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Thomas J. Lee, CFA AC

Head of [email protected]: @Fundstrat

Robert Sluymer, CFAAC

Head of Technical [email protected]: @rsluymer

Sam Doctor AC

Head of Data Science [email protected]: @fundstratQuant

L. Thomas BlockPolicy [email protected]: @TomBlock_FS

Portfolio Strategy Quantitative StrategyTechnical Strategy Washington & Policy

Strategy

For Reg AC certification and other important disclosures, see Disclosures, Slide 65.

Crypto Currency Strategy

Thomas J. Lee, CFA AC

Robert Sluymer, CFAAC

Sam Doctor AC

Ken Xuan

www.Fundstrat.com | Bloomberg: FSGA <<GO>>

Bitcoin and BlockchainTrust, Millennials and Disruption

Source: Fundstrat, Bloomberg, Updata

Slide 2

The Fundstrat Research Team

Thomas J. Lee, CFACo-Founder, Head of ResearchIn research: 25 yearsPrior to founding Fundstrat, Mr. Lee was at J.P. Morgan from 1999 to 2014 and served as Chief Equity Strategist from 2007 to 2014. He was top-ranked by Institutional Investor every year since 1998. Previously served as Managing Director at Salomon Smith Barney. Mr. Lee graduated from the undergraduate program at the Wharton School, University of Pennsylvania.

Sam DoctorHead of Data Science ResearchIn research: 18 yearsHead of Data Science Research. Former US Small and Mid Cap Technology Analyst and India Small / Mid Cap Strategist at J.P. Morgan Chase.

Rob Sluymer, CFAHead of Technical Analysis StrategyIn research: 26 yearsHead of Technical Research with over 26 years experience writing technical research at RBC Capital Markets

L. Thomas BlockWashington and Policy StrategistHead of JPM policy: 21 yearsTom had a 21-year career at J.P. Morgan, serving as Global Head of Government Relations. Prior to joining JP Morgan Chase in 1987, he previously worked in Washington and held several positions with members of the House and Senate, serving as Legislative Assistant and Chief of Staff in the House, and Legislative Staff Director in the Senate

Alex KernResearch AnalystIn research: 3 yearsPreviously conducted blockchain technology research with Digital Currency Group. Prior to that, Alex was a Fintech and Payments Equity Research Associate with Cowen & Co. Alex received his B.A. in History from the University of Pennsylvania in 2014.

Ken XuanQuantitative AnalystIn research: 4 yearsData scientist with expertise in applied mathematics and statistical analysis. Ken was an operations strategy consultant at West Monroe Partners. Ken received a B.S. degree in Management, Economics from Purdue University in 2013 and an M.S. degree in Operations Research from Columbia University in 2017.

For exclusive use of Fundstrat clients

For exclusive use of Fundstrat clients Slide 3

Executive Summary

• Overview

• Are banks too powerful?

• Demographics—Millennials

• Wall Street smells profits

• Wall Street cares—Diversification

Source: Fundstrat, Bloomberg

Perspective on Bear markets: Lookback at the Global Financial Crisis


Figure: Duration of S&P 500 Bear markets versus “retracement”Since 1929. From JPMorgan report by Thomas Lee dated November 2008

DURATION does not matter… the time in a “bear market” is actually less relevant

Great Depression:34 months

Stagflation (’73-’74):21 months

GFC (2008):17 months

+4

Figure: Retracement matters moreSince 1929. From JPMorgan report by Thomas Lee dated November 2008

RETRACEMENT matters: How much of the previous bull market do you “give up”

2 greatest bear markets in US history…

What S&P 500 should bottom at in 2009, if we used the two precedent greatest bear markets as targets.


Figure: From Guide to Stock Market bottoms by Thomas Lee published in November 2008JPMorgan

Using 2 “prior” massive “bears,” we forecast S&P 500 bottom of 667-720

PREDICTION #1:Bottom 667-720

PREDICTION #2:Bottom around May 2009…

Figure: BTC 2013-2015Bloomberg

2014 bear: Key is bear market retraced price to 1M prior to peak…In our view, a better way to think about the 2013-2015 bear market is how much did the bear market “roll back” prices.

