64)
About 30 million of the 96 million millennials are
entering their prime income years…
Hence, they will be sizable contributors to the
change in the investing landscape…
23. Slide 23
Silent Generation bought gold…
Millennials
aren’t buying
Gold…
Gold
As shown below, the Silent Generation was in their prime income years. The USD moved off the gold standard in 1971.
• As shown, this surge in gold and coincident generational prime income of “Silent Generation” means this
generation is the key cohort of “gold bugs”.
Figure: Comparative Gold prices and the prime income years of various generations
Census bureau
USD off gold
standard August
15, 1971
China demand +
Financial crisis
1962 1980
1999
2018
2036
1.0
11.0
21.0
31.0
41.0
51.0
61.0
71.0
81.0
91.0
101.0
1930
1933
1936
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
2053
2056
2059
#Americans
Prime income years (age 35-60)--Greatest generation (1910-1927) Prime income years (age 35-60)--Silent Generation (1928-1945)
Prime income years (age 35-60)--Boomers (1946-1964) Prime income years (age 35-60)--GenX (1965-1980)
Prime income years (age 35-60)--Millenials (1981-2000)
25. 1
11
21
31
41
51
61
71
81
91
1930
1933
1936
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
2053
2056
2059
#ofAmericans
Prime income years (age 35-60)--
Silent Generation
Prime income years (age 35-60)--
Boomer
Prime income years (age 35-60)--
Gen-X
Prime income years (age 35-60)--
Millenial
Slide 25
GenX really liked Hedge funds…
The prime years for hedge funds (based on number) was 1990s to 2007. Since then, the number of funds has been declining.
• The hedge fund industry is evolving and those with deep fundamental or a unique advantage will likely appeal to
millennials..
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Dec'45
Jul'48
Feb'51
Sep'53
Apr'56
Nov'58
Jun'61
Jan'64
Aug'66
Mar'69
Oct'71
May'74
Dec'76
Jul'79
Feb'82
Sep'84
Apr'87
Nov'89
Jun'92
Jan'95
Aug'97
Mar'00
Oct'02
May'05
Dec'07
Jul'10
Feb'13
Sep'15
Apr'18
# Hedge funds
(worldwide)
Figure: Comparative number of Hedge funds and the prime income years of various generations
Morningstar
Not entirely
clear…
Prime years
were 1999 to
2007, coinciding
with GenX
28. Slide 28
Regulation: St Louis Fed is constructive on bitcoin and blockchain…
Source: https://files.stlouisfed.org/files/htdocs/publications/review/2018/01/10/a-short-introduction-to-the-world-of-cryptocurrencies.pdf
Figure: Abstract St Louis Fed
Published January 10, 2018
The St Louis Fed even sees bitcoin as a useful crypto-currency
29. Textbook 30-yrs ago… Reality today…
IPOs
Only profitable Technology
companies go public…
% profitable at IPO
1980-1995
average 92%
1999-2000
2013-2017
average
20%
Private
Equity
Public equity is larger than
the private market…
# private equity
companies as percent
of Wilshire 5000
2000:
32% 2016: 84%
Bonds
Bonds are income
instruments…
% bonds with negative
rates (G7, ex-US)
2000: 0% 2017: 80%
Central
Banks
Central banks only own
bonds and risk-free assets…
BoJ ownership of Topix 2002: 0% 2015: 2.5%
Slide 29
Finance 101 books 30-yrs ago not true anymore… will evolve for crypto…
Figure: Comparative changes in approach to valuations
Fundstrat estimates.
We believe crypto and blockchain valuations will lead to an evolution in thinking about market valuations for tokens.
While these are not traditional equities, there are elements available to create a valuation approach.
• Investors seem to be dismissive of the value of tokens, because of the apparent blurriness of token
governance versus equity (like a tracking stock) and the unclear position within a capital structure.
