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On “Markets Daily,” host Jennifer Sanasie speaks with Elliot Chun, partner at Architect Partners, about tomorrow’s Federal Open Market Committee (FOMC) meeting and the most important mergers and acquisitions in crypto.
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:
How are you?
ELLIOT CHUN:
Great to be here on a day when we had such positive market action.
JENNIFER SANASIE:
I know, I just talked about those prices this morning. And I also mentioned that FOMC meeting. We’ve been asking our guests this week what they expect to happen at tomorrow’s meeting. What’s your perspective on the macro outlook right now?
ELLIOT CHUN:
I think we’re gonna start to signal hint at some rate cuts. I think we have moved pretty high with interest rates here. I think digital asset and crypto markets have hung in, regardless of what the interest rates are. And I expect some initial signaling towards cuts in the EU later this year into 2025.
JENNIFER SANASIE:
And what does that mean for crypto markets?
ELLIOT CHUN:
Well, specifically for the financing markets, I think it’s an important marker. One, today with interest rates where there are, it may not be as important for allocators of capital to generate returns giving the free market rate is close to 5%. That has been very difficult, particularly when you compare it to things like yield farming that had single high digits and you’re having a comparison on where to make investments. A risk free rate of 5% is tough to beat. Now, from a financing perspective, as we think about interest rates moving lower. We think that that has a positive effect on investors who are investing into private financing markets as well as M&A given that the cost of capital will be less.
JENNIFER SANASIE:
Let’s talk about private financing and M&A, that is really where your expertise lies. Why is it important? Before we dive into the specifics, why is it important for traders to watch what’s going on and private financing and M&A?
ELLIOT CHUN:
Yeah, because they’re a fantastic signal for what is to come from a market valuation perspective. You know, instead of looking at the day to day, we spent a lot of time looking at the macro crypto market and value created, which is the primary indicator of success. And when you look at previous analogues like the internet, the internet created was arguably the largest creator of wealth that we have known in capital markets. We feel that marking and following crypto from a value created perspective is wildly important because that’ll help that’ll help with companies who are generating equity value that will help with companies that are generating token value. And that ultimately leads to higher asset prices as we move forward through our industry’s evolution.
JENNIFER SANASIE:
What are the big mergers and or acquisitions that you’re watching, let’s say in the last few months?
ELLIOT CHUN:
Yeah, last year, we had, it was a little bit tougher from an M&A perspective. We were down 30% from 2022 to 2023. Some of the key transactions in the year were Coinbase acquiring One River Digital, which was exciting to see a crypto native company acquire and asset management, very important for those funds that are out there today to have an important market for investors, professional investors and fund managers to be acquiring by larger organizations. We also had Ripple require acquiring Metaco, which is a crypto custody technology platform. That was one of the largest deals of the year at $250 million.
JENNIFER SANASIE:
Massive acquisitions that you just mentioned there, but I want to zero in on XRP. What do you expect to see from XRP? This year?
ELLIOT CHUN:
Man, XRP had a fantastic 2023. They are really looking to position themselves as, as continued winners in our space, both from an asset price perspective, but also from an institutional infrastructure that they are building for our industry, they are seeking to be the cross leader in cross border payments. They have a number of initiatives underway where they are expanding their product set, they’re expanding the number of holders of XRP, moving very much into institutional use cases and adoption. I’d expect to see some additional activity from them from an M&A perspective as well as from a price action perspective.
JENNIFER SANASIE:
It’s interesting you bring up that institutional interest, everyone is focused on institutional interest in bitcoin right now with the approval of that ETF that came, I believe, 20 days ago today. What kind of institutional interests do you think we’ll see in XRP? You think we’re gonna see an XRP ETF this year?
ELLIOT CHUN:
I don’t know about timing this year, but I’d expect that we would see a number of other crypto related ETFs approved in the near term. The bitcoin ETF has paved the way for institutional approval. I think that’s the bigger part with we have gotten the stamp on official stamp of approval, as our industry and that should pave the way again for other cryptocurrencies to be owned in a ETF structure. And that leads to broader adoption, which is the most important thing our industry can be doing. So what are institutional users seeking to own? Right now we can see that the appetite for the bitcoin ETF has been as expected by some but probably better performing, than from others. I continue to believe that having this type of structure, we’ll get more people that were not involved in 2023 and crypto involved today and going forward. And that’s the most important thing we can be doing. I understand that there are some philosophical differences and challenges. But at the end of the day, our industry needs more adoption. And this is where it starts. This is where it continues to began, I should say.
JENNIFER SANASIE:
I’m with you, Elliot. I think if you were to tell anyone in this industry just a few years ago that we’d be sitting where we are today, they might not agree that we would be where we are. So I want to talk about Coinbase now, crypto equities. I know that Architect Partners was recently involved in Coinbase acquisition in FairX, how do you expect to see COIN perform over the next year?
ELLIOT CHUN:
Yeah, they are one of, they continue to be one of, the leaders in our industry, they are at the vanguard, and they are an important market participant for us. I continue to believe that they will be active from an M&A perspective, continuing to build out their product set and capabilities as they look to expand the types of consumers and customers and clients that they serve. From a price action perspective, we have a crypto public market index that we created going back into 2018, that index rose 240% in 2023. And that index tracks publicly traded companies that are involved in crypto. Certainly Coinbase is one of the leaders in there. We actually had to discount or weight Coinbase’s participation in that index a little bit because of how influential they are. But that’s a great indicator and a leading indicator that we use to track how publicly traded companies or parties are performing. And before we continue the trends that we’re seeing today, particularly with an improved market sentiment, Jenn, you mentioned it earlier, this time. Last year, we were talking about Operation Choke Point 2.0 and closing the banks. This time this year, we’re talking about bitcoin ETFs and or Ripple ETFs going to be approved. When you look at the ETF Coinbase with dominant, absolutely dominant and the number of custodians that they are playing that role for for bitcoin ETF issuers. It’s just impressive what they’ve been able to do. And expect that type of leading market participation to continue going forward.
JENNIFER SANASIE:
You mentioned the Architect Public crypto market index. Just before we go I have to ask you about mining stocks and their performance ahead of the upcoming bitcoin halving. How are mining stocks doing this morning at the start of the year and how do you expect to see them perform ahead of the halving and after?
ELLIOT CHUN:
So they have not been performing as well going into the first part of the year. That I don’t believe is too much of a surprise. Yes, we have tracked they typically track bitcoin price closely. But the halving is a large concern. And I think we’re going to see a divergence coming out of the halving, we’re going to see how well operationally a lot of crypto publicly traded crypto miners are operating. And we’ll see others that aren’t operating so well. This is the time when we’re going to have the good operators will be outperforming the bad operators. And so really trying to understand those dynamics in terms of pricing, PPAs, the type of data center, there are their location, the type of power, all those are going to come into play when the halving comes, but it’s going to be tough. So make sure that you understand if you’re going with a miner into the having, you better have clear confidence that they are one of the elite operators of that business because those will be the ones that outperform their peers.
JENNIFER SANASIE:
That was Architecture Partners Managing Partner Elliot Chun. That’s it for today’s show.
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