• BTC’s trough price of $183 (on 1/14/15) was BTC’s price 1-month prior to the 11/29/13 peak—in other words, BTC bottomed at the price it traded at on 10/25/13, or $183.


10/25/2013$183

11/29/2013$1,137

1/14/2015$183

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It took a 405 day bear market to re-trace 1 month of gains…

$5,605 $5,922 $5,791

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Slide 9

Figure: BTC 2017-nowBloomberg

2018 Bear: BTC re-traced to its price 1M prior to peak TWICELooking at the 2013-2015 analog, perhaps the better way is to look at the price 1M prior to its peak of $19,511 on 12/18.

• BTC, one month prior to the 12/18/17 high was $5,605 (11/13/17), a price it saw on 2/16/18 (within a hair) and on 6/29/18. In other words, based on a time re-tracement of 1M prior to the peak, BTC has bottomed.


1-month

Same price 1M prior to Dec peak…

BTC retrace to ~$5,700 is price 1-month prior to peak…

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Slide 10

Figure: BTC 2013-2015 and BTC 2017-2018 (two time frames)Bloomberg

The two bear markets have a similar pattern of re-tracement….In traditional markets, we have often written about bear markets as simply re-tracements of the preceding advance.

• And the 2018 Bitcoin bear market resembles the 2014 bear market on this basis. The 2014 Bear re-traced prices to levels 1-month prior to the top (took 405 days). The 2018 Bear seems to have achieved this but over 193 days.


Bear market re-trace to price 1 month prior to top…

Bear market re-trace to price 1 month prior to top…

2014 Bear peak trough: 405 days2018 Bear peak trough: 193 days


Figure: Performance of Various Crypto Indices since April 6, 2018Per Fundstrat

Since April 6th, the Bear Market is about the correction in Alts. Down ~46%

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Slide 12

Figure: Comparative analysis: Platform/Core and Alt tokens YTD % change in active users (x-axis) vs % change in token price (y-axis)YTD. Data from coinmetrics.io

ALTS: Best performing YTD are those with the best user growth…We have compared the change in active addresses (30D avg) vs start of year and the price performance of the token.

• As shown below, there seems to be a relationship between change in active users (% change vs start of year) and the relative price performance of the token.

Source: Coinmetrics.io, Fundstrat, Bloomberg

Platform and Core ERC-20

180% 1000%

10/25/201487.1%

8/22/201896.7%

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Percent of tokens down 70% from last 240 day high

Slide 13

Figure: Alt-correction index: % of Alt-tokens down 70% from 9-month highs, rollingSince 2013

ALT-CORRECTION INDEX: 97% of Alts down >70%, worst since 2013…The percentage of Alt-token down 70% from their highs soared to 97% on 8/22/18—which is the highest figure since at least 2013.

• The previous high was October 25, 2014 when this figure reached 87%.


Alt-correction index(% alts down 70% 9M)

10/25/201487.1%

0%10%20%30%40%50%60%70%80%90%

100%12/28/2013 1/28/2014 2/28/2014 3/31/2014 4/30/2014 5/31/2014 6/30/2014 7/31/2014 8/31/2014 9/30/2014 10/31/2014 11/30/2014 12/31/2014

Percent of tokens down 70% from last 240 day high

Slide 14

Figure: % of Alt-tokens down 70% from 9-month highs, rollingSince 2013

BUY SIGNAL: In 2014, Alt-season started after 87% reading… ~3X in 7 weeksIn 2014, after that alt-correction index reached 87%, the alt-coin season started.

• In 2014, Alts rallied 2.7X in 7 weeks—thus, we believe there is a good chance alt-coins rally from here.


