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Today on “Markets Daily,” host Jennifer Sanasie speaks with Bitwise Crypto Research Analyst Ryan Rasmussen on the wide scope of assets Bitwise is watching across the crypto ecosystem, including layer 2s, crypto equities and bitcoin mining.
This episode was hosted by Jennifer Sanasie. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl, alongside Senior Booking Producer Melissa Montañez. All original music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and may contain errors.
JENNIFER SANASIE:
Alright, let’s talk about those crypto markets. What are you watching today?
RYAN RASMUSSEN:
You know, I think one thing you mentioned that everyone’s watching is the results of the FOMC meeting this week, that’s going to have a big impact on which way markets move from a risk on perspective. So that’s the main thing that I’m watching this week, of course, we’re keeping an eye on the flows in and out of these bitcoin ETFs. That’s still front of our minds at Bitwise. So those are the two things I’m thinking about.
JENNIFER SANASIE:
What do you expect to see at the FOMC meeting?
RYAN RASMUSSEN:
I think we’ll have flat this FOMC meeting. There are expectations that rates could cut later on this year. But I think right now and the first half of the year, really, I would expect us to just maintain the current interest rate levels and would be surprised if we see a hike in interest rate levels today.
JENNIFER SANASIE:
Unpack that a little bit more for us. We talked about risk assets, crypto falls into that category. If that happens, how do you expect to see the crypto markets move?
RYAN RASMUSSEN:
Yeah, so crypto certainly falls into that risk assets category. When interest rates are going up, we tend to see the selling off of risk assets. These are things like equities, like alternative assets like crypto, especially given how volatile it is, historically speaking. So if we’re just rates maintain the current level that think that meets expectations, we see crypto maintaining its kind of price levels today, bitcoin in the $40k range. If we see rates increase, that’s generally a sign that investors can get higher yield elsewhere in the markets. That’s what investors tend to go risk off, meaning that they go to less risky investments like treasuries that can generate a decent yield. So if interest rates maintain their current levels, we would see maybe markets do the same. If interest rates go up, we could see a little bit of a sell off. And then of course, interest rates come down, investors are seeking better yield opportunities outside of treasuries. And that’s when we start to see investors look towards risk assets like equities, like tech, like bitcoin, like crypto. And so that’s really what we think we need to see for this next leg up in the market cycle is interest rates being dropped a little bit from where they stand today.
JENNIFER SANASIE:
I want to get into Bitwise’s Q4 report in just a second, but we’re talking about bitcoin now. And I know back in December, you predicted that bitcoin could reach $80,000, hitting a new all time high after the approval of an ETF and the having the ETF approval has happened. We’re expecting the halving to happen later on this year. Do you still stand behind that prediction?
RYAN RASMUSSEN:
We do, we do. We didn’t think that there was going to be this immediate move to $80k or higher following spot bitcoin ETF launches, we did expect the spot ETFs were going to have to launch this year. And we expected that to happen most likely in January. So we’re happy about getting that prediction right. But we didn’t think that markets would move from $45 or $48k, up to $80k overnight. What we expect to happen is investors to come into this space who have been sidelined from investing in bitcoin. These are traditional investors like institutional investors and financial advisors who have really been waiting for that ETF format in order to allocate to crypto, in order to allocate to bitcoin, really. And so now that we have those gates open, we’re obviously seeing billions of dollars flow into the space we’ve seen with the launch of these bitcoin ETFs and with over $5 billion and flows coming into the products, and so that’s one catalyst. Of course, the halving is another catalyst that we’re really excited about, we think that attention will start to shift towards the halving in the next month or two after the bitcoin ETF hype wears down. And then after that, you know, I think we’ll have those two catalysts, we could have interest rates come down, like we talked about a bit earlier. And those three things combined in our eyes sets a great path ahead for bitcoin hitting the $80k or higher price level.
JENNIFER SANASIE:
Okay, we’re gonna come to bitcoin a little bit later in this interview, but we got to get to that Q4 report. I know one of the charts that stood out to me this morning while I was reading it was the performance of the Bitwise 10 and large cap crypto index and its constituents. You know, the chart takes a look at Solana, Avalanche, Chainlink, among others. If you’re looking at layer 1 outside of Solana, any other big performers that you’re keeping an eye on?