• But as highlighted below, while fundamental valuation remains central to any approach, markets have evolved
their approach to valuations of assets.
https://site.warrington.ufl.edu/ritter/files/2018/01/IPOs2017Statistics-1.pdf
https://www.toptal.com/finance/private-equity-consultants/private-equity-industry
30. Slide 30
Digital Store of Value addresses $280T market…
20-yr
CAGR
Value
($ billions) % Total
Gold Estimate Fundstrat 5.0 $9,000 3
Collectible Art https://www2.deloitte.com/lu/en/pages/
art-finance/articles/art-finance-
report.html
3.0 $17,000 6
Real Estate
http://www.mcguire.com/blog/2017/04/
savills-world-worth/ 5.0 $228,000 82
Government bonds
(neg rate)
Deutsche Bank -0.5 * $20,000 7
Cars, collectibles Estimate Fundstrat 7.0 $5,000 2
Global stores of value $280,000 100
Bitcoin n/a $200 0.1
Figure: Comparative Store of Value
$ Billions.
%
* Average interest rate of negative rate government bonds
%
%
%
31. Slide 31
Figure: Annual World Gold Production
Units in metric tons. Thru 2015. From US Geological Survey
Gold supply growth is ~3%... Will be higher than bitcoin in a few years…
Source: Fundstrat, Bloomberg
3,100
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Jan '21 Sep '32 May '44 Jan '56 Sep '67 May '79 Jan '91 Sep '02 May '14
Annualworldgoldproduction
(metrictons,1000kg)
2.7%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Jan '21 Sep '32 May '44 Jan '56 Sep '67 May '79 Jan '91 Sep '02 May '14
10-yrCAGRAnnualProduction
10-yr CAGR of Gold production
surged to 2.7%...
Annual production exceeded
3,100 metric tons
Surged in
past 7 years..
100-yr avg:
1.9%
32. Dec '35
$35
Feb '75
$184
Jan '80
$684 Dec '87
$493
Sep '11
$1,789
Jul '17
$1,223
Dec '35
1157%
Feb '75
773%
Jan '80
1879%
Dec '87
817%
Sep '11
956%
Jul '17
481%
0%
200%
400%
600%
800%
1000%
1200%
1400%
1600%
1800%
2000%
Jan '21 Apr '27 Jul '33 Oct '39 Jan '46 Apr '52 Jul '58 Oct '64 Jan '71 Apr '77 Jul '83 Oct '89 Jan '96 Apr '02 Jul '08 Oct '14 Jan '21
Goldoutstandingas%
USDincirculation
Slide 32
Figure: Gold price and gold value outstanding as % USD in circulation
Gold price is shown as $ per troy oz. Ratio of Gold value to USD is percent. Since 1921
Gold a buy when value as % circulation <300%... a sell >750%
Source: Fundstrat, Bloomberg
Gold
Spot price
($/troy oz)
Gold overvalued
>750%
Gold under-
valued
<300%
1934 Gold Reserve Act passed:
Private ownership prohibited
1971 gold standard abandoned:
USD no longer pegged to gold
33. Slide 33
Figure: Comparative value of Intangibles as % total EV
Based on Bloomberg data
Intangibles (including brand) essentially 91% FANG value…
Source: Fundstrat, Bloomberg
EV Tangible Assets Intangible value estimates
Ticker Company
Enterprise
Value PP&E
Prepaid
expenses
Deferred
Tax
Assets LT Assets
Current
Assets ex-
Cash
Intangible
Value
Intangible as
% EV
FB Facebook Inc-A $485,860 $8,591 $1,312 $4,952 $471,005 97%
AMZN Amazon.Com Inc $642,703 $29,114 $3,869 $19,800 $589,920 92%
AAPL Apple Inc $738,444 $33,783 $8,974 $1,188 $54,464 $640,035 87%
NFLX Netflix Inc $97,807 $250 $227 $7,389 $3,987 $85,954 88%
NVDA Nvidia Corp $130,831 $521 $62 $1,738 $128,510 98%
GOOG Alphabet Inc-Cl C $674,371 $34,234 $1,819 $383 $0 $19,075 $618,860 92%
TSLA Tesla Inc $64,871 $5,983 $9,539 $2,867 $46,483 72%
FAANNG Composite $2,834,887 $112,476 $1,819 $9,584 $23,359 $106,882 $2,580,767 91%
S&P 500 $28,618,706 $4,541,372 $4,556 $359,580 $1,140,730 $3,988,148 $22,017,705 77%
34. Slide 34
Figure: General categories of tokens
Per Fundstrat
Store of Value still best. Is 2018 the year we see growth in tokenization?