12/22/14$1.24 billion

10/25/14$492 million 11/1/14

$453 million

2/17/14$2.28 billion

2.7X7 weeks

Coinmarketcaptotal market cap

(ex-Bitcoin)

Alt-correction index(% alts down 70% 9M)


Figure: Return of BTC based on top 10 days (% chg daily) vs rest of yearSince 2013

Why HODL? Ex-10 best days for BTC, has fallen 25% annually since 2013The reason “buy and hold” (or HODL) makes sense for BTC is that a handful of days each year account for the bulk of gains for BTC.

• As shown below, BTC was down, on average, every year if we exclude the gains for the top 10 days (based on % change).• If we looked at the top 10 “point gain” days, BTC would be down even more every year.


660%

76% 84% 101%

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70%

(199%)(133%)

(50%)

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(112%)

(500%)

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2013 2014 2015 2016 2017 2018

Top 10D % Delta BTC ex-top 10 (other 355D) % chg

Ex-top 10 days, BTC is down 25% annually 2013-2017….


Executive Summary

• Overview





Figure: Trust in U.S. Government at 60-year lows% who trust the US government in Washington always or most of the time

Trust in U.S. government at 60-year lows…This is not a surprising trend but as the Pew Research center study below shows, trust in the US government has essentially never been lower.

• The slide began at the start of 2000 and has continued to sink—in fact, while it was lower during the depths of the Great Financial Crisis, this survey simply has not recovered. Is it surprise then that there may be a large number of Americans who prefer a system without government interference?

Source: Pew Research Center. Fundstrat, Bloomberg


Concentration = centralization: Banking is highly concentrated

Figure: Banking in the Industrials Nations is a concentrated industry…Recent

From “Concentration in the Banking Industry” by Barruch Ben-Zekry, University of California Berkeley

Five Biggest U.S. Banks Control Nearly Half Industry's $15 Trillion In Assets


Figure: From Identity Theft Resource Center2016. https://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-1276.php

Cost of Fraud and Trust is still high…• Very few other “services” for consumers cause this much disruption in their lives.



Figure: Economic Value add of Financial Sector as % GDPSince 1970. From OECD

The share of GDP going to the Financial sector is rising globally…The cost of the Financial Sector to their respective economy is rising across all regions. We can measure this by looking atthe OECD’s metric of Financial sector as % of value-add.

• Note how this figure is more than 2X the level it was in 1970. And has consistently risen across geographic regions.


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Slide 21

Figure: US 10-yr yields and Financial Value-Add Since 1933

…this despite falling interest rates. Banks make money regardless of rates.One would think bank and financial sector profits would generally follow the trend in interest rates. Lower rates = lower profits.

• But as shown below, despite falling interest rates, Financial sector share of GDP has been increasing.


Since 1970, interest rates have generally been falling…

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But the Financial sector has grown despite this…


Figure: How much GDP can blockchain unlock?Fundstrat

Blockchain could reduce ~$4 Trillion of costs out of global economy…A simple illustration is to think about how much economic drag can be eliminated by blockchain, preventing double-spend plus reducing the overall cost of the financial system.


Current

a Global GDP $80.0

b Financial sector% share of GDP 6%

c = a * b Financial sector $4.8value-add

Range of Blockchain-based systemLow Mid High

Blockchain d GDP cost (% share) 5.0% 3.5% 1.0%

Financial sectore = d * a powered by Blockchain $4.0 $2.8 $0.8

f = e - c Boost to GDP $0.8 $2.0 $4.0= f / a % GDP 1% 3% 5%



Executive Summary

• Overview






Generation…Years of

birthAverage

age

Greatest Generation 1910 1927 92.9

Silent Generation 1928 1945 78.5

Baby Boomers 1946 1964 61.3

GenX 1965 1980 44.5

Millennials 1981 2000 26.5

Generation Z 2001 2018 8.3

2.6

25.8

73.8

65.8

89.2

73.8

43.2

44.1

79.5

65.8

95.8

96.2

Source: Fundstrat. Peak population figures above include immigration. **Reduced immigration will lead to a smaller overall size of GenZ.

