Introducing the Onramp Terminal, a comprehensive bitcoin-only research portal which offers real-time market information, on-chain data, key indicators, adoption metrics, news, research, and collaborative tooling.

As institutional allocators continue to investigate the novel asset that is bitcoin, it’s important for these investors to be able to dig into the fundamental data of the protocol. Akin to leveraging something like Bloomberg Terminal to conduct diligence on traditional financial instruments, investors need robust tooling to explore the intricacies of bitcoin, going beyond simple price metrics to unearth the reality of bitcoin’s trajectory.

Unlike traditional assets, however, the bitcoin protocol is a living, breathing organism with its critical vital signs observed through transparent, real-time network data. Focusing purely on the market price of bitcoin obscures the full picture of its fundamental value.

While there’s a plethora of tools for exploring “crypto” data that exist on the market today, these platforms distract users from the signal of bitcoin-specific metrics, as they are built to support a wide array of altcoins. In addition to conflating bitcoin with the broader “crypto” space, these tools often provide only surface level bitcoin-specific data.

At Onramp, we believe investors approaching this asset class from first principles deserve a dedicated bitcoin research terminal – so we partnered with newhedge to provide our clients and prospects with best-in-class bitcoin data and analytics.

We’ll be adding new features, functionality, data sets and metrics over time, so user feedback is more than welcome.

Check out the Onramp Terminal and sign up for full access here.

Are The Institutions Coming? Or Are They Already Here?

This week on The Last Trade, Onramp was joined by Chris Kuiper, Director of Research at Fidelity Digital Assets, to discuss the history of Fidelity's involvement in digital assets, bitcoin’s continued evolution as a financial asset, its adoption by institutional investors, and its potential role in the broader financial ecosystem. Other key themes explored include the importance of custody in the digital assets space, bitcoin's volatility, its parallels to gold's monetization, and the difficulty humans face in appreciating rapidly accelerating technological progress.

Origins of Fidelity Digital Assets:

Established in 1999, the Fidelity Center for Applied Technology (FCAT) was established in an effort to discover potentially disruptive new technologies, and eventually led to the creation of Fidelity Digital Assets (a subsidiary of Fidelity Investments). FCAT’s mandate involves three phases: Scan, Try, and Scale. Initially discovering bitcoin in the early 2010s (Scan), Fidelity began mining bitcoin in 2014 and even tested payments in their cafeteria in 2017 (Try). Recognizing the absence of an institutional-grade custody solution, they then decided to develop it themselves in 2018 (Scale).

This multi-year commitment stemmed from the prescient recognition that bitcoin was an innovative technology with the potential to disrupt the financial services industry and they could benefit from deeply understanding how best to integrate bitcoin into their business. The company's open-mindedness towards bitcoin arose from a sincere belief in the asset pioneered by a few highly convicted individuals and grew organically via an educational, rather than sales-driven, approach.

Evolution of the Institutional Learning Curve:

The due diligence conducted by institutional investors on bitcoin has become more sophisticated in recent years, and educational efforts have moved beyond basic bitcoin 101 topics. Part of the challenge remains that individuals are at different stages of their bitcoin journey, meaning that it’s difficult to triangulate which specific elements of the thesis a particular institution or investment committee needs to focus on.

As we at Onramp have discussed previously, it’s critical to meet institutional investors where they are and attempt to bridge the gap between bitcoin and the world of traditional finance. In part, it’s important to contextualize bitcoin within recognizable frameworks that traditional investors are familiar with. The classification of bitcoin in a portfolio will differ based on the institution, with some viewing it as a Real Asset (most similar to a commodity) and others perceiving it as early stage tech play. However an investor decides to “bucket” bitcoin, there is mounting recognition that bitcoin is here to stay, and it’s no longer acceptable to simply not have a view on it.

Moreover, many of the philosophies and tenets of the traditional investment world are highly applicable to the bitcoin thesis. As we highlighted recently in the report “From Graham to Satoshi: A Value Investor’s Guide to Bitcoin,” buying and holding bitcoin for the long-term represents a logical modern interpretation of value investing. While counterintuitive to some, many of the foundational elements of value investing can be directly applied to the investment case for bitcoin (check out our recent report to learn more).

Similarly, as Chris points out, the “inversion” theory of investing heralded by Warren Buffett and Charlie Munger, is also well-suited to explain the phenomenon of bitcoin’s adoption and its undeniable trajectory. Inversion theory is predicated on the notion that the hardest problems are best solved when addressed backwards. In the context of bitcoin, this approach raises the question of how ridiculous it will seem to future generations that we previously weren’t able to send value to people anywhere in the world, instantly, with the click of a button. In other words, the fact that international wire transfers can take five business days to settle and require multiple layers of intermediaries/permissions will seem ludicrous to a future populace that didn’t live through the birth of bitcoin.

