First Mover Asia: BC Technology Group’s Crypto Platform Made Big Gains in 2021. So Why Are Investors Unimpressed?

Good morning. Here’s what’s happening:

Insights: Revenue at BC Technology Group's OSL crypto assets platform, which accounts for most of its business, rose significantly but the company's share price has lagged bitcoin and other assets.

Technician's take: BTC appears to be overbought, although pullbacks cold be brief.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover,our daily newsletter putting the latest moves in crypto markets in context.

Prices

Bitcoin (BTC): $47,225 -1%

Ether (ETH): $3,365 -0.6%

Top Gainers

Asset Ticker Returns Sector Solana SOL +0.2% Smart Contract Platform

Top Losers

Asset Ticker Returns Sector Filecoin FIL −4.9% Computing XRP XRP −4.7% Currency Dogecoin DOGE −3.7% Currency

Bitcoin and ether are flat; other major cryptos drop

After a week of gains, some rain fell on crypto prices, even as a few rays of good news beamed in from Ukraine.

Bitcoin, the largest cryptocurrency by market capitalization, was recently holding steady at about $47,250, slightly down over the last 24 hours. Ether was also treading water at about the same $3,350 mark it held a day earlier. Other major cryptos were largely in the red with popular meme coins DOGE and SHIB registering two of the biggest declines during certain points of the U.S. trading day at more than 6% each, respectively. Late in the day, Axie Infinity's AXS token had fallen 9%, while Cardano's ADA was off over 3.5%.

The declines came after seven consecutive days of mainly increases among major cryptos, which market analysts have struggled to explain although many have highlighted rising interest among institutional investors, including announcements by financial services powerhouses Goldman Sachs (GS) and BlackRock (BLK). The purchase over the past six days of $1.3 billion in bitcoin by the Singapore non-profit Luna Foundation Guard (LFG) as a reserve asset for UST, which is Terra's decentralized dollar-pegged stablecoin, and commitment to buy at least $1.7 billion more in BTC, further buoyed markets earlier this week. Terra's LUNA token reached an all-time high of over $109 on Tuesday.

Crypto's performance veered from stocks, which took a small swing upwards on Tuesday amid faintly brightening hopes of a ceasefire in Ukraine. A senior Russian defense minister said Russia would ratchet back its attacks on Ukraine's capital city Kyiv, which has been a primary target of the unprovoked invasion. Also, Russia's lead negotiator, in talks with Ukraine diplomats, said that Russia would be willing to have a meeting between the presidents of the two countries. Oil prices fell 2% at one point during the day, although they were recently up slightly.

Jeff Dorman, the COO of asset manager Arca, told CoinDesk TV's "First Mover" that investors may have felt encouraged by an increased sense of certainty in economic and wider events. "Markets hate uncertainty," said Dorman, who noted a possible de-escalation in Ukraine and clearer direction by the U.S. Federal Reserve in taming inflation through interest rate hikes this year. Dorman also mentioned the poor performance of the bond market.

"The bond market is uninvestable right now, half of Europe and Asia is not investable," Dorman said. "So where's money gonna go? It's not going to sit in cash forever. It's going to go into safer places, which is U.S. equities and real estate and also, perhaps ironically for some, digital assets."

He added: "So when you start to see inflows, you start to remove those negative overhangs, you look at the places that are heavy, positive catalysts or somewhat recession-proof. I would argue for Bitcoin specifically we've seen a massive, positive catalyst in the last eight weeks."

Markets

S&P 500: 4,631 +1.2%

DJIA: 35,294 +0.9%

Nasdaq: 14,619 +1.8%

Gold: $1,919 -0.2%

A good year for Hong Kong's BC Technology Group, but where are the investors?

BC Technology Group is doing a lot right to meet strong, ongoing demand among investors for cryptocurrencies, but its stock price still hasn’t reflected the gains of its digital assets platform OSL, which accounts for most of the company’s revenue.

Whether BC Technology Group trades higher in the weeks and months ahead remains uncertain despite its apparent resiliency to increasing Chinese oversight of the administrative district.

In its annual earnings, released Tuesday, BC Technology said that OSL revenue increased by 63% to $35 million year-over-year, while platform volume increased 73% to around $40 billion annually, according to the BC Technology Group announcement. Overall, the company reported a 44% increase in revenue which it largely credits to bumps in trading income from OSL.

Digital assets now account for 75% of all of BC Technology Group’s revenues, meaning that it's not as weighed down by its exposure to macro issues in China’s equities market as it was before.

As an incidental note, the company said it would be changing the currency used in its financial statements to the Hong Kong dollar (HKD), not China's yuan (RMB). China is hostile to crypto so using HKD as a denomination for reporting makes more sense.

To be sure, BC technology still isn’t profitable. But the company attributed a net loss on the need to use the capital for global expansion.

Its mid-year earnings in August, showed equally impressive gains in revenue and volume. But is this enough to satisfy the market?

Investors have been cool on the stock, which has significantly underperformed bitcoin during the last six months.

While Coinbase (COIN) stock has also underperformed bitcoin – Singapore’s QCP has noted that investors are no longer prescribing much of a premium to licenses – the gap between BC Technology Group and bitcoin is much wider, with the company underperforming both the digital asset and the Hang Seng Index itself.