US Overview: Millennials largest generation in terms of overall # of births…

At peak (year)Current population…

(1930)

(1974)

(1999)

(2018)

(2038)

(2060)

Figure: Total World Population divided by age groups2017. Data provided by the DESA UN Data sets.

The millennials are significant for two reasons, their sheer size, both in the US and the rest of the world. But also because of their relatively young age.

• First, they are the largest single generation ever (larger than Boomers) and number 2.5 billion globally. • Second, But at an average age of 26.5, they are just entering their prime income years.

678,869660,143

629,424600,212

591,631607,592

591,794524,652

488,255471,684

430,088367,977

309,560249,665

171,256118,253

79,12241,047

16,6564,426512

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-8990-9495-99100+

Millennial Total Total

Slide 25

Figure: Total World Population divided by age groups2017. Data provided by the DESA UN Data sets.

GLOBAL: 43% of the World adults are Millennial: 2.5 billion people

• As shown below, the global population of millennials (those born between 1981-2000) is about 2.5 billion globally, or about 43% of adults. In other words, the total potential number of bitcoin wallets could grow significantly from the current levels, given the sheer size of this cohort.

Source: Fundstrat, United Nations. Bloomberg


2.5 billionGlobal

Millennials

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# "adult" Millennials (>age 30)# "teenage/young adult" Millennials (age 15-25)

Slide 26

Figure: The crossover is 2018 when there are more Millennial “adults” than “teens”UN Population survey

DEMOGRAPHICS: 2018 crossover year, Millennial “adults” exceed “teens”2018 is a milestone as this is the year that the number of global Millennials (born 1980-2000) exceeds teens.

• The number of “adult” Millennials (>age 30) is set to rise from 1.0 billion to 2.4 billion by 2030.

Source: Fundstrat, UN DESA, Bloomberg

2005-2015:Peak “teen/young adult” years1.2-1.3 billion Millennials

2018:Millennial “adult” (>30) exceed “teens” (15-25)

1.0 billion

2.4 billion

Figure: Percentage Share of Disposable Income of each generationFrom 1990 to 2050

And by 2029, Millennials to control the largest share of disposable income…

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Millenials (1981-2000)

Generation Z (2000-2018)

Source: Fundstrat. US Disposable income is nominal SAAR $. The calculation is based on Federal Survey of Consumer Finance to determine median income by generation. The population data is using single age census data to determine number of millennials of working age. Using this population x income ratio x # millennials determines aggregate income. Income projections based on 2.0% Real GDP growth, 1% inflation and household disposable income share constant of 70%.

2029 is cross-over

Today

MillennialsBoomers

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SilentGeneration

GenZ




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Figure: Chase credit card spending growth based upon age cohort.Per Chase Bank

Millennials Credit card spending growing faster than GenX or Boomers…

~Millennials

Credit card spending growth by age cohort is shown below. What is being measured is the year over year aggregate spending on Chase Credit cards.

• Millennials spending growth is far outstripping any other cohort. In fact, Boomers, Silent Generation and Greatest Generation are actually seeing declines.

~GenX

~Boomers

~Greatest Gen

~Silent Gen

Millennials don’t trust banks….

Earlier in 2016, Facebook IQ, a team of researchers, scientists and analysts funded and supported by Facebook Inc., published a white paper entitled “Millennials + money: The unfiltered journey” to evaluate the beliefs and thoughts of today’s youth on traditional banking and financial systems. The paper found that 92 percent of millennials firmly expressed their distrust of banks.

92 Percent of Millennials Don’t Trust Banks

Moreover, as shown below, a Facebook survey done in 2016 shows that Millennials simply do not trust existing financial systems. This is no doubt shaped by the 2008 Financial Crisis.



