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July 2, 2020

Episode 010

Genesis Trading, Circle, &


Controversial Bitcoin Stock to Flow Model

Popular cryptocurrency trader “Plan B” on Twitter is behind the controversial Bitcoin stock to flow model that took the crypto community by storm.  Traders jumped on it, enamored with the prediction for another BTC bullish run.

Strix Leviathan CEO Jesse Proudman, however, says not so fast.  While he and his team are big believers in the need for fundamental valuation models in the cryptocurrency space given the speculative nature of the market, the stock-to-flow formula is not all it’s cracked up to be. According to Proudman, not only is the theory behind the stock-to-flow model flawed but the math is invalid.

For example, the stock to flow model projects Bitcoin to be $100,000 in 2020 and more than $245 billion per coin as the model unfolds in the coming decades.

“It’s a marketing model more than anything else in our eyes. And it’s disingenuous — it attracts people to invest in this space for the wrong reasons. We believe this is an interesting asset class. We believe the price will go up over time. But we want people to invest for the right reasons, not because they’re following a model that’s blindly not theoretically valid,” said Proudman.

Bitcoin’s Narrow Trading Range

When the third Bitcoin halving event occurred earlier this year, the cryptocurrency community was largely expecting the price to rally, as it has done in dramatic fashion previously. Instead, however, the BTC price has been stuck in a narrow range of between $9,000 and $10,000 for months, leaving many traders frustrated in the interim.

Proudman points out, however, that Bitcoin has only experienced two halvings before 2020, which doesn’t provide much of a historical precedent. And this year’s halving was different.

“There’s a lot of realities with this particular halving around the institutionalization of mining that haven’t occurred in prior halvings,” said Proudman, pointing to tools such as BTC derivatives trading as well as lending markets for hedging that didn’t exist before that are impacting the price now.

For its part, Strix Leviathan is neither bullish nor bearish on the BTC price in the current cycle. “The price will go where the price goes,” said Proudman.

Genesis Trading on Black Thursday

While many companies are just trying to stay afloat during the COVID-19 pandemic, digital currency prime brokerage Genesis Trading is in expansion mode. In addition to its trading and lending businesses, the company recently moved into prime brokerage with the acquisition of UK-based custodian Vo1t.

(10:53) Genesis has been around since 2013, when the BTC price was hovering at USD 80 and has had the discipline to operate throughout different market cycles.

Genesis CEO Mike Moro describes how it feels as though they’ve been in a prolonged bull market since 2018, which has tested the mettle not only of the market but also its customers. But nothing could have prepared him for Black Thursday, which took the cryptocurrency market by storm in mid-March 2020.

Moro recalls how the broader market volatility had begun in other markets prior to reaching Bitcoin, starting with the price of oil. The sell-off then spilled over to equities and bond markets, and given a market correlation of 1 during times of crisis it eventually reached the crypto market.

“We had our antennas up for sure that something could happen in bitcoin,” he said, adding: Black Thursday is something we couldn’t have been ready for or expected.”

Genesis made it through unscathed with no defaults, though Moro recalls “it was operationally very stressful…It was certainly a tremendous stress test for the systems and also for our people to get through it.”

Expansion Through Acquisition

This time last year, the one piece of the puzzle that was missing for Genesis was custody. Moro explained, “We had been non-custodial to that point but you can’t really call yourself a prime broker if you can’t hold client funds.”

Fortunately for the company, Genesis began discussions with Vo1t in 2019 before the emergence of the COVID-19 pandemic. Moro’s team was even able to perform on-site due-diligence in early 2020 before the lockdown measures were in place prior to announcing the acquisition in May.

As for competition, Moro isn’t looking over his shoulder at the traditional prime brokerage firms. He believes they are still 5-10 years off from entering the cryptocurrency prime brokerage fray.
Moro says to expect further expansions as the company establishes a presence in London and Singapore in addition to its existing New York offices in the coming months.
“Crypto never sleeps,” said Moro.

Stablecoins and Central Bank Digital Currencies The stablecoin market is on fire, as evidenced by the value of fiat-backed cryptocurrencies surpassing the $10 billion mark and having trebled year to date. The coronavirus pandemic has only accelerated growth and adoption, according to Circle CEO Jeremy Allaire.

Circle’s stablecoin USDC has experienced dramatic growth across every major metric of late, which has correlated rather closely with the COVID pandemic. USDC supply has ballooned by well over 100% to nearly 1 billion coins in circulation, and the pace at which people are using it as a payment rail is growing exponentially. In addition, Circle is witnessing an increase in the number of USDC wallets and on-chain transactions have been moving steadily.

“We’ve sort of staved off a financial crisis for now. But as this unfolds there is that risk,” said Allaire, adding:  “Dollarization is a global theme. It’s about Latin America, Africa, South Asia [and] other parts of the world where they do not have the firepower of the Fed, they do not have the fiscal means to counteract the incredible disruption that the pandemic is having on their economies.”

Regulatory Hurdles

Now that the Financial Action Task Force’s Travel Rule is making its way into the cryptocurrency industry, blockchain startups are on high alert, some of which are even falling by the wayside. And while many in the crypto community fear overregulation, Garrick Hileman, head of research at, suggests that regulators are not the bad guys.

“I think regulators have been criticized through the years for various things, perhaps rightfully so in some cases. I think often times they are some of the more unsung heroes in the story of cryptocurrency. I think there are a lot of things that have been done well, in certain jurisdictions in particular.”

As for the Travel Rule, Hileman says that as the cryptocurrency industry matures and becomes more integrated with the traditional financial system, more regulation is inevitable.

“Designing regulations that allow innovation of course to continue to foster and occur but also safeguard financial stability and consumers is obviously very important. So things like the Travel rule, I think the positive way of looking at it is that this is a way in which regulators are comfortable with crypto assets continuing to play in the space.”

He goes on to say that there is still a view among the naysayers and big investors who remain on the sidelines that if cryptocurrencies ever grow to be too big, regulators will simply quash them. But the fact that there are things like the Travel Rule, the Chicago’s futures markets and an evolving body of regulations allowing the crypto space to play and grow is the counterargument to that view.

On-Chain Reaction

  • Philip Gradwell, chief economist at Chainalysis, provides a glimpse into the latest blockchain activity over the last week.
  • The bitcoin price drifted down, falling below the $9,000 threshold at one point to hover at $9,150 at last check. The BTC price has been testing the 9k level.
  • Bitcoin inflows to exchanges remain low at 56.6k per day on average, but slightly ahead of last week’s daily average.
  • The BTC flowing into exchanges is staying there. This weakens the price floor.
  • Ethereum could be a different story. ETH balances on exchanges may have dropped in the last week.
  • $1 billion worth of BTC flowed into non-exchange services, up 186% in the last seven days vs. the 30-day average.
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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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