Granted, the company isn’t profitable, but tech investors are usually fine overlooking lack of profitability in the early years of a company with growth potential and won’t punish a stock for it.

Part of investors’ reluctance may have to do with the grand debate on whether Hong Kong or Singapore is the right home for digital assets in Asia. FTX called Hong Kong quits last fall, with its CEO calling the regulatory environment uncertain and quarantine measures stifling to business.

Stakeholders have complained about Hong Kong’s approach to the asset class with contradictory rules and advice on crypto from the city’s different regulators, praising Singapore’s whole-of-government approach that’s centered around the Monetary Authority of Singapore its hybrid central bank and regulator.

A sign of Singapore’s institutional endorsement of crypto can also be found in partially state-owned DBS’s digital asset trading desk – which OSL’s technology powers.

But those praises can turn into laments when Singapore does things like put crypto funds on Investor Alert Lists without explanation. Singapore’s Digital Payment Token license can also be exceedingly hard to attain.

Investors hate uncertainty.

BC Technology Group’s decision to take the regulatory approach that authorities in Hong Kong prefer for crypto was wise. OSL currently has the only SFC-licensed digital asset trading platform in Hong Kong.

But whether the market agrees with its overall strategy is still unclear. Its stock has a long way to climb.

Technician's take

Bitcoin approaching resistance at $48K-$51K, support at $45K

Bitcoin (BTC) is testing resistance at the 200-day moving average, which could trigger a brief pullback.

Upside momentum is starting to fade on intraday charts, which could keep buyers on the sidelines into the Asia trading day. Still, lower support at around $45,000 could stabilize pullbacks.

The relative strength index (RSI) on the daily chart is overbought for the first time in five months, which means sellers could return at the $48,000-$51,000 resistance zone – a 50% reversal of the prior downtrend.

Further, BTC is two days away from registering a countertrend sell signal, according the DeMark indicators, similar to what occurred last August. At that stage, short-term buyers will likely defend support, especially because momentum signals turned positive on the weekly chart.

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CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Goldman Sachs Partners With Galaxy Digital, Terra’s LUNA Sets New Highs

Galaxy Digital Managing Director Robert Bogucki joined "First Mover" to explain how his firm has facilitated Goldman Sachs to launch the Wall Street bank's first over-the-counter crypto options trade. Bitcoin's price was charging ahead while Terra's LUNA token was setting new highs. Jeff Dorman of Arca provided insights into the market rally. Plus, bitcoin's ESG debate continues. Bitfarms Chief Mining Officer Ben Gagnon weighed in.

Headlines

Axie Infinity’s Ronin Network Suffers $625M Exploit: It may be the largest exploit in DeFi history.

Terra’s LUNA Set New Highs of Nearly $106: Prices have increased nearly 10% in the past 24 hours.

MicroStrategy Unit Gets $205M Collateral Loan From Silvergate to Buy Bitcoin:The term loan can also be used for general corporate purposes.

WisdomTree Launches Crypto ETPs for Solana, Cardano, Polkadot in Europe:Other ETP issuers are planning crypto-linked investment products that also yield staking returns.

Money Continues to Pour Into GameFi, but Will Developers Follow?:One of the hottest sectors for investors is seeing mixed reactions from top talent.

Longer reads

Book Excerpt: 3 Stories of Bitcoin Changing Lives Outside the 'Dollar Bubble': Alex Gladstein describes how Bitcoin offered entrepreneurs in Nigeria, Sudan and Ethiopia a much-needed, financial resource for helping their families and communities throughout their countries.

Today's crypto explainer: What's the Most Profitable NFT Strategy: Buying at Mint or Later?

Other voices: Ukraine is selling a timeline of the Russian invasion as NFTs(The Verge)

Said and heard

"In the less than 24 hours since megastar Will Smith permanently damaged his public image by slapping Chris Rock, a man half his size, the cryptosphere has launched at least two projects purporting to somehow put the event on the blockchain. Despite no obvious logical connection between crypto and The Slap Heard Round the World, the newly minted digital assets even appear to have generated some sales." (CoinDesk columnist David Z. Morris) ... "At a 'Metaverse Cocktail Hour for Fashionistxs,' hosted by Cash Labs, it was abundantly clear who had MANA and who didn’t. My avatar was dressed plainly, with a default hairstyle and a default black turtleneck. Users with fancier gear – massive sets of wings, bear costumes, swarms of digital butterflies – stole the spotlight." (CoinDesk columnist Will Gottsegen) ... "Among the digital asset rules the administration is looking to update are amending the mark-to-market rules to include digital assets; requiring reporting by certain taxpayers of foreign digital asset accounts; providing for information reporting by financial institutions and crypto brokers; and treating loans of securities as tax-free to include other asset classes and “address income inclusion. The administration estimates that modernizing these rules will bring in almost $11 billion in revenue between 2023-2032, with more than $4.8 billion coming from the first year of applying mark-to-market rules to digital assets." (CoinDesk) ... “After falling during the peak of COVID-19 lockdowns in 2020, the rates at which so-called prime-age workers –those aged 25 to 54 – are working or seeking work has rallied back to pre-pandemic levels. Yet, with the economy growing faster than in decades, demand for labor has outpaced the availability of workers – at least at the wages and benefits employers are offering." (The New York Times)