DigitalAssetsStrategy 2021 Outlook Going Mainstream FSInsight 150 East 52nd St, 3rd floor New York, NY 10022 For Reg AC certification and other important disclosures, see Disclosures, Slide 89. David Grider, CFA Lead Digital Strategist Inquiry@FSInsight.com twitter: @david_grid Thomas J. Lee, CFA Head of Research twitter: @fundstrat January 28, 2021 twitter Instagram @fundstrat @David_Grid @realfundstrat Institutions www.fundstrat.com Individuals www.fsinsight.com For exclusive use of FSInsight clients January 28, 2021 Slide 2 For exclusive use of FSInsight clients January 28, 2021 Slide 3 Fundstrat 2020 Forecast Predicted >100% Crypto Returns Bitcoin halvening, geopolitical risk & election were catalysts we saw ▪ Our outlook last year called for crypto returns in 2020 to exceed 100% based on several positive convergences we saw unfolding. Figure: Fundstrat 2020 Crypto Outlook Report Cover Source: FSInsight Our 2020 outlook forecast >100% returns for crypto driven by halving, geopolitical risk, & 2020 election For exclusive use of FSInsight clients January 28, 2021 Slide 4 Bitcoin Reached Our Upwardly Revised Targets Several Times Issued official $13.5k target in March & raised it to $40k by December ▪ We issued an official price target in March following the market sell off. We have since raised that target four times over the year as we saw continued fundamental improvement. Bitcoin quickly reached our most recent target of $40k before puling back. The last move happened quite fast, but the pause is healthy, and we think upside remains. Bitcoin Price & Fundstrat Bitcoin Price Target Date: 1/1/2020 to 1/24/2021 $45k BTC Price Price Target $40k Our official Bitcoin price target, issued on March $35k 12th, has been raised 4x, $30k most recently to $40k $25k $20k $15k $10k $5k $0k Jan-20 Feb-20 Mar-20 Source: FSInsight, Bloomberg, Coinmarketcap Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 For exclusive use of FSInsight clients January 28, 2021 Slide 5 Bitcoin Best Performing Among Global Assets 9 of 11 Years On pace to be best performing for the 10 of 12 thus far YTD in 2021 ▪ Bitcoin and crypto have been the best performing asset for 9 out of the last 11 years and it’s on pace YTD in 2020 to make that track record 10 out of 12 years if the trend continues. Figure: Global Asset Class Annual Returns Date: 1/1/2010 to 1/24/2021 Best Best Best Best FY-2010 FY-2011 FY-2012 FY-2013 FY-2014 Best FY-2015 Best FY-2016 Best FY-2017 FY-2018 Best FY-2019 Best Best FY-2020 YTD 2021 Bitcoin Bitcoin Bitcoin Bitcoin Dollar Bitcoin Bitcoin Bitcoin Dollar Bitcoin Bitcoin Bitcoin 39171% 1471% 187% 5286% 13% 34% 126% 1337% 4% 94% 305% 11% Gold Gold MSCI EM S&P 500 S&P 500 Dollar Oil MSCI EM US Treasuries Oil Gold MSCI EM 30% 10% 15% 30% 11% 9% 45% 34% 1% 34% 25% 8% Commodities US Treasuries MSCI World MSCI World US Bonds US Treasuries Commodities MSCI World US Bonds S&P 500 S&P 500 Oil 17% 10% 13% 20% 6% 1% 12% 22% 0% 29% 16% 8% MSCI EM Oil S&P 500 Oil US Treasuries US Bonds S&P 500 S&P 500 Gold MSCI World MSCI EM MSCI World 16% 8% 13% 7% 5% 1% 10% 19% -2% 24% 16% 3% Oil US Bonds Gold Dollar MSCI World S&P 500 MSCI EM Gold S&P 500 Gold MSCI World S&P 500 15% 8% 7% 0% 2% -1% 9% 14% -6% 18% 14% 2% S&P 500 Dollar US Bonds US Bonds Gold MSCI World Gold Oil MSCI World MSCI EM US Treasuries Commodities 13% 1% 4% -2% -1% -4% 8% 12% -11% 15% 8% 1% MSCI World S&P 500 US Treasuries US Treasuries MSCI EM Gold MSCI World US Bonds Commodities US Bonds US Bonds Dollar 10% 0% 2% -3% -5% -10% 6% 4% -11% 9% 8% 0% US Bonds MSCI World Dollar MSCI EM Commodities MSCI EM Dollar US Treasuries MSCI EM Commodities Commodities US Bonds 7% -9% -1% -5% -17% -17% 4% 2% -17% 8% -3% -1% US Treasuries Commodities Commodities Commodities Oil Commodities US Bonds Commodities Oil US Treasuries Dollar US Treasuries 6% -13% -1% -10% -46% -25% 3% 2% -25% 7% -7% -1% Dollar MSCI EM Oil Gold Bitcoin Oil US Treasuries Dollar Bitcoin Dollar Oil Gold 2% -20% -7% -28% -56% -30% 1% -10% -74% 0% -21% -2% Source: FSInsight, Bloomberg Worst Worst For exclusive use of FSInsight clients January 28, 2021 Slide 6 Bitcoin Performed Very Well But Didn’t Top Crypto Returns Among the top 20, THETA, NEM, LINK, ETH, & ADA outperformed BTC ▪ Although Bitcoin outperformed most global assets and performed towards the top of the pack within crypto, several other crypto assets outperformed it during 2020, notably the second largest asset, Ethereum, which we continue to hold an overweight on. A reason why we remain bullish on the asset class and not just Bitcoin. Figure: Top 20 Crypto Asset Returns Date: 2020 THETA NEM Chainlink Ethereum Cardano Bitcoin Monero Polkadot Litecoin Stellar Binance Coin Dash Tron Crypto Bitcoin SV Bitcoin Cash UNUS SED LEO Neo XRP EOS 526% 523% 464% 442% 303% 242% 223% 197% 182% 173% 138% 103% 72% 68% 68% 66% 62% 14% 0% 500% Source: FSInsight, Coinmarketcap 2040% THETA, NEM, LINK, ETH, & ADA Toped BTC 1000% 1500% 2000% 2500% For exclusive use of FSInsight clients January 28, 2021 Slide 7 Global Crypto Market Cap Broke ATHs & Hit $1 Trillion Many (not us) saw crypto as a fad in 2017 but 2020 proved otherwise ▪ Largely considered a fad sure to fade in 2017, crypto strongly rebounded in 2020 and made new all-time highs in 2021 passing $1T in market value. We think this marks a turning point where crypto is large enough that investors can’t as easily dismiss it anymore and they must now pay attention. Figure: Global Crypto Market Cap (Assets Ever Exceeding 5% Market Share) Date: 1/1/2016 to 1/24/2021 $1T BTC Other ETH XRP BCH LTC XLM $1.00T Fad? Nope $0.80T $0.60T $0.40T $0.20T $0.00T Jan-16 Source: FSInsight, Coinmetrics Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 For exclusive use of FSInsight clients January 28, 2021 Slide 8 Crypto Economy Public Market Value 16th Largest Globally Crypto Emerging Markets (EMs) are new global digital economies ▪ We view crypto as a digital emerging market economy. Looking at the crypto market cap in comparison to the public stock market caps of other global economies reveals that the crypto EM now sits as the 16th largest by value. Figure: Global Crypto Market Cap (assets ever exceeding 5% share) Date: Crypto (1/24/21), U.S. (12/31/20), Others (Latest: 2018 or 2019) # Economy 1 United States 2 China 3 Japan Crypto EM 16th 4 European Union 5 Hong Kong SAR, China Largest Globally 6 Saudi Arabia 7 France 8 India 9 Germany 10 Canada 11 Switzerland 12 Australia 13 Korea, Rep. 14 Brazil 15 South Africa 16 Crypto EM 17 Spain 18 Singapore 19 Russian Federation 20 Thailand Stock (Crypto) Market Value ($T) $50.00 $8.52 $6.19 $5.77 $4.90 $2.41 $2.37 $2.18 $2.10 $1.94 $1.83 $1.49 $1.41 $1.19 $1.06 $1.00 $0.80 $0.70 $0.58 $0.57 Source: FSInsight, Coinmetrics, World Bank, Bloomberg, Siblis Research For exclusive use of FSInsight clients January 28, 2021 Slide 9 Top 5 Crypto Networks Broke $500B In Value During 2020 From 2016 to 2020, top 5 crypto networks value increased by 38X ▪ Crypto is known for being volatile, and some may still see the recent rise as an unsustainable move, but looking through the market swings every other year, the largest 5 crypto assets have continued to accrue substantial value. Figure: Top 5 Crypto Asset Market Caps Date: 2016 to 2020 (December Year End Values) Top 5 public crypto networks Up 37x 2016 – 2020 $500 B $593.6B total market cap (37.1x) $400 B $300 B $200 B $100 B $15.6B total market cap $102.4B total market cap (5.6x) $0 B Source: FSInsight, Coinmarketcap 2016 2018 For exclusive use of FSInsight clients 2020 January 28, 2021 Slide 10 Reaching Milestone 3X Faster Than Top 5 Cloud Companies From 2018 to 2020, top 5 cloud companies value increased by 44X ▪ One reason we believe crypto is here to stay is because we see it as an evolution of the internet and cloud computing. While the cloud has risen to impressive heights, crypto has been following and quickly gaining share. Figure: Top 5 Public Cloud Companies Market Cap Date; 2008 to 2020 Source: FSInsight, Bessemer Ventures 2020 Cloud Report For exclusive use of FSInsight clients January 28, 2021 Slide 11 Crypto Payment Transaction Volume Hit $3.4T During 2020 Growing at 135% 5-yr CAGR & YTD on pace to hit $13.2B in FY-21 ▪ We think the fundamental utility of crypto and its disruption potential is evidenced in part by its impressive payment transaction growth story. Extrapolating YTD trends, crypto is on pace to record $13T in volume during FY-21. Figure: Crypto Payment Transaction Volume USD (On-Chain Adjusted) Date: 1/1/2015 to 1/24/2021 $14T Ethereum Stablecoins Bitcoin Others Crypto Total $13.2T $12T $10T $8T ` $6T $4T $2T $.0.4T $0T FY 2015A Source: FSInsight, Coinmetrics $1.7T $1.9T $1.4T $3.4T $.1T FY 2016A FY 2017A FY 2018A FY 2019A FY 2020A YTD 2021 Annualized For exclusive use of FSInsight clients January 28, 2021 Slide 12 Crypto Payment Volume Approaching 5% Global Market Share If YTD trend continues crypto payments could be ~1/2 card volume ▪ Putting these $13T in perspective, if the current trend continues, crypto will reach 5% global payments market share this year! Said differently, it would have captured half the payments volume of the card networks. How has this been largely ignored for this long? Figure: Annual Global Payment Volume By Type Date: 2020 (Traditional) & YTD 1/24/2021 Annualized (Crypto) ACH Cash & Check Carded Crypto $13T 5% $30T 12% $68T Crypto FY-2021E 27% Payment Value: $13T (5% Global Market Share) $139T 56% Source: FSInsight, Credit Suisse For exclusive use of FSInsight clients January 28, 2021 Slide 13 Crypto Transaction Fee Revenue Hit ~$1B During 2020 Growing at 230% 5-yr CAGR & YTD on pace to hit $5.4B by FY-21 ▪ Users paid crypto networks roughly $1B in transaction fee revenue during 2020. ▪ Even more impressive, is the accelerating pace at which fees have been growing. Figure: Crypto Annual Transaction Fee Revenue Date: 2015A to 2021E (YTD 1/24 Annualized) Other