Ninepoint Bitcoin ETF - Market View

September 1, 2022



Alex Tapscott 
Managing Director, Digital Asset Group, Ninepoint Parnters



Alex Tapscott:

Hello, this is Alex Tapscott, managing director of the Digital Asset Group at Ninepoint Partners, and this is your September 1st Bitcoin update. Bitcoin has had quite a year going back to the fall of 2021 when it was nearing an all-time high of around $65,000. Today, the price of Bitcoin sits much lower around $20,000. As a result, a lot of investors are questioning what the future of Bitcoin holds.

Despite the decline that we have seen, which broadly speaking correlates with most other asset classes, particularly high-growth technology companies and other so-called risk investments, Bitcoin is actually looking quite bright in terms of the future for a number of different reasons. Ownership of Bitcoin continues to increase fairly significantly. If you look at the numbers for 2021, the adoption of crypto, according to the firm chain analysis increased around 900% and we're seeing similar adoption happening this year.

If you look at the broader blockchain ecosystem, you will see that there is tremendous growth happening in a variety of different interesting areas, including decentralized finance in the NFT and metaverse space in stablecoins and a number of other important areas of innovation. Also, it's worth keeping in mind why Bitcoin is worth anything to begin with and what the value proposition is.

Bitcoin is the first example of blockchain technology in action and blockchain fundamentally represents a new era of the internet. For many years, we've had an internet of information, which changed how we moved and stored information, how we communicated, and how we collaborated online. With Bitcoin, we have an internet of value, an internet of assets that allows us to move and store and manage assets, peer-to-peer for the first time really in human history, using the internet and other digital mediums.

That is a really important innovation. I think in the same way that the internet brought about the internet boom and the .com boom, the mobile boom, and so much more. Blockchain and digital assets like Bitcoin will bring about a similar economic transformation and similar growth. Also, if you look specifically at where Bitcoin is at today, we think it offers a very attractive risk-reward option. Today it's August 31st, 2022, Bitcoin is trading around $20,000.

That's a very important point for a couple of different reasons. $20,000 represents the previous cycle high that occurred in 2017. If you look at Bitcoin's past trading ranges, generally speaking, entering at the previous high is a very good entry point and always precedes a move much higher. A second point is that Bitcoin's very close to its so-called realized price, which is basically a measure at which all Bitcoin was acquired. In essence, Bitcoin today is sitting right around the point when everyone bought into Bitcoin or received Bitcoin via mining and other methods. This has only happened three times previously in Bitcoin's history.

Every time it did, it was followed by a move to an all-time high. Now we can't predict the future, but anytime that it hits an important key technical measure like that, I think investors should be paying attention. Also, if you look at some of the distribution of Bitcoin ownership, I think it also looks very positive. For example, the number of addresses that is to say, accounts that hold at least 0.01 Bitcoin or around $200 has recently hit an all-time high.

That differs actually quite a lot from previous cycle highs. In 2017, for example, naturally, the number of those addresses increased but then declined quite sharply. We've not seen that decline suggesting that there are small and medium-sized investors who are acquiring Bitcoin and using dips in the price as an opportunity to buy more, but it's not just small investors.

If you look at larger investors, people with a minimum of at least 10 Bitcoin, which translates to around 200,000 US dollars, that is beginning to turn upwards as well after a period of some consolidation in the summer. Finally, another metric that we're looking at right now is the number of Bitcoin held on exchanges. Typically investors use cryptocurrency exchanges to buy and sell Bitcoin. They like to keep those assets there if they're planning on selling sometime soon because otherwise, they would have to go through the process of moving that Bitcoin from their own type of storage to an exchange.

What we're seeing right now is the balance on exchange is hitting a low that we have not seen since 2018 so more than four years ago, in fact. Suggesting that A, there are a lot of investors who are looking to remove assets to cold storage as it's called, suggesting that they're becoming holders, but B, the fact that there is just fewer Bitcoin on exchange means that if and when the market does rebound there is going to be a limited amount of supply that can easily satisfy or satiate the demand that comes along with it. These are all quantitative and technical measures. I think that coupled with the fundamental story of the digitization of money and the move for blockchain and creating new ways of moving and storing all manner of value online that the tailwinds for Bitcoin are very significant. There is an event that is going to occur sometime in mid-September, which might actually have an impact on Bitcoin as well. That is an important upgrade to a very large cryptocurrency called Ethereum.

Now, some people think Ethereum and Bitcoin compete, they do not. They perform different functions in the world of digital commerce. Bitcoin is really a way to move and store money peer-to-peer. It's really digital gold. Ethereum is a platform that's used to build and run applications. It's about to go through a transformation known as the merge. When that happens, it will move from one way of doing security to another. It's obviously very important that they get this right. This move to what's called proof of stake. I believe that if and when the move to proof of stake occurs, that it will have a broadly positive impact on the full industry. A, because it will give people confidence that blockchain protocols can do big and important things, even in a decentralized manner of governance. B, it'll give confidence to developers to continue to do things on these kinds of platforms.