Source: First Data. https://www.firstdata.com/fdc_site/homepage_v2/millennials/images/millennial-white-paper-FNL.pdf

Bitcoin and Blockchain prevent “double-spend” in a digital world…

https://www.creditcards.com/credit‐card‐news/online‐mobile‐banking.php

Gen Xers (70 percent) and millennials (68 percent) are the most likely to primarily turn to mobile or online banking.3



Source: First Data. https://www.firstdata.com/fdc_site/homepage_v2/millennials/images/millennial-white-paper-FNL.pdf

10% in crypto:~ $700 billion

1962 1980

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Prime income years (age 35-60)--Greatest generation (1910-1927)Prime income years (age 35-60)--Silent Generation (1928-1945)Prime income years (age 35-60)--Boomers (1946-1964)Prime income years (age 35-60)--GenX (1965-1980)Prime income years (age 35-60)--Millenials (1981-2000)

Slide 33

Silent Generation bought gold…

Millennials aren’t buying Gold…

Gold

As shown below, the Silent Generation was in their prime income years. The USD moved off the gold standard in 1971.

• As shown, this surge in gold and coincident generational prime income of “Silent Generation” means this generation is the key cohort of “gold bugs”.

Figure: Comparative Gold prices and the prime income years of various generationsCensus bureau

USD off gold standard August 15, 1971

China demand +Financial crisis


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Prime income years (age 35-60)--Greatest generation (1910-1927)Prime income years (age 35-60)--Silent Generation (1928-1945)Prime income years (age 35-60)--Boomers (1946-1964)Prime income years (age 35-60)--GenX (1965-1980)Prime income years (age 35-60)--Millenials (1981-2000)

Slide 34

Boomers bought equities… millennials like “Growth stocks”

S&P 500

The Baby boomers prime income years stretched from 1982 and peaked in 1999.

• Baby boomers prime income years stretched from 1982 and peaked in 1999, coinciding with equity market peak.

Boomers prime income years 1982-1999

Figure: Comparative S&P 500 prices and the prime income years of various generationsCensus bureau We believe

Millennials like equities, and seems like they favor “Growth” stocks and digital-based companies…


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Prime income years (age 35-60)--Greatest generation(1910-1927)Prime income years (age 35-60)--Silent Generation(1928-1945)Prime income years (age 35-60)--Boomers (1946-1964)

Prime income years (age 35-60)--GenX (1965-1980)

Slide 35

Millennials LOVE Bitcoin and Blockchain

Figure: Fundstrat FS CryptoFX 300 IndexMorningstar

$100k

$1M

$10M



Executive Summary

• Overview






ICE launching a crypto-exchange…

http://fortune.com/longform/nyse‐owner‐bitcoin‐exchange‐startup/


Bitmainvalued @ $12 billion…

Coinbase @ $8 billion

Figures in Millions of USD

Ticker Company Market CapLTM

RevenueLTM Net Income

1. CME US CME Group Inc $57,562 $3,824 $4,2622. ICE Intercontinental Exchange 43,795 4,690 2,4763. 388 HK Hong Kong Exchanges & Clear 37,072 1,629 1,0564. DB1 GR Deutsche Boerse Ag 27,108 2,925 9875. LSE LN London Stock Exchange Group 20,553 2,487 6516. NDAQ US Nasdaq Inc 15,770 2,510 7417. B3SA3 BZ B3 Sa-Brasil Bolsa Balcao 12,844 1,298 413

8. Bitmain 12,0009. CBOE US Cboe Global Markets Inc 11,798 1,935 50510. 8697 JP Japan Exchange Group Inc 9,770 1,090 45611. ASX AU Asx Ltd 9,312 606 341

12. Coinbase 8,00013. MKTX US Marketaxess Holdings Inc 7,807 405 15414. SGX SP Singapore Exchange Ltd 5,854 619 26915. ENX FP Euronext Nv 4,419 647 29816. MOEX RM Moscow Exchange Micex-Rts Pj 3,816 684 33817. X CN Tmx Group Ltd 3,672 573 299