Crypto Fee Revenue $6.0 Ethereum Fee Revenue Bitcoin Fee Revenue Total Crypto Fee Revenue Billions $5.1 $5.0 $4.0 $3.0 $2.0 $1.0 $0.002 $0.0 FY 2015A Source: FSInsight, Coinmetrics $0.014 $0.61 $0.46 $0.20 $0.94 FY 2016A FY 2017A FY 2018A FY 2019A FY 2020A YTD 2021 Annualized For exclusive use of FSInsight clients January 28, 2021 Slide 14 Crypto Lifetime Payment Cost Savings Reached $200B Assuming industry standard take rakes of 2.5%, crypto fees 99% lower ▪ Comparatively, $1B of revenue may not sound large against many traditional industries. But its important to note that based on the transaction volume crypto facilitated, if you assume industry standard fees are 2.5%, crypto undercut those costs by 99% and saved users ~$85B in 2020. A reason we see crypto as disruptive to finance. Figure: Implied Crypto Payment Cost Savings Against 2.5% Fee Date: 2015A to 2021E (YTD Annualized) Billions $600 Annual Cost Savings Lifetime Cost Savings $536 $500 Crypto FY-2021E Total Cost Savings $500B $400 or 99% lower Costs $300 (Against 2.5% Fee) $200 $100 $0 Source: FSInsight $2 FY 2015A $212 $127 $94 $46 $5 FY 2016A FY 2017A FY 2018A FY 2019A For exclusive use of FSInsight clients FY 2020A YTD 2021 Annualized January 28, 2021 Slide 15 Crypto Worldwide Users Passed 100M Crypto Users Tracking Internet Growth & Value Following ▪ As mentioned, we see crypto as the next wave of the internet. Comparing crypto user adoption to early internet user growth shows that crypto is on a similar path and currently sits about where the internet was in the late 1990’s. We expect value to continue following user growth, as it did for the internet companies that came before. Figure: Global Internet & Crypto Users By Year Date: Internet (1992 to 1997) & Crypto (2015 to 2020) Global Internet & Crypto Users 1992 1993 1994 1995 1996 68 1997 101 70 Crypto Users Internet Users 35 36 18 16 7 5 4 2 1 2015 2016 Source: FSInsight, Internet World Stats, Cambridge University, Coinmetrics, Coinmarketcap 2017 2018 2019 For exclusive use of FSInsight clients January 28, 2021 2020 Slide 16 For exclusive use of FSInsight clients January 28, 2021 Slide 17 2021 Outlook: Three Big Crypto Forecasts Bitcoin = $100k Ethereum = $10.5K Source: FSInsight Crypto Market = $5T For exclusive use of FSInsight clients January 28, 2021 Slide 18 2021 Outlook: 20 Reasons We’re Remaining Bullish We see several reasons to remain bullish on crypto during 2021 # Category 1 Bitcoin Cycle 2 3 4 5 Macro Trends 6 7 8 9 10 11 12 Capital Flows 13 14 15 16 17 18 19 20 Source: FSInsight Factor Price Technical Valuation Fundamentals Monetary USD trend Credit trend Equities trend Fiscal policy Geopolitical T.I.N.A. Asset Class Size Institutional interest Exchange traded fund flows Retail crypto on-ramp demand Corporate crypto buyers Consensus to bearish Coinbase equity IPO Institutional FOMO Regulatory Explanation Fourth bull market cycle uptrend Bitcoin above 200 DMA = bullish Valuations higher but not a bubble Increasing economic model estimates Money supply growth & dry powder Expect dollar weakening & EM strength Low rates & negative yielding debt Strong S&P 500 & EM equity trend Government stimulus expected Tension domestic & abroad There Is No Alternative Now large enough for institutions Crypto fund starts & AUM growing GBTC generated $3B Q4 demand PayPal & Coinbase demand surging Treasury & fundamental usage reasons Market pricing 10% chance BTC>$100k Equity investors will be looking at crypto Underperformance risk (Tesla) More clarity=lower discount rate For exclusive use of FSInsight clients January 28, 2021 Slide 19 Bitcoin Outlook: Increasing Bitcoin Price Target $100K Expecting a pause and lots of volatility but ending year higher ▪ See revised economic model estimates later in report for price and valuation explanation. Figure: Bitcoin Price & Fundstrat BTC Target $100k $90k BTC Price Price Target $100K FY-2021E $80k $70k $60k $50k $40k $30k $20k $10k $0k Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 20 Ethereum: Revaluing ETH Against Cloud Index Implies ~$10.5k Applying cloud PSG multiples to FY 21E implies $10.5k ETH or +650% ▪ By revaluing Etherum at the same growth adjusted PSG multiple as cloud peers, we derive an implied value of $10,481 per ETH tokens, or ~650% upside from the current price of ~$1,400. Figure: Ethereum cloud index growth adjusted implied value Cloud PSG ETH Revenue Growth Implied PS Multiple ETH Annualized Revenue ($B) ETH Implied Market Cap ($B) ETH Supply Outstanding (M) Ethereum Implied Value 0.55x 554% 306x $3.90 $1,195 114 Ethereum Implied Price Current ETH Price Implied Return $10,481 $1,400 649% Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 21 Catalyst: ETH Has Been Rising But Looks Underpriced vs. Bitcoin Capital flows from Bitcoin following its rapid rise offers a price catalyst ▪ ETH 1.0 still a minable store of value commodity like BTC. We value Bitcoin and ETH 1.0 using the Grider Price to Book multiple, which is the market cap divided by the cumulative mining costs, which shows ETH is ~2x cheaper. Figure: Ethereum and Bitcoin price to book ratio and price $1,600 $1,400 Ethereum Price (USD) Etherum PB Bitcoin PB $1,200 $1,000 $800 $600 $400 $200 $0 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 0.16 Ethereum Price (BTC) ETH PB vs. BTC PB 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 Jul-15 Source: FSInsight Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 For exclusive use of FSInsight clients 90x 80x 70x 60x 50x 40x 30x 20x 10x 0x Jan-20 Jul-20 10x 9x 8x 7x 6x 5x 4x 3x 2x 1x 0x Jan-20 Jul-20 January 28, 2021 Slide 22 Crypto Economy Payment Volume Could Imply Total Value $5T Useful proxy but flows > fundamentals & alts go if BTC/ETH hit targets ▪ We think there is real economic activity taking place in the crypto economy and believe the payment volume may be a proxy for gaging the value and using global proxies may be a useful gage of value. But we think flows matter more than fundamentals and if BTC & ETH hit our targets many other alts will outperform. Figure: Crypto Economy Valuation Based On Payment Volume & Implied GDP World Annual Payment Volume ($T) $235.0 United States $50.0 Crypto $13.2 $13.2B 2021E Payment Value Gross Domestic Product ($T) $80.0 $21.4 $4.5 Payment Velocity 2.9x 2.3x 2.9x GDP Assumes World Velocity Stock Market Value ($T) Stock Value GDP% $90.0 113% $50.0 233% $5.0 113% $5T @ World Value / GDP% Source: FSInsight, World Bank, Credit Suisse, Bloomberg, Coinmetrics For exclusive use of FSInsight clients January 28, 2021 Slide 23 Risks: What are the risks? List of things that can go wrong… ▪ Crypto is a risky asset and a lot could go wrong, a few key risks we see are below Figure: Downside Risks To Thesis • Technology may not meet its anticipated disruptive expectations and adoption • Cryptocurrency users, usage, new applications and fee growth could not meet expectations • Large wallets which have not sold crypto in past few years begin to liquidate their holdings • Investors may move away from high growth tech investments in favor of more traditional assets • Regulators get anti-crypto on areas like off-shore exchanges, defi, ICOs, tech developers, etc. • Favorable global macro environment trends could reverse course and cause a bear market • Sentiment may turn negative and bullish capital inflow may reverse • Hack or a bug could undermine the technology Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 24 For exclusive use of FSInsight clients January 28, 2021 Slide 25 Crypto Offers Next Wave Of Tech Innovation & Growth New tech stack layers commoditize prior layers & capture value • As new layers of the technology stack were developed, they went on to capture value from the layers below. Cryptonetworks are building upon the Networks Era and replacing many applications that fall under the category of “information networks,” which include many of the largest companies, with decentralized protocol alternatives. Figure: Evolution of Tech Innovation Expansion Consolidation 2010’s to ??? Crypto Era Commoditization 1990’s and 2000’s Networks Era 1970’s and 1980’s Software Era Cryptonetwork open source data Linux & The Web open source software and free distribution 1950’s and 1960’s Hardware Era Microprocessors open source computers Source: FSInsight, Placeholder Ventures For exclusive use of FSInsight clients January 28, 2021 Slide 26 Big Tech Has Been Growing By Absorbing Legacy Industries FAAMG more than doubling to above 20% of S&P 500 market value • FAAMGs have risen to capture 22% of the S&P 500 by disrupting other industries. No business paradigm has lasted forever, and as time goes on, we’re increasingly more likely to see a shift. As Big Tech sits at new heights, it’s worth asking – will these same platforms remain dominant a decade from now? Figure: Top 5 Big Tech companies share of S&P 500 Market Cap Date: 2000 – 2020 Big Tech Share of S&P 500 Market Cap 25% Absorbs Media Absorbs Financials 2.0x rise from 20% 2015 to Present vs. S&P 500 15% Absorbs Retail Absorbs Healthcare 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: FSInsight, Bloomberg For exclusive use of FSInsight clients January 28, 2021 Slide 27 Early Innings Of Crypto Tech Absorbing Big Tech Crypto networks rising 37x over same time against FAAMG • Cryptonetworks resemble the early internet era. Over the same 5-year time period that big tech companies grew in dominance, the market cap of cryptonetworks grew even faster, rising 37x vs. FAAMG. Figure: Cryptonetworks share of Top 5 Big Tech Market Cap Date: 2010 – 2021 Crypto Share of Big Tech Market Cap 25% Absorbs E-commerce 20% Absorbs FinTech 37x rise from 2015 to Present vs. FAAMG 15% Absorbs Gaming 10% Absorbs Healthtech 5% 0% 2013 2014 2015 Source: FSInsight, Bloomberg, Coinmarketcap, Coinmetrics 2016 2017 2018 2019 2020 For exclusive use of FSInsight clients January 28, 2021 Slide 28 Platforms For The