Right now, Bitcoin is highly correlated to other asset classes as we started off describing. Historically over the past month or so, it's been close to 0.65 to 0.7 relative to the NASDAQ so really, people think of Bitcoin like a FANG stock, all right? Facebook, Apple, Amazon, Netflix, Google, but we think that this fall with the merge and given the technical and quantitative measures we've described Bitcoin could decouple once again from risk assets.

When that happens, we think it could resume its move to a much higher level. It's also worth pointing out that this entire market today is worth 1 trillion dollars, which to be sure is a very large number relative to where Bitcoin was, let's say five or six years ago when it was barely big enough to crack the S&P 500 if it were a public company, but in the context of global markets in the context of what I think the disruptive potential of it is, it's still very, very small.

We're talking about the market capitalization of the entire crypto asset ecosystem being half the size of Apple for example, even though I think this technology has the potential to disrupt those big digital conglomerates and much else.

I think the future is bright. I think probably you want to take a long-term view something we've always encourage people to do. As they say, if bull markets are for earning bear markets are for learning. There's so many resources that we have available at Ninepoint Digital Asset Group, You can check us out on YouTube. You can check us out on Twitter. We're creating content and educational resources for people so they can make informed decisions for their investments when they're looking at this asset class. Thanks for tuning in. Looking forward to the next one. Take care.

Ninepoint Bitcoin ETF (the “Fund”) invests in the digital currency Bitcoin. Given the speculative nature of Bitcoin and the volatility of the Bitcoin markets, there is considerable risk that the Fund will not be able to meet its investment objectives. An investment in the Fund is not intended as a complete investment program and is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment. An investment in the Fund is considered high risk.

The Ninepoint Bitcoin ETF is generally exposed to the following risks. See the simplified prospectus of the Fund for a description of these risks: No Assurance in Achieving Investment Objectives; Loss of Investment; Fluctuations in Value of Bitcoin; Concentration Risk; Risks Related to Passive Investments; Reliance on the Manager and the Sub-Custodian; Trading Price of Units; No Ownership Interest in the Portfolio; Changes in Legislation; Conflicts of Interest; Valuation of Ninepoint Bitcoin ETF; Manager, Custodian and Sub-Custodian Standard of Care; SOC 2 Type 2 Report of the SubCustodian; Potential Conflicts of Interest; Limited Operating History; Not a Trust Company; U.S. Currency Exposure; Cyber Security Risk; Tax Risk; COVID-19 Outbreak; Multi-Class Structure Risk; Cryptocurrency Risk; Short History Risk; Limited History of the Bitcoin Market; Volatility in the Price of Bitcoin; Potential Decrease in Global Demand for Bitcoin; Financial Institutions May Refuse to Support Transactions Involving Bitcoin; Insurance Risk; Residency of the Sub-Custodian; Liability of Unitholders; Underlying Value Risk; Top Bitcoin Holders Control a Significant Percentage of the Outstanding Bitcoin; Regulation of Bitcoin; Loss of “Private Keys”; Ninepoint Bitcoin ETF’s Holdings May Become Illiquid; Improper Transfers; Uncertain Regulatory Framework; Dependence on Bitcoin Developers; Issues with the Cryptography Underlying the Bitcoin Network; Disputes on the Development of the Bitcoin Network may Lead to Delays in the Development of the Network; Significant Increase in Bitcoin Interest Could Affect the Ability of the Bitcoin Network to Accommodate Demand; Bitcoin’s Blockchain may Temporarily or Permanently Fork and/or Split; Dependence on the Internet; Risk if Entity Gains a 51% Share of the Bitcoin Network; Concentration of Transaction Confirmation Processing Power in China; Possible Increase in Transaction Fees; Attacks on the Bitcoin Network; Decrease in Block Reward; Competitors to Bitcoin; Significant Energy Consumption to run the Bitcoin Network; Regulation of Bitcoin Trading Platforms; Limited Operating History of Bitcoin Trading Platforms; Hacking of Bitcoin Trading Platforms May Have a Negative Impact on Perception of the Security of the Bitcoin Network; Different Prices of Bitcoin on the Bitcoin Trading Platforms May Adversely Affect the NAV of the Units; Closure of Bitcoin Trading Platform(s); Liquidity Constraints on Bitcoin Markets may Impact Ninepoint Bitcoin ETF’s Holdings; Risk of Manipulation on Bitcoin Trading Platforms; Settlement of Transactions on the Bitcoin Network.

Please note that the Fund’s units trade on the TSX where investors will generally buy or sell the Fund’s units at Market Price. Investors may pay more or less than the NAV and may also incur brokerage commissions for such transactions.

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The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners is or will be invested. Ninepoint Partners LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.

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