Focusing on Bitcoin's Fundamentals & Getting Comfortable with Volatility:

Despite bitcoin's notorious price volatility, it’s important to emphasize to institutional investors that the underlying fundamentals of the network continue to strengthen. If you were to completely remove price from the discussion, and purely focus on the steadily increasing traction of the network in terms of wallet addresses, transactions, hash rate, technical development, merchant acceptance and nation state adoption, it might come as a surprise that the price is down ~60% from all-time highs. While the uninitiated may perceive the success/failure of bitcoin based solely on its price, the reality is that the long-term fundamental thesis is predicated on the underlying growth and development of the network, which is moving along a steady upward trajectory.

Moreover, while the volatility of bitcoin remains a concern for many institutional investors, this line of thinking is somewhat contradictory. When assessing other assets, investors intuitively recognize that volatility alone is not a rational reason to not invest in something, but instead a reason to appropriately size your position. Moreover, volatility should not be perceived as a risk, but as an opportunity to take advantage of a temporary dislocation in price. As Chris points out, Netflix has had multiple outsized drawdowns throughout its history, but that alone doesn’t preclude investors from making a bet on its future trajectory. Asymmetric investment opportunities are the holy grail of finance, and bitcoin represents perhaps the most asymmetric bet of our lifetimes.

Gradually, Then Suddenly

The efforts of major institutions like Fidelity in adopting and championing bitcoin will ultimately catalyze broader institutional acceptance. Generational differences in understanding digital assets and organizational risk-aversion have contributed to hesitancy among institutions, but growing interest is evident. While adoption appears slow today, there is likely to be a tipping point, or several tipping points, that launch bitcoin into the “suddenly” phase of its adoption.

At current, bitcoin represents just ~1/2000th of the global asset landscape in terms of market cap. As bitcoin continues to appreciate and become more ingrained as an investable asset, it will inevitably seep into the benchmarks that institutional investors are constantly assessing their performance against. At that point, investors that have no exposure to bitcoin, or are underweight relative to their benchmark, will not only underperform if bitcoin accelerates, but also be held accountable for their lack of exposure. This could represent an important tipping point for adoption wherein the lack of exposure to bitcoin transforms into an active bet against the asset. On a related note, the career risk associated with investing in bitcoin today, will eventually flip and it will instead become risky for allocators to have no exposure to bitcoin.

It is also important to recognize the significance of early bitcoin adopters in paving the way for subsequent classes of investors. The success of these early adopters across various subsegments of the economy such as MicroStrategy (corporations), El Salvador (nation states), Paul Tudor Jones (investment professionals), and Fidelity (traditional financial services), and their willingness to double down on their efforts through cycles are positive proof statements that will help incentivize the next wave of adopters to participate.

Appreciating Technological Progress:

Historically, humans have had immense difficulty in grasping the exponential rate of change of technological innovation. The speed of adoption curves has accelerated in recent decades, and it’s often hard for investors to fathom how new innovations are going to impact society in the future. Bitcoin is no different in this regard. Fifteen years is largely a blip in terms of societal progress and forecasting how bitcoin is going to develop over the next 15, 30, or 50 years, is a monumental task.

Past technological innovations like the railroads, fiber optic cables, or microprocessors, have involved tangible "proof of work" through observable capital expenditure leading to the build-out of physical infrastructures. Bitcoin, however, represents a departure from this mold as a purely digital innovation. That said, bitcoin is rapidly achieving what took gold thousands of years, and monetizing before our eyes, underscoring humanity's underestimation of exponential technological growth.

Misc. Research & Resources Mentioned:

2022 Institutional Investor Digital Assets Study – Fidelity Digital Assets

Applying Machine Learning Portfolio Modeling to Bitcoin – Fidelity Digital Assets

Understanding the Bitcoin Halving – Fidelity Digital Assets

Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages – Carlota Perez

End the Fed? A Soho Forum Debate (Lawrence H. White vs. Frederic Mishkin)

On this week's episode of The Last Trade, Tyler Campbell, VP of Concierge at Unchained, joins the Onramp Bitcoin hosts Marty Bent, Michael Tanguma, and Jesse Myers to discuss:

- The SEC's enforcement actions against Binance & Coinbase

- What it means for the #crypto markets & for #Bitcoin (and why they are very different)

- Why Silicon Valley doesn't get Bitcoin... yet