Next Era Of The Web Aiming to reinventing the internet experience using crypto protocols • Web 3.0 blockchain networks give us connected edge computing, trustless protocols give us community-owned platforms, privacy tech gives us control over data and AI, crypto gives us DeFi natively imbedded into the internet. Figure: Evolution of the Web Web 1.0 E-Commerce boom Financial capabilities Browser data tracking Dedicated PC infrastructure Web 2.0 Social platforms Fintech meets Big Tech Mobile always on big data Cloud centralized infrastructure Web 3.0 Trustless DApps DeFi integrated crypto Privacy user-data & AI control Blockchain edge infrastructure Value Captured $7.3 trillion2 $1.1 trillion1 1990 Source: FSInsight, Fabric Ventures Inspired, (1) Internet companies market cap as of 2000, (2) Big Tech market cap as of 8/25/2020 For exclusive use of FSInsight clients 2030 January 28, 2021 Slide 29 Next Generation Organizational Tech Business Models Natural evolution to crypto: from companies to platforms to networks • Cryptonetworks are a natural evolution of many tech platform business models today; as Facebook changed media, FinTech-banking, Amazon-retail, Uber-transportation, Airbnb-lodging, we believe cryptonetworks will do the same. Figure: Transition from companies, to platforms, to cryptonetworks Companies Platforms Networks Closed Asset Heavy Labor Intensive IP/Data Advantage Shareholder Capitalism Management Governance Open Asset Light Automation Intensive Innovation Advantage Stakeholder Capitalism Community Governance Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 30 Web 3.0 Alternative Internet Architecture Crypto is more than blockchain it’s a suit of collective technologies • Web 3.0 is a vision for a better internet that replaces: application gatekeepers with unstoppable DApps on community protocols, dominant cloud providers with an edge computing architecture, data-monopolies with user-owned identity. Figure: Example of Decentralized Web Stack Sample Components Web 3.0 Internet Features: • Users are in control of their data & identity • Displaces platform intermediated interactions (Amazon, Facebook, Google, Uber, etc.). • Build on blockchain technologies: o Trust verification o Privacy-preserving and interoperable protocols o Decentralized infrastructure and application platforms o Decentralized identity Identity Decentralized Identity Applications DApp Front End DApp Back End Platforms Off-Chain Computing Off-Chain Decentralized Data Storage Protocols State Channel Scaling Zero Knowledge Privacy Decentralized Side-Channel Cross-Chain Decentralized Middleware Scaling Interoperability Messaging Source: FSInsight, Gartner Blockchain P2P Smart Connectivity Contract State Distributed On-Chain Machine Coordination Data For exclusive use of FSInsight clients January 28, 2021 Slide 31 Data-Based Platform Company Business Disintermediation Web 3.0 crypto ideal for replacing information network applications ▪ We’re living in an information economy where data is the new oil. Business models for many of the largest companies today across a range of industries involve brokering information. Web 3.0 cryptonetworks are being built to disintermediate data-based information network application providers. Figure: Data-based internet business model examples E-commerce Online Sharing 1. Data: • Clickstreams, purchases, reviews, and locations • Over 100 million Prime users Consumers 2. Value Creation: • Get access to one of the world’s largest E-commerce markets • Get better demand forecast • Logistics consulting & management services • Other data targeting services Third-party Sellers 1. Data: • Clickstreams, purchases, reviews, and locations • 28.9 million listed properties • 137,791 destinations • 229 countries Consumers 2. Value Creation: • Pricing strategy, demand forecast, access to world’s largest online travel markets, other data targeting services • Reduce inventory of highly perishable goods or monetize underutilized rooms Hotels, Private Properties, Rental Cars, Cruises, etc. 4. Value Creation: • Shopping benefits such as time saving, cheaper prices, more selections, recommendations, etc. 3. Value Capture: • Commissions (30%) and data targeting revenue • E-commerce: 10% of U.S. retail sales/Amazon: 43% market share/3rd party Sellers: 50% of Amazon e-commerce • 2017 US commission: $41.8 billion; Adv Rev: $3 billion; 2018 Premium Data Service Rev $18 billion 4. Value Creation: • Time saving, discount rates, lower transaction costs, package offers, more selections, recommendations, reviews, etc. 3. Value Capture: • Commissions/shared revenues (15%) and data targeting services revenues • 2017 US $11.8 billion (reservation sales); over 1.5 million rooms reserved per night • Advertising & other revenues <7% of total sales 1. Data: • Clickstreams, daily consumption & lending behaviors, locations, and bank account info • 870 million active users globally (mainly China) • Over 200 banks, 60 insurance companies, and 70,000 stores Consumers, Micro- businesses FinTech 2. Value Creation: • Cheaper credit ranking/risk management, and data targeting • Helps banks reach customers with no credit history • Targeting demand and credit score services to vendors such as hotels Third-party Sellers, Banks, Institutional Investors, Asset Managers, Charities 4. Value Creation: • Help consumers get cheaper loans • Easier and flexible payment methods • Faster credit solutions 3. Value Capture: • Commissions and interest revenue, advertising revenue, and other data targeting revenues • 2017 estimated net profit from Alipay: $1 billion (54% market share in China) Social Network Online Search Online Marketplace 1. Data: • Clickstreams, social networks, work preference • 500 million users and 43,000 corporate accounts over 200 countries Individuals 2. Value Creation: • Cheaper hiring and search costs, marketing Third-party Sellers, Corporations, Small Businesses 4. Value Creation: • Job search, online courses, and networking opportunities 3. Value Capture: • Commissions, targeted advertising revenue, and other data targeting revenue • Most revenue comes from selling access to its member data • 2015 revenue: $2.99 billion • 2016 Microsoft purchased LinkedIn for $26.4 billion 1. Data: • Search terms, revealed preferences, browsing behaviors, clickstreams, locations, demographics, etc. Individuals 2. Value Creation: • Google Analytics – data targeting services • Access to a large user base • Advertisers: increase ROI due to targeted ads; Content Providers: monetize their content Advertisers, Content Providers 4. Value Creation: • Free, convenient, and relevant way to get information 3. Value Capture: • Commissions, data targeting services revenues/over 4 million google advertisers/the world’s most popular website • In 2017 advertising revenue $95.4 billion; Booking Holdings spent $3 billion 1. Data: • Clickstreams, bidding and payment histories • 175 million active users in over 30 countries 2. Value Creation: • Marketing, donations, offer special sales channel; data targeting services Consumers, Businesses Consumers, Third-party Sellers, Charities, Governments 4. Value Creation: • Cheaper and more choices – new and second hand, special collections 3. Value Capture: • Commissions, targeted ad revenue, and other data targeting services revenue • eBay Analytics: 5,000 data analysts Source: FSInsight, Bureau of Economic Analysis (BEA) For exclusive use of FSInsight clients January 28, 2021 Slide 32 Although Blockchain Companies Have Accrued Substantial Value Currently, 15 Private Crypto Company Unicorns Estimated As $125B ▪ Most, including us, believe blockchain technology will have many impactful and disruptive applications. The “blockchain not bitcoin” crypto skeptic view has been that companies will capture the technology’s value. Thus far, we estimate private blockchain company unicorns represent ~$125B and another $25B for public ones. Figure: Private Blockchain Company Unicorns Date: Latest Available Estimated # Company Valuation ($B) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total Total Value $125B $70.0 $12.0 $10.5 $8.0 $4.0 $3.6 $3.0 $3.0 $3.0 $2.1 $2.0 $1.2 $1.0 $1.0 $1.0 $125.4 Source: FSInsight, FTX Coinbase Futures, Hurun Report, Internal Estimates For exclusive use of FSInsight clients January 28, 2021 Slide 33 Crypto Networks Have Captured Majority Value Thus Far Over twice as many public crypto asset unicorns' worth ~$900B ▪ Public crypto networks have thus far captured the greatest identifiable share of the technology value created from blockchain technology. There are 32 crypto network unicorns' worth ~$900B today. Public and private leading blockchain companies (~$150B) represent ~1/6th the value of public crypto network unicorns. Figure: Publicly Traded Crypto Network Unicorns Date: 1/26/2021 Total Value $900B # Crypto Asset Ticker 1 Bitcoin BTC 2 Ethereum ETH 3 Polkadot DOT 4 XRP XRP 5 Cardano ADA 6 Chainlink LINK 7 Litecoin LTC 8 Bitcoin Cash BCH 9 Binance Coin BNB 10 Stellar XLM 11 Uniswap UNI 12 Bitcoin SV BSV 13 Aave AAVE 14 EOS EOS 15 Monero XMR 16 Tezos XTZ Market Cap $600,888,568,010 $159,184,556,292 $16,268,654,954 $12,418,387,933 $11,010,118,427 $9,942,734,313 $9,387,244,668 $8,201,974,858 $6,472,081,160 $6,000,202,935 $3,450,685,059 $3,260,068,492 $3,251,074,104 $2,551,291,496 $2,449,982,301 $2,306,657,466 # Crypto Asset Ticker 17 THETA THETA 18 TRON TRX 19 NEM XEM 20 VeChain VET 21 Synthetix SNX 22 Neo NEO 23 Cosmos ATOM 24 Crypto.com Coin CRO 25 Maker MKR 26 UNUS SED LEO LEO 27 Celsius CEL 28 IOTA MIOTA 29 Huobi Token HT 30 Dogecoin DOGE 31 Dash DASH 32 Filecoin FIL Market Cap $1,951,568,156 $2,151,247,382 $1,931,684,350 $1,970,079,718 $2,006,589,973 $1,726,263,041 $1,724,896,717 $1,660,314,206 $1,447,987,046 $1,328,374,435 $1,265,159,636 $1,266,536,082 $1,126,008,369 $1,117,773,115 $1,055,206,545 $1,039,149,046 Source: FSInsight, Coinmarketcap For