Source: Fundstrat, Bloomberg
Store of Value Digital Currency Utility Security tokens
Purpose Digital Gold Currency Pay for services Fractional exposure
A store of value is the function
of an asset that can be saved,
retrieved and useful when
retrieved. More generally, a
store of value is anything that
retains purchasing power into
the future.
Digital currencies use
encryption to regulate the
generation of units of currency
and verify the transfer of funds,
independently of a central
bank.
The utility tokens are services
or units of services that can be
purchased, similar to API keys,
used to access the service.
These fund projects of shared
infrastructure.
Tokens are representing shares
of a business. The SEC
considers these a security and
fall under the 1934 Security
Exchange Act.
Appreciation potential Yes Yes Yes Yes
Decentralized or not? Blockchain Blockchain mostly Mixed Mixed
Representative Tokens Bitcoin
Ethereum classic
Ethereum
Neo
Qtum
Bitcoin Cash
Zcash
Monero
Dash
Telegram (GRAM)
Powerledger
SingularityNET
FunFair
Paragon
STEEM
KWHcoin
Filecoin
Tron
Tether
Basecoin
LAToken
Goldmint (MNT)
Jibrel Networks (JNT)
35. High-net worth families allocate $1.6T to Art…
Per PrivateInvestor.com
Art cannot be compared to
traditional assets such as equities,
bonds or even commodities. The
access to information is restricted
for the layman, liquidity is often
constrained, holding costs are
comparatively high and even
through there are techniques to
analyze the market, the value of an
artwork is ultimately driven by a
large variety of parameters, part of
those being extremely difficult to
predict.
If family offices own
about 10%-15% of all
collectible art, this
implies that the
aggregate value of Art
as a store of value is
$11 to $17 Trillion.
http://www.privateartinvestor.com/art-business/art-collecting-as-a-means-to-store-value/
https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html
Figure: Estimated Family Office allocation to Art
From Deloitte Art Report 2017
36. 3.0%
-20%
0%
20%
20-yr CAGR
Slide 36
Art has appreciated at 3% gross 20-year CAGR…
0
1
4
16
64
256
1,024
4,096
16,384
1875
1879
1883
1887
1891
1895
1899
1903
1907
1911
1915
1919
1923
1927
1931
1935
1939
1943
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
2015
2019
2023
2027
2031
2035
2039
Mei Moses/ Artprice.comFigure: Art Price performance since 1875
1875 to 2002 is Mei Moses. From 2002 to now is Artprice.com. 100=1875
Source: Fundstrat, Bloomberg
Art has essentially been
flat past 20-years…
Flat
Flat
We have shown the price performance of art from 1875 to today, concatenating the Mei Moses art index (acquired by
Sotheby’s) with a more modern series developed by artprice.com.
• While there was a period of tremendous appreciation from 1950 to 1987, Art since then, has performed a lot
less spectacularly—in fact, in the past 20 years, the CAGR was 3%. Art storage has high maintenance cost
(see prior page) and there is also survivorship bias (does not track destroyed art)—hence, future durability of
Art as a store of value to outperform the last 20-years is not clear.
37. Slide 37
Figure: Key variables in valuing Bitcoin and other cryptocurrencies
$ trillions, except bitcoin value
Framework for bitcoin: ~$125,000 per unit by 2022
We have created a framework for valuing bitcoin, based on the assumptions outlined below:
• In short, we looked at the projected growth of money supply (M0) and a forecast for the ratio of the
alternative currencies to M0 (gold historically is the bulk of this value). And then allocated a share to bitcoin.
Under this forecast, we see bitcoin rising to $125,000 by 2022.
Source: Fundstrat, Bloomberg
M0, or cash assets,
including currency and
is called narrow money
Money supply
growth
Ratio of alternatives,
including gold to M0.