RYAN RASMUSSEN:
Well, that’s a really good question. I think there’s two that I’m really excited about. Ethereum, of course, maintains front of mind for us. There’s such such exciting developments on layer 2 ecosystems, we have EIP 4844, which is an upgrade to the Ethereum ecosystem that we expect to see later this year. And I think that creates a really great setup for layer 2 solutions for the applications that we built on top of layer 2 solutions, because it’ll reduce the cost that layer 2s are paying to settle on the Ethereum mainnet. And so really excited about the developments that we expect to see across the Ethereum ecosystem this year. And then I would say Cosmos is another one that we’re keeping an eye on, we’re seeing a lot of interesting things pop up on the app chain front end. Injective is one asset that has been seeing a lot of excitement recently, it’s had great price appreciation, for example, it’s a DeFi focused app chain using the Cosmos tech stack. So those are two areas of the L1 space besides Solana that I’m keeping an eye on this year.
JENNIFER SANASIE:
You know, we talk about these ecosystems. So often we watch the prices go up and the prices go down, have been taking a look at where the users are going, where are users really interested in operating? Does one ecosystem stand out above the others to you?
RYAN RASMUSSEN:
Yes, certainly does. I mean Ethereum continues to dominate from a layer 1 network perspective in most metrics, whether that’s users or developers, or transactions or anything of that type. So Ethereum continues to be the leader. By far they have a ton of daily active users compared to you know, Cardano, for example, or even an Avalanche, for example. And so Ethereum, you know, it has such a lead on the other l ones having been around for so much longer. And having now had so many developers and users and applications really dive into the Ethereum space. So that one continues to lead the pack, I wouldn’t expect them to lose that advantage, regardless of how well these other L1s do. They really have the strong network effects of being the first mover in the space.
JENNIFER SANASIE:
And we talked about Ethereum. I gotta talk about those layer 2s, any standout layer 2s for you when it comes to users or price action?
RYAN RASMUSSEN:
Yeah, certainly, I mean, Polygon continues to be the leading layer 2 when it comes from users perspective or number of transactions, for example, they’ve been around the longest, certainly compared to Arbitrum or Optimism or Base. And so I think Polygon stands out from that perspective, they actually have, they also have a really strong marketing ecosystem and a ton of great partnerships. So they are doing a great job building a brand for their layer 2, but we’ve really seen some new entrants come in hot. And so I think Base is one of those that people are really excited about. That’s obviously Coinbase’s layer 2 scaling solution, and Coinbase has so many users that it’s an easy transition to go from the Coinbase app to the Coinbase wallet to Base layer 2. That’s built using the OP stack, which is the Optimism stack. And so we’re really excited around other scaling solutions kind of building off of that and using that technology, and then zkSync kind of popped up recently as one of those ones that’s seeing a lot of traction as well. So it’s a really exciting space to watch a lot unfolding.
JENNIFER SANASIE:
Ryan I’m happy you brought up Coinbase as base because back in December, you tweeted a prediction that Coinbase revenue would double beating Wall Street expectations by at least 10%. Do you still stand by that prediction? And why do you think that’s going to happen as we move into 2024?
RYAN RASMUSSEN:
Yeah, Jen, we do still stand by that prediction. There’s a couple of reasons why I mean, first and foremost, and maybe most simply, Wall Street just doesn’t understand Coinbase’s business model. When we put this prediction out, we kind of were looking across the ecosystem to see what are people getting wrong. And one thing that we noticed when we pulled the Coinbase forecast from Wall Street analysts for 2024 was that analysts were predicting essentially a flat year from 2023 to 24. I think the consensus revenue estimates were around eight to 10% higher than 2023. And we just thought that was simply wrong. There’s so many bullish catalysts for Coinbase as a business. Base, it’s just one of those the layer 2 scaling solution we were just talking about. They’re also expected if we are in a bull market, which we believe we are, to see a spike in trading volume. They’re the custodian for nine of the 11 spot bitcoin ETFs that just launched earlier this month. That means they get revenue for every asset that flows into that area and into those products. And they have their hand in a bunch of other spaces of the ecosystem that’s stablecoins with USDC, perpetual futures and derivatives with those exchanges. They’ve launched their international business and, and really, they just provide so many services across the crypto ecosystem that to us, it feels like a no brainer that their revenue is going to spike in 2024 coming off a great year in 2023. But still, you know, emerging from the bear market of 2022, that’s a multi year process for a company as big as Coinbase.