exclusive use of FSInsight clients January 28, 2021 Slide 34 Crypto Network Digital Autonomous Software Businesses New types of distributed autonomous organizations are emerging • Cryptonetworks take us from cloud companies to companies in the cloud operating as autonomous software entitles. Processes built into consensus programing of users across the network are what enable them to coordinate in a decentralized permissionless manner and deliver innovative software-based business solutions on a global scale. Figure: Gartner Digital Innovation Gartner predicts the next era of digital value will come from autonomous business which well positions software-run cryptonetworks to benefit Autonomous Business Value Digital Business Websites 1990s Source: FSInsight, Gartner Digital Marketing E-Business 2000s 2010s For exclusive use of FSInsight clients 2020s January 28, 2021 Slide 35 The New Technology Stack Bitcoin created a new layer of the internet financial tech stack ▪ As prior tech stack layer did, the new trust layer first enabled by Bitcoin and being used by other crypto networks will open new internet applications. Figure: The New Technology Stack Decentralization Trust Launch 2009 Value Exchange Financial Founded 2006 Launched 2021 Ubiquity Mobile Intelligence Cloud Launch 2007 Founded 1999 Launch 2006 IPO 2019 Connectivity Internet IPO 1995 Founded 2004 Source: FSInsight, Bain Capital Ventures Inspired 1990 2000 2010 2020 For exclusive use of FSInsight clients January 28, 2021 Slide 36 DLT’s Lowering Banking Costs & Reshaping Financial Sector Banking ripe for technological disruption ▪ Banks continue to make money regardless of rates and occupy a large share of GDP ▪ Reasons they have been targeted by emerging fintech players. Crypto may be about to eat into their market share. Figure: Interest Rate & Financial Sector GDP Share Trends Since 1970 Since 1970, interest rates have generally been falling… But the Financial sector has grown despite this… 10-year Interest rate Financial value-add as % GDP Nominal interest rate, beginning of period 10.0 9.0 10.0% 8.0 7.0 5.0% 6.0 5.0 4.0 2.5% 3.0 2.0 1.3% 1.0 China United States of America United Kingdom Korea (South) Japan Median EU Banking value capture is 6% of all GDP. The average person spends almost a month per year (~3.5 weeks) to pay for “right to use” financial system. Facebook rev per user (ad sales) ~$25 per year. For banks, $860$1,000 annually (global). 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Source: FSInsight, Bloomberg For exclusive use of FSInsight clients January 28, 2021 Slide 37 Replacing Trust Enables Disruptive Fintech Use Cases Real utility of crypto lower costs and capturing increased productivity • Value capture replacing “Trust” from traditional financial systems—Blockchain decentralizes trust • Productivity—replace workforce as “trust” entities on blockchain • Optimize working capital—averages 14% GDP, $11 trillion • Store of Value—$280T market, less than 0.5% share` Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 38 As Fintech Eats Finance, Crypto Is About To Eat Fintech Replacing trust-based systems with crypto software = value creation ▪ From banking to fintech and now from fintech to crypto, financial services may be about to change. Figure: Evolution of Banking Banking 1.0 Accessibility Trust-Based Software Financial System Costs Fintech 2.0 Accessibility Trust-Based Software Financial System Costs DeFi 3.0 AAcccceessssiibbiilliittyy Trust-Based Software Financial System Costs Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 39 BTC payments 3x larger, 99% cheaper, growing 12x faster vs PYPL How is this not talked about more? How is this not disruptive? ▪ PayPal now supports crypto for its customers and merchants but still charges its current take rates. ▪ What happens when PayPal customers realized they can lower their costs by just using crypto? Figure: PayPal vs. Bitcoin Payment Volume & Fee Take Rates Payment Transaction Volume Total Rate Take $3,000 $2,500 $2,000 3.79% 3.77% 3.62% 3.42% 3.28% 3.06% 2.87% 2.67% 2.50% 2.39% 4.00% 3.50% 3.00% 2.50% $1,500 2.00% Payment Transaction Volume Total Rate Take $3,000 $2,764 4.00% $2,500 3.50% $2,000 $2,118 3.00% $1,887 $1,910 2.50% $1,500 2.00% Billions Billions $1,000 $500 $826 $712 $578 $119 $150 $186 $235 $282 $354 $456 1.50% 1.00% 0.50% $0 0.00% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E Source: FSInsight, PayPal, Date: 2011 (2020A: PayPal Q2 Annualized, Crypto Q3 Annualized) $1,000 1.50% 1.00% $500 $463 0.50% $3 $0 0.001% $9 $81 0.00…0.003% $115 0.002% $149 0.002% 0.003% 0.018% 0.016%0.008% 0.010% 0.00% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E For exclusive use of FSInsight clients January 28, 2021 Slide 40 What’s An Asset That Saves Billions Of Dollars Worth? Disruption Value: Lifetime Cost Savings vs. Typical Payment: $260B ▪ Central Banks have thrown out playbook with low rates and negative yielding debt: why aren’t savings cash flows? ▪ Asset is hedge against price inflation for consumers & technology driven deflationary disruption for incumbents. Figure: Bitcoin Market Cap & Estimated Total Transaction Fee Cost Savings Date: 1/22/2021 $1,000 Market Cap (USD) Cumulative Cost Savings (BTC vs. 2.5% Take Rate) Billions $100 $10 $1 $0 $0 2012 Source: FSInsight 2013 2014 2015 2016 2017 2018 2019 2020 2021 For exclusive use of FSInsight clients January 28, 2021 Slide 41 Fintech Natively Integrated As First But Not Last Crypto Killer App Big tech players all looking to enter fintech but crypto stated there • Natively imbedded crypto Decentralized Finance (DeFi) moves legacy fintech beyond “doing radio on TV” and allows internet financial services to reach their full potential through integration within crypto app ecosystems. Figure: Tech and fintech convergence Fintech First TechFin Second Crypto Launched 2008 Launched 2014 Shopping Mobile Travel Search Social Source: FSInsight Tech First Launched 2006 Launched 2007 Launched 2007 IPO 2004 Launched 2004 TechFin Second Launched C 2013 o n n Launched ec 2014 ti vi Launched ty 2014 Launched 2015 Launched 2015 For exclusive use of FSInsight clients January 28, 2021 Slide 42 Crypto Network Platforms Advance Cloud Computing Computing trends have shifted from centralized to decentralized • Computing platforms moved in cycles from centralization to decentralization as new innovations emerged, with the dominant platform lagging the prior by ten years; furthering this trend, we’re entering the blockchain computing era. Figure: Historical Computing Trends Mainframes 1960s Client Server 1980s Cloud-Mobile 2000s Edge-Blockchain 2020s Decentralized The Apple Computer 1 was released in 1976 and the IBM Personal Computer was launched in 1981 Blockchain allows a distributed networks of computers to form agreement on database state and become a virtual machine Centralized IBM produced large computer systems for commercial use. These room-sized machines required a lot of space The top four cloud service providers (AWS, Microsoft Azure, Google Cloud, Alibaba Cloud) possess 57.6% market share Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 43 Decentralized Cloud Replacing Centralized Data Centers Data centers ran by big cloud providers being replaced by crypto nodes ▪ Blockchain protocol software is run atop global networks of computers forming them into a unified distributed autonomous cloud organization for building, hosting and deploying new types of decentralized applications (DApps). Figure: Global Data Centers & Ethereum Nodes Centralized Cloud Global Data Centers Decentralized Cloud Global Ethereum Nodes Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 44 Cloud to Blockchain Platform & Value Shift Underway Shifts create value as value shifts from one generation to the next ▪ Many investors are focused on the meteoric rise of the cloud as COVID has driven digital transformation. Yet, looking at history, as computing platforms moved from mainframe to client server to cloud, shifts created value and resulted in value transfer from one generation to the next. Blockchain computing looks to be replacing cloud. Figure: Historical Computing Platform Market Value Shifts Mainframe to Client Server Market Cap in Billions Client Server to Cloud Market Cap in Billions Cloud to Blockchain Market Cap(1) in Billions $1,321 $1,321 $1,425 $1,920 $301 $80 1987 $45 2004 $3 2004 $217 2014 $217 $5 2014 Mainframe Client Server Client Server Cloud Cloud Source: FSInsight, Salesforce, Bessemer Cloud Index, (1) 1/19/2021 Blockchain Market Cap represents Messari Smart Contract Platforms; 2014 Blockchain Market Cap represents total crypto market cap, Coinmarketcap. $212 2021 Blockchain For exclusive use of FSInsight clients January 28, 2021 Slide 45 As Cloud SaaS Has Been Eating Software The evolution of software distribution models is ongoing ▪ As software has evolved from physical on-premise to web-based subscription – it has unlocked new markets and grown the overall software market. Over the past 10yrs, Cloud Software-as-a-Service (“SaaS”) has enabled business to benefit from software innovation without having to bear infrastructure costs and grown to ~35% of the market. Figure: Evolution of Software Delivery Business Models Date: 1970 to 2021 SaaS Revenue ~$200B Source: FSInsight, Gartner, Battery Ventures For exclusive use of FSInsight clients January 28, 2021 Slide 46 Decentralized Apps Drove $600M FY-20 Ethereum Revenue YTD (1/18) $180M in fee revenue already implies $3.9B by FY 2021 ▪ Decentralized finance activity atop Ethereum generated ~$600M in transaction fee cloud revenue during 2020. ▪ During the first 18 days of 2021, Ethereum generated $180M in fee revenue, putting it on pace for $3.9B during 2021. Millions Figure: Ethereum Annual Cloud Fee Revenue Date: 2015 to YTD 2021 (1/24/2020) $4,000 $3,500 $3,000 $2,500 Ethereum Fee Revenue Ethereum FY-21E Revenue ~$4B or 2% SaaS $3,902 $2,000 $1,500 $1,000 $500 $0 Source: FSInsight $0.002 FY 2015A $0.15 FY 2016A $47 FY 2017A $160 FY 2018A $35 FY 2019A $596 FY 2020A YTD 2021 Annualized For exclusive use of FSInsight clients January 28, 2021 Slide 47 Large & Growing Decentralized Finance (DeFi) Ecosystem Smart contract apps built atop the ETH network hold ~$25B in value ▪ Ethereum has become the crypto industry leading platform for decentralized finance (DeFi) applications offering software enabled borrowing & lending, exchange, payments, and asset management services atop the network. Figure: Ethereum DeFi total value locked Date: 1/20/2021 Total Value Locked in DeFi (USD) Total Value Locked $25B Lending Exchange Derivatives Payments Asset Mgmt. Source: FSInsight, Defi Paulse For exclusive use of FSInsight clients January 28, 2021 Slide 48 Fintech & E-commerce Crypto Super App Platforms Emerging General purpose computing smart contracting platform for new apps • Crypto computing networks look capable of becoming new super app platforms, enabling versatile app products atop an open, permissionless and decentralized architecture, with natively imbedded financial capabilities. Figure: Traditional & New Crypto Super App Platforms Traditional Apps Standalone Apps App Suite Super Apps Super App Super App + Third-Party Mini Programs New Super Apps Crypto Computing Network + Third Party Super DApps A single app with a single main function Source: FSInsight, S&P Global A collection of apps with related functions and ability to integrate with one another, often owned by same company A single app with multiple functions, often facilitated by a payment system by the same company A single app allowing third-parties to develop lightweight “mini programs” that can run within app, censorable and controlled by parent company Open, permissionless and decentralized platforms that any third-party can build applications atop and use its natively imbedded crypto payments systems For exclusive use of FSInsight clients January 28, 2021 Slide 49 Crypto ”currencies”: Alipay & WeChat Pay Internet Economies 2.0 Computing platforms & app ecosystems with built in payments = crypto • Cryptonetworks’ imbedded “currencies” offer payment interoperability within their application ecosystems, much like Alipay and WeChat Pay, but using a natively digital form of value tied to that economy. Figure: WeChat & Alipay Internet Ecosystems $45 China Mobile Payment Transaction Volume $42 China Mobile Payment 700 $40 Volume Share% 600 $35 $30 3% $30 500 $25 $24 400 39% $20 $17 300 $15 $10 $5 $2 $4 53% 200 100 $0 2013 2014 2015 2016 2017 2018 0 Tenpay Alipay Others Source: FSInsight, Financial Times, Octoplus Media, iResearch, Bloomberg, Cambridge Global Crypto Benchmarking Study 2018 600 400 WeChat Alipay Pay Number of Users (millions) 210 139 87 34 33 28 24 Paypal Crypto Apple Samsung Amazon Chase Android Pay Pay Pay Pay Pay For exclusive use of FSInsight clients January 28, 2021 Slide 50 Crypto App Ecosystems Resembling Global Tech Giants Daaps are early but have been evolving and maturing rapidly • As with the early internet, crypto challengers are still maturing. Many parts of crypto today are slow and clunky, difficult to use, not feature rich, and only appealing to highly technical users - but so was the early internet. Today, we can already see blossoming ecosystems of innovation emerging across many segments dominated by Big Tech. Figure: Big Tech & Crypto Super App Product Offerings Businesses Application Big Tech App Example Crypto DApp Example Digital Media Publishing Messaging Online Games Search Advertising Content Distribution E-Commerce App Store Marketplaces Cloud Services Developer Training Software Tooling Cloud Infrastructure Source: FSInsight Fintech Services Digital Wallet Digital Payments Saving & Investing Borrowing & Lending Digital Insurance For exclusive use of FSInsight clients January 28, 2021 Slide 51 FAAMG enterprise value essentially ~70% users, data & IP Why can’t a network capture that intangible value? • The real value of a blockchain is in its network value – as users on the network grow, the value of the network should rise exponentially. FAAMG value is approximately 68% intangibles (excluding brand 18%) which one could argue are largely related to users, data & IP, demonstrating the opportunity for disruption and value capture by cryptonetworks. Figure: FAAMG Intangibles Ex-Brand $ millions EV Tangible Assets Intangible Value Estimates Users, data & IP value estimates Company Enterprise Value Prepaid Deferred Current Assets Intangible Intangibles PP&E Expenses Tax Assets LT Assets ex-Cash Value EV% Brand Intangibles Intangibles Value ex-brand ex-brand EV% 800,412 44,783 1,852 - 47,146 706,631 88% 189,000 517,631 65% 1,879,350 37,378 105,341 113,975 1,622,656 86% 352,000 1,270,656 68% 1,611,458 97,846 - 60,242 1,453,370 90% 220,791 1,232,579 76% 1,490,813 52,904 6,405 2,965 168,339 1,260,200 85% 119,595 1,140,605 77% 932,060 84,587 721 13,078 134,080 699,594 75% 324,000 375,594 40% FAAMG Composite 8,139,826 347,672 15,402 10,914 176,250 560,989 7,028,599 86% 1,487,586 5,541,013 68% Source: FSInsight, Bloomberg, Brand Finance: Global 500 Report, Visual Capitalist For exclusive use of FSInsight clients January 28, 2021 Slide 52 FAAMG Revenue ~$500B or 50%+ May Be Up For Disruption Advertising, software, marketplaces, cloud targeted by crypto • Half of FAAMG revenue1 could one day be at risk of cryptonetwork disruption. Of that value, advertising comprises 41%, with cloud computing comprising or 24%. Other revenue streams possibly at risk include third party seller services, subscription services, and other digital goods information network or data-based or software applications. Figure: FAAMG revenue streams at risk $ millions Segment Advertising Combined Share% Revenue Segment Revenue Segment Revenue Segment Revenue Segment 73,284 Services (Apps, Music, Maps, Cloud, etc.) 52,624 AWS Cloud 3rd-Party Seller Services 43,232 Server & Cloud Services 72,780 Office & Cloud Services 36,768 Google Advertising 33,864 Google Cloud Subscription Services 24,072 Windows 21,412 Other (Advertising) 16,884 Gaming 10,168 Advertising 7,964 LinkedIn 7,636 73,284 Combined 98% Share% 52,624 Combined 22% Share% 156,968 Combined 44% Share% 117,812 Combined 89% Share% Revenue 119,468 12,028 FAAMG More Likely 131,496 Combined 86% Share% 532,184 56% Other Combined Share% 1,464 Products (iPhone, iPad, etc.) 186,116 Online Stores Physical Stores 1,464 Combined 2% Share% 186,116 Combined 78% Share% 183,584 Enterprise Services 3,774 Devices Other 198,680 Combined 56% Share% 6,180 Google Other 4,808 Hedging gains 3,420 Other Bets 14,408 Combined 11% Share% Less 20,496 604 Likely 592 21,692 Combined 14% Share% 422,360 44% Total Revenue 74,748 Total Revenue 238,740 Total Revenue Source: FSInsight, Bloomberg, Estimated Using Q2 2020 Annualized Revenue ($ millions) 355,648 Total Revenue 132,220 Total Revenue 153,188 Total Revenue 954,544 For exclusive use of FSInsight clients January 28, 2021 Slide 53 Big Tech Headwinds Offer Macro Catalysts For Crypto Social and political forces targeting big tech are bullish for Web 3.0 ▪ Big Tech is facing several challenges that could act as catalysts for crypto. From GDPR data privacy, to monopoly power hearings on Capitol Hill, to democrat and republican platform politicization struggles, to an intensifying U.S. China tech cold war, to internet freedom globally - Big Tech has big problems that may pay off for crypto. Figure: Big Tech Controversies Source: FSInsight, Internet For exclusive use of FSInsight clients January 28, 2021 Slide 54 For exclusive use of FSInsight clients January 28, 2021 Slide 55 Price: Fourth Bull Market Cycle STILL Underway Outlook remains positive as expansion in its 4th or 5th innings ▪ We continue to believe the fourth crypto bull market cycle is intact and see the expansion in it’s 4th or 5th innings. Figure: Bitcoin Price Cycle History Date: 1/1/2010 to 12/28/2020 $150,000.00 $15,000.00 $1,500.00 $150.00 $15.00 6/8/2011 $29.03 P/B: 40.6x 53,688% -93% 12/4/2013 $1,135 P/B: 58.9x -85% 1/14/2015 $175.64 P/B: 2.1x 11,059% 12/16/2017 $19,640 P/B: 68.1x -84% 748% 12/15/2018 $3,185 P/B: 5.1x FY 2021E $100,000 P/B: 43.7x $1.50 725,648% $0.15 11/18/2011 $2.11 P/B: 1.0x $0.02 $0.00 2010 2011 2012 2013 Source: FSInsight, Bloomberg, Bitcoin Charts, Coinmetrics, Coinmarketcap 2014 2015 2016 2017 2018 2019 For exclusive use of FSInsight clients 2020 2021 January 28, 2021 Slide 56 Demand: Users Drive Demand & Value Per User Still Reasonable Bank & fintech user values ~$3k while BTC ~$8k but users growing faster ▪ We think given the 50% to 100% year over year Bitcoin wallet growth, higher per user values than traditional banking and fintech firms are justified and past cycle multiples show that current prices are not overly stretched. Figure: Bitcoin Market Value Per Wallet User Date:1/1/2013 to 1/24/2021 $25k Value Per Blockchian Wallet User (Demand Proxy) $20k $15k $10k $5k $0k 2013 2014 Source: FSInsight, Bloomberg, Coinmarketcap, Ark Invest 2015 2016 2017 2018 2019 For exclusive use of FSInsight clients 2020 2021 January 28, 2021 Slide 57 New Supply: Historical Post-Halving Returns Imply Further Upside Total supply = new + existing for sale; BTC halving cut first one in half ▪ History shows the price gains are quite dramatic post the two preceding halvening events. Notice the significant change in the gains of Bitcoin price into the halvening and after the halvening. Past trends imply there’s room to go. Figure: Comparison of Bitcoin price performance around halvening event 12 months prior to and 24 months following each halvening 51,200 BTC first halvening on 11/29/12 BTC second halvening on 7/9/16 BTC third halvening on 5/11/20 25,600 12,800 Halvening Event BTC Price (Rebased to 100 at 12m before halvening) 6,400 3,200 1,600 800 400 200 +23% 100 50 25 0 73 146 Source: FSInsight, Bloomberg, blockchain.info 219 292 365 438 511 584 657 730 803 876 949 1022 1095 # of Days (Day 0 = 12m before halvening) For exclusive use of FSInsight clients January 28, 2021 Slide 58 Existing Supply: Bitcoin More Expensive But Not A Bubble Book value = floor cost basis; PB rising but at mid-cycle levels ▪ Our proprietary valuation model, the Grider Price to Book Multiple (Slide 95), is a relative fundamental valuation metric that compares Bitcoin’s market cap (Price) to lifetime miner revenue/CAPEX (Book) to gauge macro cycles. Crypto investors tend to have high required rates of returns and historically don’t sell in mass until higher levels. Figure: Bitcoin Market Cap & Grider Crypto Book Valuation History Date:1/25/2021 $1,000,000,000,000 Bitcoin Market Cap Grider Crypto Book Value (Lifetime Mining Revenue) Grider Price to Book Multiple $600B 80x $100,000,000,000 $10,000,000,000 $1,000,000,000 $100,000,000 $10,000,000 $1,000,000 Expensive 40.6x Expensive 58.9x Expensive 68.1x 70x $22B 60x 50x BTC P/B valuation having mid cycle pause and reset 40x 30x $27.2x $100,000 $10,000 Cheap 2.8x Cheap 1.0x $1,000 2009 2010 2011 2012 Source: FSInsight, Bloomberg, Bitcoin Charts, Coinmetrics, Coinmarketcap 2013 Cheap 2.1c 2014 2015 2016 2017 Cheap 5.1x 2018 2019 2020 20x 10x 0x 2021 For exclusive use of FSInsight clients January 28, 2021 Slide 59 JPM Model Signals1 Market Turning Over After Prior Highs Our model signals healthy pause in longer term bull market uptrend ▪ There are several mining costs models. One reason we like ours, which looks at cumulative lifetime CAPEX costs vs. ones that look at current costs is because newly issued supply will only make up 1.8% of total supply in 2021 and we think understanding the existing supply base incentives is more important. Figure: Current vs. Cumulative Mining Cost Model Date: 1/1/2017 to 1/22/2021 JP Morgan Model: Ratio of Bitcoin market price to intrinsic value Intrinsic value estimated using the cost of production approach following Hayes (2018)1 Fundstrat Model: Ratio of Bitcoin market price to intrinsic value Intrinsic value estimated using the lifetime cost of production (miner revenue/security spend) approach following Grider (2018) 4.0x 70x 64.4x 3.5x 60x 3.1x 50x 40x 35.4x 30x 27.2x 20x 10x 0x Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Source: FSInsight, JP Morgan (1. We estimated implied JPM mining costs estimate after 1/6/2021 by adjusting for market value change since data was released), Coinmetrics For exclusive use of FSInsight clients January 28, 2021 Slide 60 Realized Value Was 25% Off Peak Or 1.5x Higher vs. Our Model Both indicate healthy correction but our model signals greater upside ▪ One model we like for understanding the exiting supply base is Realized value. It models the price of a coin the last time it was model on chain as the cost basis. The reason we still primarily look to ours is it’s less susceptible to gaming by investors moving coins intentionally to inflate the metrics and we also a have longer history of data. Figure: Realized Value vs. Cumulative Mining Cost Model Date: 1/1/2017 to 1/24/2021 Coinmetrics Model: Ratio of Bitcoin market price to intrinsic value Fundstrat Model: Ratio of Bitcoin market price to intrinsic value Intrinsic value estimated using the realized value approach following Intrinsic value estimated using the lifetime cost of production Carter, Puell, Mahmudov (2018) (miner revenue/security spend) approach following Grider (2018) 5.5x 70x 64.4x 5.0x 4.7x 60x 4.5x 50x 4.0x 3.8x 3.5x 40x 35.4x 3.0x 30x 2.5x 2.7x 27.2x 2.0x 20x 1.5x 1.0x 0.5x Jan-17 Aug-17 Mar-18 Oct-18 May-19 Dec-19 Jul-20 Source: FSInsight, JP Morgan, 10x 0x Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 For exclusive use of FSInsight clients January 28, 2021 Slide 61 Historical Cycle Data Signals Crypto Bull Market Continuation Bitcoin cycle returns falling, durations lengthening & multiples rising ▪ A reason we think the cycle could continue - if the cycle ended here it would be the shortest among prior crypto cycles, which have been lengthening and reaching higher valuations (justified in our view given de-risking), albeit offering lower but still impressive returns each subsequent cycle. Figure: Prior Bitcoin Bull Market Cycle Comparison Date: 1/24/2021 Cycle 1 Cycle 2 Cycle 3 Cycle 4 1000000% 967564% 80x Cycle 1 Cycle 2 Cycle 3 Cycle 4 68.1x 70x 100000% Full Cycle Returns Falling 60x 53519% Peak Cycle Multiples Rising 58.9x 10000% 1000% 911% 50x 11082% 40x 30x 40.6x 27.2x 100% 20x Cycle Durations 10% Getting Longer 10x 1% 1 99 197 295 393 491 589 687 785 883 981 0x 1 90 179 268 357 446 535 624 713 802 891 980 Source: FSInsight, Coinmetrics For exclusive use of FSInsight clients January 28, 2021 Slide 62 Bitcoin Forecast: FY-2021 Fundamental Economic Estimates Increasing estimates and multiple expectations based on macro trends Market Data Price (YE) Return (YoY) Market Cap ($M) Change (YoY) Supply Out (M) Dilution (YoY) Financial Metrics Total Payment Volume ($M) Change (YoY) Transaction Fee Revenue ($M) Change (YoY) Payment Processing Costs ($M) Change (YoY) Grider Crypto Book Value ($M) Change (YoY) Book Value Per Share ($M) Change (YoY) Key Performance Indicators Transaction Take Rate% Change (YoY) PayPal Total Take Rate% Change (YoY) Cost Savings vs. PayPal ($M) Change (YoY) Active Bitcoin Wallet Users (M) Change (YoY) Average Revenue Per User (ARPU) Change (YoY) Customer Acquisition Cost (CAC) Change (YoY) Implied GDP (Assumed 2.5x Velocity) Valuation Metrics Value Per User (VPU) Cost Savings Multiple (Annual) Market Cap / Implied GDP (%) Price to Book (P/B) FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 $0.001 n/a $0.001 n/a 1.62 n/a $0.30 39171% $1.51 121254% 5.02 209% $4.71 1471% $37.72 2405% 8.00 59% $13.5 187% $143.77 281% 10.61 33% $730 5286% $8,901 6091% 12.20 15% $321 -56% $4,384 -51% 13.67 12% $430 34% $6,458 47% 15.03 10% $969 126% $15,577 141% 16.08 7% $13,921 1337% $233,524 1399% 16.77 4% FY 2018 FY 2019 YTD 2020 FY 2021E $3,687 -74% $64,362 -72% 17.46 4% $7,167 94% $129,970 102% 18.13 4% $29,023 305% $539,438 315% 18.59 2% $101,236 249% $1,914,907 255% 18.92 2% $0.000 n/a $0.000 n/a n/a $0.001 n/a $0.001 n/a $1.998 942540% $0.000 n/a $0.233 n/a $0.23 18799% $0.047 6016% $2,510 125481% $0.03 877925% $18 7438% $17.85 7511% $2.23 4675% $8,810 251% $0.07 116% $21 20% $39.0 118% $3.7 65% $81,361 823% $2.17 3232% $306 1352% $347 791% $28.5 675% $115,074 41% $2.44 12% $782 156% $1,132 226% $82.8 191% $149,167 30% $2.34 -4% $373 -52% $1,507 33% $100 21% $462,617 210% $13.6 483% $558 50% $2,079 38% $129 29% $2,763,896 497% $554 3965% $2,830 407% $5,463 163% $326 152% $2,117,775 -23% $284 -49% $5,202 84% $10,949 100% $627 93% $1,887,381 -11% $155 -45% $5,019 -4% $16,124 47% $889 42% $2,335,824 24% $326 110% $4,686 -7% $21,136 31% $1,137 28% $8,627,934 269% $2,113 548% $20,592 339% $43,841 107% $2,318 104% n/a n/a 0.001% 0.001% 0.003% 0.002% 0.002% 0.003% 0.020% 0.013% 0.008% 0.014% 0.024% n/a n/a n/a -38% 261% -20% -26% 88% 580% -33% -38% 69% 76% n/a n/a 3.788% 3.773% 3.624% 3.422% 3.283% 3.062% 2.869% 2.671% 2.496% 2.392% 2.292% n/a n/a n/a 0% -4% -6% -4% -7% -6% -7% -7% -4% -4% n/a n/a $95 $332 $2,947 $3,936 $4,895 $14,152 $78,756 $56,285 $46,955 $55,547 $195,664 n/a n/a n/a 250% 787% 34% 24% 189% 457% -29% -17% 18% 252% n/a n/a 0.0004 0.065 0.9 2.7 5.4 10.9 21.3 31.9 44.5 63.4 158.6 n/a n/a n/a n/a 1295% 198% 100% 103% 96% 49% 39% 43% 150% n/a n/a n/a n/a $2.40 $0.91 $0.43 $1.25 $25.94 $8.89 $3.50 $5.14 $13.32 n/a n/a n/a n/a n/a -62% -52% 187% 1979% -66% -61% 47% 159% n/a n/a n/a n/a $339 $438 $139 $101 $271 $493 $399 $247 $185 n/a n/a n/a n/a n/a 29% -68% -27% 169% 82% -19% -38% -25% $1,004 $3,524 $32,545 $46,029 $59,667 $185,047 $1,105,558 $847,110 $754,952 $934,330 $3,451,174 n/a n/a $92,915 $2,222 $9,860 $1,630 $1,200 $1,427 $10,940 $2,018 $2,922 $8,502 $12,073 n/a n/a 0.4x 0.4x 3.0x 1.1x 1.3x 1.1x 3.0x 1.1x 2.8x 9.7x 9.8x n/a n/a 4% 4% 27% 10% 11% 8% 21% 8% 17% 58% 55% n/a 6.4x 2.1x 3.7x 25.6x 3.9x 4.3x 7.5x 42.7x 5.9x 8.1x 25.5x 43.7x Source: FSInsight, Bloomberg, Blockchain.info, Cambridge University, Coinmetrics, Coinmarketcap, 1) Ark Invest For exclusive use of FSInsight clients January 28, 2021 Slide 63 For exclusive use of FSInsight clients January 28, 2021 Slide 64 Monetary: Central Banks Dropping Money From The Sky “In theory at least, helicopter money could prove a valuable tool,” Bernanke writes. “In particular, it has the attractive feature that it should work even when more conventional monetary policies are ineffective and the initial level of government debt is high.” The term was invented by famed conservative economist Milton Friedman, who used the metaphor of dropping money down from a helicopter to illustrate the fact that a determined central bank could cause inflation if it really wanted to, if by no other means than simply handing out free money. For exclusive use of FSInsight clients January 28, 2021 Slide 65 Monetary: Central Bank Balance Sheet Growth Fuels Crypto Liquidity benefits Bitcoin prices like other risk on assets ▪ Macro conditions have a major influence on crypto emerging market economies. ▪ Prior Bitcoin and crypto bull price cycles have correlated with greater central bank liquidity. Figure: Major Central Bank (FED, ECB, BOJ, PBOC) Balance Sheet Growth (Since BTC Inception) Date: 1/1/2010 to 1/24/2021 $1,000,000 FED Assets Change BOJ Assets Change Bitcoin (BTC) Market Cap ECB Assets Change PBOC Assets Change Grider Bitcoin Book Value (Lifetime Miner Revenue) $20 Millions Trillions $18 $100,000 $16 $10,000 $14 $1,000 $12 $100 $10 $10 $8 $6 $1 $4 $0 $2 $0 2010 Source: FSInsight, Bloomberg 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $0 2021 For exclusive use of FSInsight clients January 28, 2021 Slide 66 Monetary: Crypto Bull & Bear Cycles Lag QE By ~1 Year Past crypto bull cycles didn’t peak over until a year after