Ratio alternative
currency to M0
Bitcoin share of
alternative currency. 5-
year projection
Bitcoin share of
alternative
1. 2. 3.x x =
Based on 21mm
maximum units (fully
diluted)
Bitcoin
value
Value
$1.55TCurrent: 487% ~3.5% ~$15,000
$2.2T2022E: 600% ~20.0% ~$125,000
1921-2017
Average:
7.0% 554%
38. Slide 38
Figure: Alt-coins surged since December
Based on the liquid universe of alt-coins. 57 in 2014. 250 in 2015. 400 in 2016. >700 in 2017.
2017 was an exceptionally good year for alt-tokens and 2018 so far…
Below we have calculated the percentage of alt-tokens that have risen by at least 200% in the past 90-days—and since
2014, this has been a surprisingly cyclical series.
• In 2015 and 2016, the peak of the alt-coin rallies was 28% of tokens rising 200% in a rolling 3M period. In 2017,
this figure peaked at 81% in mid-2017 and in early-2018, this is hovering at 78% and approaching the 2017
highs.
• Not surprisingly, when alt-coins are selling off, this is bullish for bitcoin/ETH.
Source: Fundstrat, Bloomberg
28.0% 29.6%
80.6%
77.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
%Coins(liquiduniverse)
% of coin with over 200% 90-day trailing return
Alt-coin
rotation peak
Alt-coin
rotation peak
Alt-coin
rotation peak
42. Slide 42
Figure: Comparative Profitability
Estimates for Coinbase
Profits to be made: Coinbase profitability may exceed ICE in 2018
Source: Fundstrat, Bloomberg
Coinbase
Intercontinental
Exchange
(ICE)
Est. sales 2017 >$1 billion $4.6 billion
Est. profit margin 60% 35%
Net profit $600mm $1.6 billion
43. Slide 43
Figure: Market Cap of Country Stock Markets
$
Cryptoassets are larger than most country equity markets…
Source: Fundstrat, Bloomberg
Market Cap
Crypto assets $550,000,000,000
Rank Country Name Market Cap
1 United States $27,352,200,720,000
2 China $7,320,738,379,789
3 Euro area $6,217,813,253,466
4 Japan $4,955,299,652,289
5 Hong Kong SAR, China $3,193,235,542,860
6 France $2,156,832,792,355
7 Canada $1,993,522,735,730
8 Germany $1,716,041,505,061
9 South Asia $1,585,359,261,547
10 India $1,566,680,487,701
11 Switzerland $1,403,355,611,193
12 Australia $1,268,493,506,774
13 Korea, Rep. $1,254,541,184,535
14 South Africa $951,320,328,604
15 Netherlands $854,349,119,294
16 Brazil $758,558,918,035
17 Spain $704,551,326,648
18 Singapore $640,427,546,857
19 Russian Federation $622,051,532,645
20 Saudi Arabia $448,831,069,542
21 Thailand $432,956,179,451
22 Indonesia $425,767,769,936
23 Belgium $377,756,548,791
24 Malaysia $359,788,303,781
25 Mexico $350,809,553,624
Ranks 26-100 $2,817,299,785,779
Total $71,728,582,616,286
Crypto assets $550,000,000,000
Almost same size as:
Brazil
Spain
Singapore
Russia
Larger than:
Ireland
Spain
Israel
Greece
Turkey
Thailand
Vietnam
44. Slide 44
Crypto-currencies are simply not correlated to equities, bonds, gold, HF.
Bitcoin
FS
CryptoFX
10
FS
CryptoFX
40
FS
CryptoFX
250
FS
CryptoFX
300
FS
CryptoFX
Aggregate S&P 500
The US
Dollar
Index
MSCI All
World
Index
Bloomberg
Barclays
US Agg
Bond
Index
Salient
Risk
Parity
Index
Bloomberg
Comdty
Total
Return
Index
Bloomberg
Barclays
US
Treasury
Index Gold Oil
Bitcoin 100 91 31 37 88 88 13 14 1 8 2 (17) 9 (9) (11)
FS CryptoFX 10 100 54 55 100 100 11 4 5 10 1 (15) 11 (5) (7)
FS CryptoFX 40 100 79 62 62 13 (3) 10 9 3 (0) 9 11 5
FS CryptoFX 250 100 62 62 5 (14) 10 16 1 (5) 16 17 (8)
FS CryptoFX 300 100 100 12 3 7 11 1 (14) 11 (4) (7)
FS CryptoFX Aggregate 100 12 3 7 11 1 (14) 11 (4) (7)
S&P 500 100 23 69 (20) 16 (12) (22) (6) 3
The US Dollar Index 100 11 (17) (3) (26) (19) (45) (7)
MSCI All World Index 100 (16) 28 (6) (18) 7 11
Bloomberg Barclays US Agg Bond Index 100 65 35 99 50 27
Salient Risk Parity Index 100 71 64 59 53
Bloomberg Comdty Total Return Index 100 35 63 67
Bloomberg Barclays US Treasury Index 100 50 26
Gold 100 27
Oil 100
Figure: FS Crypto FX Indices Correlation Matrix against Major Asset Classes (%)
Based on the daily return of last 90 days
Take a look at the correlation matrix below. What really stands out is that correlations to other asset classes is low.