JENNIFER SANASIE:
Any other crypto equities you’re watching?
RYAN RASMUSSEN:
You know, miners are really exciting. One thing that miners provide is kind of as turbo beta to bitcoin. Generally speaking, when bitcoin does well, bitcoin miners do extremely well. And of course, the inverse is true. So we’re paying attention to miners, the halving will certainly have an impact on the business of miners, the rewards that they’re mining, every single block will be cut in half. And so they need to increase their efficiency with expanding their operations. There’s only so much that you can do from improving a technology perspective and so really have to focus on ramping up production and increasing efficiency. And then as more people use the bitcoin network for things like ordinals, and other use cases, which we’re certainly seeing pop up in 2023 and have traction going into 2024. That could also increase the miners’ revenue. So I say bitcoin miners, Coinbase certainly, are some of the top crypto equities that we’re paying attention to.
JENNIFER SANASIE:
I know mining equities were down recently. Is there a certain something you’re looking for when you’re looking at mining equities? Maybe it may be diversification as we head into the halving, what makes a mining company stand out as we head into the halving and rewards are going to be reduced?
RYAN RASMUSSEN:
A couple of things stand out to me. I mean, the cost of mine is so important, right? You need to be profitable at a relatively reasonable bitcoin price. So a lot of these miners, you know, their profitability level is in the teens. So for every bitcoin they mined, it cost them 10 to $20,000, probably close to that $20,000 mark. And so with the price of bitcoin sitting around $40k, or $50k, that’s a really profitable business. But what we saw in the last bear market with the price of bitcoin falling down to the $20k and lower level, was that a lot of miners just simply weren’t profitable mining bitcoin, at that price point. So what we look for is low cost of mining relative to the price of bitcoin and where we think the price of bitcoin is going to be in the future.
JENNIFER SANASIE:
Okay Ryan, just before we wrap, I have to ask you about this prediction that you tweeted about in December that Taylor Swift is going to launch an NFT. We know Travis Kelce, her boyfriend is heading to the Super Bowl, do you still think Taylor is going to launch an NFT this year? And if so, is that going to drive renewed interest in the NFT market?
RYAN RASMUSSEN:
Well, what better format to launch NFT than the biggest sporting event in the world. But even though I think it’s unlikely that she does that at the Superbowl, but it’s very exciting. I mean, one thing that we’ve been paying attention to recently is the use cases that NFT has bought, whether that’s ticketing or whether that’s music, NFTs, or real estate, NFT, or a number of other use cases, they have such a strong power to to build brands to help expand brands and improve efficiency in which artists and other companies are connecting with their customers and fan base. And so we do think that we’ll see more and more mainstream artists get into NFTs this cycle, it would be great to see someone like Taylor Swift who has a history of engaging with their fans from a in a unique way and I don’t think it’s too far of a stretch to see her engaging with fans when it comes to NFTs. That could be a token gated playlist on Spotify, which Spotify has been experimenting with and she’s the largest streamer on Spotify in 2023. It could be unique access to presales. NFT is just a perfect tool to wrap that all into to give the fans a better experience and to help them connect with artists like Taylor Swift.
JENNIFER SANASIE:
That’s one NFT project I will buy into.
RYAN RASMUSSEN:
Same here. Same here. We’re big Swifties over here at Bitwise.
JENNIFER SANASIE:
Ryan, thanks so much for joining “Markets Daily” this morning. That was crypto analyst at Bitwise Ryan Rasmussen. That’s it for today’s show.
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