QE slowed ▪ Past cycles historically continued until asset growth slowed or turned negative. Figure: Major Central Bank (FED, ECB, BOJ, PBOC) YoY Balance Sheet Growth Date: 1/1/2010 to 1/24/2021 100x Grider Price to Book Multiple Major Central Bank Assets (YoY%) 90x 45% 80x 35% 70x 60x 25% 50x 40x 15% 30x 20x 5% 10x 0x 2010 2011 Source: FSInsight, Bloomberg 2012 2013 2014 2015 2016 2017 2018 2019 2020 -5% 2021 For exclusive use of FSInsight clients January 28, 2021 Slide 67 Monetary: This Cycle All Central Banks Have Foot On The Gas FED, ECB, BOJ & PBOC all employing accommodative policy together ▪ Different from prior two cycles, all the major central banks are headed in the same direction. Figure: Central Bank YoY Balance Growth vs. Bitcoin P/B Date: 1/1/2010 to 1/24/2021 80x Yes Yes 70x Grider Price to Book Multiple No Yes FED Assets Growth YoY 60x 50x 100% 80% 60% 40x 40% 30x 20% 20x 0% 10x 0x -20% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 80x Yes Yes 70x Grider Price to Book Multiple 60x BOJ Assets Growth YoY No Yes 70% 60% 50% 50x 40% 40x 30% 30x 20% 20x 10% 10x 0% 0x -10% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FSInsight, Bloomberg 80x Yes No 70x Grider Price to Book Multiple ECB Assets Growth YoY 60x Yes Yes 80% 70% 60% 50% 50x 40% 30% 40x 20% 30x 10% 20x 0% -10% 10x -20% 0x -30% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 80x Yes Yes 70x Grider Price to Book Multiple PBOC Assets Growth YoY Yes Yes 30% 25% 60x 20% 50x 15% 40x 10% 30x 5% 20x 0% 10x -5% 0x -10% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 For exclusive use of FSInsight clients January 28, 2021 Slide 68 Currencies: Weaker Dollar Supports Higher Bitcoin Valuations Expected further dollar weakness into year end bullish for crypto ▪ As the dollar weakens Bitcoin strengthens. Dollar outlook for 2021 is for continued weakness. Figure: Dollar Index (Inverted) vs. Bitcoin PB Date: 1/1/2010 to 1/24/2021 $70 Weaker Dollar Weaker Dollar $75 Dollar Index DXY (Inverted) $80 Weaker $85 Dollar $90 $95 $100 $105 80x 70x 60x 50x 40x Higher Valuations 30x 20x 10x 0x 2010 2011 2012 Source: FSInsight, Bloomberg, Coinmetrics, Coinmarketcap Higher Valuations Grider Price to Book Multiple Higher Valuations 2013 2014 2015 2016 2017 2018 For exclusive use of FSInsight clients Weaker Dollar Higher Valuations 2019 2020 2021 January 28, 2021 Slide 69 Currencies: Bitcoin Strengthens As EM Currencies Rise Crypto emerging market prices move with traditional EM currencies ▪ Crypto emerging market currencies move along with traditional emerging market currencies benefited by capital flows. Figure: MSCI Emerging Market Currency Index vs. Bitcoin Price to Book Date: 1/1/2010 to 1/25/2021 1750 EM Bitcoin MSCI Emerging Market Currency Index Bitcoin PB 70x up Stronger 1700 60x 1650 50x 1600 40x 1550 30x 1500 20x 1450 EM Bitcoin down Weaker 1400 2010 Source: FSInsight, Bloomberg 2011 2012 2013 2014 2015 2016 2017 2018 For exclusive use of FSInsight clients 2019 2020 January 28, 2021 10x 0x 2021 Slide 70 Rates: Expensive Treasuries = Cheap Bitcoin & Visa Versa Bond P/E (Inverse Yield) & Bitcoin P/B valuation history (2010-2019) ▪ Consistent with discount rate effect for all assets, as treasury rates move lower, and implied bond PEs rise – Bitcoin has tended to look cheaper – and as rates rise and bond PEs fall – Bitcoin has tended to look more expensive. Figure: Bond P/E (Inverse 10 Yr. Treasury Yield) vs. Bitcoin P/B Date: 1/1/2010 to 12/31/2019 80x Bonds Expensive 60x Bonds Expensive Bonds Expensive Bond P/E Bonds Expensive Bonds Expensive Bonds Expensive 40x 20x BondsBonds 0x ExpensiCvheeap 80 Bitcoin Expensive 60 Bonds Cheap Bitcoin Bitcoin P/B Expensive Bonds Cheap Bitcoin Expensive 40 Bitcoin 20 Cheap Bitcoin Cheap Bitcoin Cheap 0 2010 2011 2012 Source: FSInsight, St. Louis Fed, Bloomberg, Coinmetrics 2013 2014 2015 2016 2017 For exclusive use of FSInsight clients Bitcoin Cheap 2018 2019 January 28, 2021 Slide 71 Rates: Low Rates Make Past & Current Cycles Look Cheap Bond P/E (Inverse Yield) & Bitcoin P/B valuation history (2010-2021) ▪ Historically low-rates make Bitcoin look cheap comparatively which may signal upside. Figure: Bond P/E (Inverse 10 Yr. Treasury Yield) vs. Bitcoin P/B Date: 1/1/2010 to 1/24/2021 200x 150x Bond P/E 100x 50x Bonds 0x Cheap Bonds Cheap Bonds Expensive Bonds Cheap 200x Bitcoin P/B 150x 100x Bitcoin 50x Cheap Bitcoin Cheap Bitcoin Cheap 0x 2010 2011 2012 Source: FSInsight, St. Louis Fed, Bloomberg, Coinmetrics 2013 2014 2015 2016 2017 2018 For exclusive use of FSInsight clients Bitcoin Cheap 2019 2020 2021 January 28, 2021 Slide 72 Rates: High Yield Credit Leads BTC & Signals Further Upside High Yield PEs & Bitcoin PBs Correlated As Investors Seek Returns ▪ As low rates push investors out on the credit / risk curve into assets like high yield bonds, capital also flows into Bitcoin and crypto – a reason we see credit as a leading indicator for crypto prices – which is signaling upside. Figure: High Yield Bond P/E (Inverse ICE BofA US High Yield Index Effective Yield) vs. Bitcoin P/B Date: 1/1/2010 to 1/26/2021 24x HY P/E Bitcoin Up Stronger High Yield Bond P/E Bitcoin P/B 70x 22x 60x 20x 50x 18x 40x 16x 30x 14x 20x 12x 10x HY P/E Bitcoin Down Weaker 10x 2010 Source: FSInsight, Bloomberg, St Louis Fed 2011 2012 2013 2014 2015 2016 2017 2018 For exclusive use of FSInsight clients 0x 2019 2020 2021 January 28, 2021 Slide 73 Billions Trillions Negative Yielding Debt Worth $18T Searching For A Home Bitcoin $0.7T Market Cap ONLY 4% Global Negative Yielding Debt ▪ Bitcoin gets criticized for needing another buyer at a higher price in order to generate a return. ▪ Negative yielding debt has a similar requirement – and there’s $18T of it which we view as bullish for crypto. Figure: Global Negative Yielding Debt & Bitcoin Market Cap Date: 12/31/2009 to 1/27/2021 Bitcoin Market Cap Global Negative Yielding Debt $800 $20 $700 $18 $16 $600 $14 $500 $12 $400 $10 $300 $8 $6 $200 $4 $100 $2 $0 12/31/2009 12/31/2011 12/31/2013 12/31/2015 12/31/2017 $0 12/31/2019 Source: FSInsight, Bloomberg For exclusive use of FSInsight clients January 28, 2021 Slide 74 Bitcoin performed in synch with the S&P 500 during its 11-year history • In years where the S&P 500 has the strongest gains, we see the best returns for Bitcoin. Does this mean Bitcoin is a risk-on asset? Maybe. But we think the better explanation is Bitcoin works best when there is a clear macro trend. Figure: Comparative performance of Bitcoin and S&P 500 Since 2010 S&P 500 Stock M arket Trend Bitcoin Annual Performance (%) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 17 -0 13 30 11 -1 10 19 -6 29 16 Strong No Up Strong Up Down Up Strong Down Strong Strong 200 1,467 187 5,485 -58 34 124 1,369 -74 92 303 Stock market trend is … Up / No Down Trend Strong -3 9 22 -20 430 1,490 Bitcoin shows the best returns when S&P 500 has strong gains (>15%) Source: FSInsight, Bloomberg For exclusive use of FSInsight clients January 28, 2021 Slide 75 Bitcoin 250% Forecast Reasonable vs. S&P 500 14% FY-2021E Fundstrat FY 21 Bitcoin target of $100k vs. S&P 500 target of 4,300 ▪ Positive correlation between S&P 500 and Bitcoin is best seen in a chart. Our Bitcoin forecast for FY 2021 of $100K implies ~250% returns while our (Tom Lee’s) S&P 500 forecast for 2021 of 4,300 implies 14% returns. Figure: Comparative return of Bitcoin and S&P 500 Since 2010 6,000 5,000 FY 2021E 2013 4,000 Bitcoin 250% S&P 500 14% 3,000 BTC Annual Performance(%) (Log Scale) 2,000 1,000 0 -1,000 -10 2018 -5 Source: FSInsight, Bloomberg, Factset 2011 2015 0 2017 2016 2021E 2020 2012 2010 2014 5 10 15 20 S&P 500 Annual Performance (%) For exclusive use of FSInsight clients 2019 25 30 35 January 28, 2021 Slide 76 Crypto Can Be An Emerging Market Income Generating Asset Lending yields for Bitcoin between 3% to 8.25% attractive to many ▪ Bitcoin and crypto can be borrowed and lent out. A large market for this has emerged as the crypto financial system has grown. We think investors will find this added yield attractive and it could attract capital flows to crypto. Figure: Crypto Borrowing and lending Rates Date: Q2 2018 to January 2021 Genesis Capital Crypto Borrowing & Lending Rates Quarter Median BTC Borrow Rate Median USD Borrow Rate (Quarter Close) (Quarter Close) Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 3.000% 3.500% 3.500% 4.000% 4.000% 4.250% 4.330% 5.500% 5.000% 5.000% 4.000% 2.500% 6.000% 8.000% 8.000% 8.500% 8.000% 8.500% 9.000% 9.500% Source: FSInsight, Defirate, Genesis Capital For exclusive use of FSInsight clients January 28, 2021 Slide 77 T.I.N.A. – There Is No Alternative Relative Cross Asset Class Yield Based Valuations ▪ Investors will look at crypto total returns in the context of other assets. Holding crypto and loaning it out for yield isn’t that dissimilar from owning and renting emerging real estate. Crypto lending yields do carry greater volatility risks but on a total return basis they have been attractive, and we think this method offers a useful, interesting proxy. Figure: Global Assets Actual or Implied Yields & PEs Date: 1/6/2021 Yield (Earning Yield) P/E (or implied P/E) UST 10-yr US Investment grade bonds US High yield 1.03% 2.00% 4.16% UST 10-yr US Investment grade bonds US High yield 24.0x 50.0x 97.2x FANG US Technology (Large-cap) S&P 500 3.01% 4.06% 5.11% FANG US Technology (Large-cap) S&P 500 33.2x 24.6x 19.6x MSCI EM NYC Office Building NYC Multi-Family Bitcoin 7.43% 4.38% 5.38% 8.25% MSCI EM NYC Office Building NYC Multi-Family Bitcoin 13.5x 22.9x 18.6x 12.1x Isn’t BTC & ETH Emerging Market Large Cap Tech? Ethereum 15.75% Ethereum 6.3x Source: FSInsight, Bloomberg For exclusive use of FSInsight clients January 28, 2021 Slide 78 For exclusive use of FSInsight clients January 28, 2021 Slide 79 Crypto Getting Large Enough To Be Institutionally Investable Crypto increased 5X since 2020 but is ONLY 0.25% of global assets