• Interesting to see the negative correlation to other commodities and perhaps this explains why CTAs and
commodity funds seem to be earlier in looking at crypto.
45. 12.4%
6.4%
(11.5%)
2.0%
(20%)
(10%)
0%
10%
20%
30%
90Dcorrelation
6.1%
10.2%
6.4%
8.3%
(9.0%) (7.6%)
18.2%
0.7%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
90Dcorrelation
Slide 45
Crypto correlation to other asset classes is low and falling…
Source: Coinmarketcap.com, Bloomberg, other sources and Fundstrat.
Figure: 90D Rolling Correlation - Bitcoin & FS CryptoFX 10 Correlation against Major Asset Classes
Over last 100 days
Bitcoin
FS CryptoFX 10
S&P 500
BBG US Agg Bond Idx
Gold
Salient Risk Parity Idx
Bitcoin correlation to other asset
classes is declining and continues
to be negatively correlated to
Gold—not surprising and
evidence of cannibalization of
demand for gold.
Even looking at the top 10 tokens
(which includes bitcoin), the
correlation to other asset classes
is quite low.
When looking at rolling correlations of Bitcoin to other asset classes, the correlation is still low.
46. Source: Fundstrat, Bloomberg, Updta
$120.68
$128.54
$141.01
$168.89
$90
$180
10/2/2014
11/2/2014
12/2/2014
1/2/2015
2/2/2015
3/2/2015
4/2/2015
5/2/2015
6/2/2015
7/2/2015
8/2/2015
9/2/2015
10/2/2015
11/2/2015
12/2/2015
1/2/2016
2/2/2016
3/2/2016
4/2/2016
5/2/2016
6/2/2016
7/2/2016
8/2/2016
9/2/2016
10/2/2016
11/2/2016
12/2/2016
1/2/2017
2/2/2017
3/2/2017
4/2/2017
5/2/2017
6/2/2017
7/2/2017
8/2/2017
9/2/2017
Typical Conservative Moderate Bitcoin-plus Crypto 10
Figure: Performance metrics of various asset allocation portfolios with modest crypto-currency exposure
Each portfolios rebalanced every 3-months.
ENHANCED PORTFOLIO RETURN: Crypto adds return, boosts Sharpe-ratio
Slide 46
To illustrate the positive effects from adding Crypto currencies to a portfolio, consider the performance of various
portfolios below.
• By adding even 2% to the portfolio (funded by reducing equities by 200bp), 3-yr annualized gains rise 226bp.
Pushing this to 5% increases total return by 547bp, nearly doubling the return of a typical stock/bond blend.
Ratio 3-yr Portfolio Performance Metrics
Stocks / Bonds /
Bitcoin / Crypto 10
Return
CAGR
Annualized
Volatility Sharpe Ratio
Maximum
Drawdown
Typical 60% / 40% / 0% / 0% 6.47% 7.38% 59% (7.9% )
Conservative 58% / 40% / 2% / 0% 8.73% 7.32% 91% (7.2% )
Moderate 55% / 40% / 5% / 0% 12.14% 7.86% 128% (7.4% )
Bitcoin-plus Crypto 10 50% / 40% / 5% / 5% 19.22% 9.54% 180% (8.0% )
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Thomas J. Lee, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been
influenced by considerations of the firm’s business or client relationships.
Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research
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Slide 47Version: 6/26/17