Global Bonds: $86 Trillion US Global Stocks: $68 Trillion US Art: $17 Trillion Gold: $9 Trillion RoW RoW Crypto $1 Trillion Real Estate: $230 Trillion Source: FSInsight, Bloomberg, Date: 12/14/2020 For exclusive use of FSInsight clients January 28, 2021 Slide 80 Wall Street Buy-Side Investors & Sell-Side Banks Taking Notice Several major institutional firms are making bullish calls on crypto “The adoption of Bitcoin by institutional investors has only begun.” Nikolaos Panigirtzoglou, December 2020 Paul Tudor Jones invests 2% of assets in Bitcoin. “Every day that goes by that Bitcoin survives, the trust in it will go up.” Square invests $50 million, or 1% of cash reserves, in Bitcoin and its users purchase $1.63 billion of Bitcoin in the third quarter “Do I think it’s a durable mechanism that could take the place of gold to a large extent? Yes, I do, because it’s so much more functional than passing a bar of gold around.” Rick Rieder, November 2020 “The whole existence of Bitcoin has been characterized by unthinkable rallies followed by painful correction. This move could potentially peak in December 2021..suggesting a move as high as $318,000.” Tom Fitzpatrick, November 2020 Grayscale Bitcoin Trust exceeds $12 billion in assets Stan Druckenmiller announces long Bitcoin position Ray Dalio: “I think that Bitcoin has over the last ten years established itself as an interesting goldlike alternative.” Ruffer Investment Company, a U.K. asset manager, acquires $744 million Bitcoin, or 2.7% of assets under management MicroStrategy, a Nasdaq traded software company, invests $425 million of its cash reserves in Bitcoin PayPal provides its 238 million active U.S. users with the functionality to buy Bitcoin Ricardo Salinas Pliego, Mexico’s second richest man, announces that he has 10% of his liquid assets in Bitcoin Guggenheim files with the SEC to invest up to $530 million of its Macro Opportunities Fund in Bitcoin MassMutual Life Insurance buys $100 million of Bitcoin for its investment portfolios One River and Alan Howard raise $1 billion for a dedicated digital assets fund. “There is going to be a generational allocation to this new asset class.” “There seems to be an increasing demand to use Bitcoin where gold used to be used to hedge dollar risk, inflation and other things.” Jim Reid, November 2020 “I have changed my mind about Bitcoin’s role in asset allocation. In January 2018, we declared that it has no such role…we have to admit that it does.” Inigo Fraser Jenkins, November 2020 Source: FSInsight, Skybridge Capital For exclusive use of FSInsight clients “There are reasons to think this Bitcoin rush has deeper roots. Bitcoin will gain from widening distrust in the traditional alternatives.” Ruchir Sharma, December 2020 January 28, 2021 Slide 81 Reputational Risk For Investing In Crypto Greatly Diminished Changing media perception & lower career risk for investing in crypto Bitcoin: $138 “Becoming the next bubble” Bitcoin: $34,000 “Integrated into financial system” Source: FSInsight For exclusive use of FSInsight clients January 28, 2021 Slide 82 More Regulatory Certainty Lowers Risk Premium = Higher Price Bitcoin and several others seem very unlikely to get banned at this point Source: FSInsight, Skybridge Capital For exclusive use of FSInsight clients January 28, 2021 Slide 83 Billions Crypto Funds’ Assets Under Management Likely Passed $50B Grayscale Bitcoin Trust alone generating billions dollar in demand ▪ Crypto funds are seeing increased assets and increased fund flows which is bullish for bitcoin and crypto. Figure: Estimated Crypto Fund Assets Under Management $60 $50 $40 $30 $20 $10 $0 Source: FSInsight, Crypto Fund Report For exclusive use of FSInsight clients January 28, 2021 Slide 84 Headline Grabbing Forecasts Imply Highly Bullish Consensus Many prominent investors have made bold calls on Bitcoin ▪ It would seem Bitcoin and crypto is the most crowded trade on Wall Street based on the many eye-popping crypto calls, which may seem too aggressive to be realistic at times. Figure: “Bitcoin will surge to $1 million in 5 years by an ‘enormous wall of money,’ former Goldman Sachs hedge-fund chief says” Raoul Pal, October 2020 “Virgin Galactic’s Chamath Palihapitiya: Bitcoin could go to $1 Million, Everybody should own some” Chamath Palihapitiya, April 2020 “Bitcoin could hit $500,000, the Founder and CEO of Ark Invest Says” Cathie Wood, November 2020 “Guggenheim’s Scott Minerd says Bitcoin should be worth $400,000” Scott Minerd, December 2020 “Bitcoin at $318,000 next December? One Citibank Executive says it’s possible” Tom Fitzpatrick, November 2020 “JPMorgan says Bitcoin could surge to $146,000 in long term” Nikolaos Panigirtzoglou, January 2021 “Bitcoin to peak at $115,000 by August, says Pantera Capital CEO” Dan Morehead, April 2020 “Billionaire Mike Novogratz says Bitcoin will hit $65,000 Source: FSInsight, Bloomberg, Coindesk, Yahoo, Barron’s, Business Insider Mike Novogratz, November 2020 For exclusive use of FSInsight clients January 28, 2021 Slide 85 Options Pricing Signals Consensus May Actually Be Too Bearish Market assigning less than 10% chance Bitcoin above $100k by year end ▪ One would think the consensus is $100k Bitcoin based on many seemingly aggressive calls. ▪ But the options markets tell us that is not the outcome that’s being prices in. Figure: Probability of BTC being above X$ per maturity Source: FSInsight, Skew For exclusive use of FSInsight clients January 28, 2021 Slide 86 Institutional FOMO: Tesla --> Bitcoin Tesla 2020 rally due to Russell 1000 Growth Manager FOMO = BTC 2021? ▪ Bitcoin and crypto are now entering the institutional investor universe as Tesla was skyrocketing in the Russell 1000. ▪ If crypto outperforms and peer manager have exposure that others don’t we may see a case of institutional FOMO. Figure: Probability of BTC being above X$ per maturity Source: FSInsight, Skew For exclusive use of FSInsight clients January 28, 2021 Slide 87 Definitions ▪ Active Crypto Users: Estimated users based on the greater of Blockchain.info Bitcoin wallets or the lower bound of crypto users estimated by Cambridge University. ▪ Average Revenue Per User: Annual transaction fee revenue divided by the number Active Crypto Users. ▪ Bitcoin: the most popular blockchain cryptocurrency, has been evolving into a store of value, while another popular blockchain cryptocurrency, Ethereum, is developing use cases in areas such as decentralized applications, smart contracts and token issuance ▪ Blockchain: a distributed database existing on multiple computers at the same time. It is constantly growing as new sets of recordings, or 'blocks', are added to it. Each block contains a series of transactions or other information, a timestamp and a link to the previous block, and a cryptographic hash or signature. Any change to a block changes the signature, which affects the header field for the next and subsequent blocks. Thus, any altered block is immediately identifiable, making the blockchain immutable. ▪ Consensus: the process by which all of the computers reconcile their version of the database and come to an agreement as to which entries to add into their database in the latest block, and to discard their block and replace it with the one a minimum percentage of other computers (typically 51%67%) all agree is the valid block. ▪ Customer Acquisition Cost: Number of new Active Crypto Users divided by the Payment Processing Cost during period. ▪ Distributed Ledger: a more general version of a blockchain, and encompasses other constructs, as long as the ledger is independently replicated across multiple computers with no single computer acting as the source of data in the ledger. ▪ Grider Crypto Book Value: The sum USD value of all miner revenue (transaction fees plus newly issued block rewards or Payment Processing Costs) for all time from genesis up to the end of that interval. The methodology expanded on the Hayes mining model, which looks at the current costs, and instead tracked the cumulative or aggregate lifetime costs. The model was first developed in December of 2017 and made public in January 2018 by David Grider in the following linked report on page 9 and 13 described as Cryptocurrency Mining Store of Value Model and methodology later more fully detailed in the following linked report. ▪ Grider Book Value Per Share: The Grider Crypto Book Value divided by the number of native crypto assets outstanding. ▪ Grider Crypto Book Value Multiple: The market capitalization (price times number of assets outstanding) divided by the Grider Crypto Book Value. ▪ Major Central Banks: Collectively, the Federal Reserve (FED), European Central Bank (ECB), Bank of Japan (BOJ) and the Peoples Bank of China (PBOC) ▪ Mining: the process by which Bitcoin or other token “Miners” process and validate transactions, with the first miner to solve a cryptographic puzzle validating the block and receiving a reward (currently 6.25 bitcoin each); other miners have to then replicate the result to confirm and move on to the next block. ▪ Payment Processing Costs: Value of all newly issued Bitcoin paid to miners as block rewards which dilute (inflate) the existing supply, and which we view as similar to stock compensation and classify as an expense to network stakeholders. ▪ Total Take Rate: The total transaction fee revenue (USD) divided by the total transaction value (USD) sent during the period. 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Except in circumstances where FSInsight expressly agrees otherwise in writing, FSInsight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications. Copyright © 2021 FSInsight LLC. All rights reserved. No part of this material may be reprinted, sold or redistributed without the prior written consent of FSInsight LLC. For exclusive use of FSInsight clients January 28, 2021 Slide 89
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