Bitmain and Coinbase among top 20 exchanges on valuation…

Bitmain not technically an exchange…


https://www.bloomberg.com/news/articles/2018-07-16/cfa-exam-adds-crypto-blockchain-topics-as-wall-street-dives-in

CFA Institute is adding crypto to its CFA exam…

…WOW

Textbook 30-yrs ago… Reality today…

IPOs Only profitable Technology companies go public…

% profitable at IPO 1980-1995 average 92%

1999-20002013-2017average

20%

PrivateEquity

Public equity is larger than the private market…

# private equity companies as percent of Wilshire 5000

2000: 32% 2016: 84%

Bonds Bonds are income instruments…

% bonds with negative rates (G7, ex-US) 2000: 0% 2017: 80%

Central Banks

Central banks only own bonds and risk-free assets… BoJ ownership of Topix 2002: 0% 2015: 2.5%

Slide 41

Finance 101 books 30-yrs ago not true anymore… will evolve for crypto…

Figure: Comparative changes in approach to valuationsFundstrat estimates.

We believe crypto and blockchain valuations will lead to an evolution in thinking about market valuations for tokens. While these are not traditional equities, there are elements available to create a valuation approach.

• Investors seem to be dismissive of the value of tokens, because of the apparent blurriness of token governance versus equity (like a tracking stock) and the unclear position within a capital structure.

• But as highlighted below, while fundamental valuation remains central to any approach, markets have evolved their approach to valuations of assets.

https://site.warrington.ufl.edu/ritter/files/2018/01/IPOs2017Statistics-1.pdfhttps://www.toptal.com/finance/private-equity-consultants/private-equity-industry


Digital Store of Value addresses $280T market…

20-yr CAGR

Value($ billions) % Total

Gold Estimate Fundstrat 5.0 $9,000 3

Collectible Art https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html

3.0 $17,000 6

Real Estate http://www.mcguire.com/blog/2017/04/savills-world-worth/ 5.0 $228,000 82

Government bonds (neg rate)

Deutsche Bank -0.5 * $20,000 7

Cars, collectibles Estimate Fundstrat 7.0 $5,000 2

Global stores of value $280,000 100

Bitcoin n/a $200 0.1

Figure: Comparative Store of Value$ Billions.

%

Traditionally, gold is cited as an example of Store of Value (SoV) but individuals allocate their savings to other stores of value—although we are mixing collectibles and stores of value:

• Notably, when we incorporate Gold, Art, Real Estate and even government bonds (especially those with zero or negative interest rates), we can see that SoV is a $280T market (see below). Of this, bitcoin today represents a mere $200 billion (0.1%)—hence, the market for digital SoV is small today.

* Average interest rate of negative rate government bonds

%

%

%


Figure: Comparative value of Intangibles as % total EVBased on Bloomberg data

Intangibles (including brand) essentially 91% FANG value…When those question the value of blockchain, investors need to be mindful there is substantial investment in infrastructure, etc. in blockchain. But the real value, as we have argued, is in the network value of the blockchain itself—that is, as users grow, the value of the network rises exponentially.

• But as added perspective, note that 91% of the FANG enterprise value today is intangible—physical assets only represent 9% of the value of the business—in other words, many growth companies today are valued on their intangible values (subscriber base, brand, etc.)


EV Tangible Assets Intangible value estimates

T icker CompanyEnterprise

Value PP&EPrepaid

expenses

Deferred Tax

Assets LT Assets

Current Assets ex-

CashIntangible

ValueIntangible as

% EV

FB Facebook Inc-A $485,860 $8,591 $1,312 $4,952 $471,005 97%

AMZN Amazon.Com Inc $642,703 $29,114 $3,869 $19,800 $589,920 92%

AAPL Apple Inc $738,444 $33,783 $8,974 $1,188 $54,464 $640,035 87%

NFLX Netflix Inc $97,807 $250 $227 $7,389 $3,987 $85,954 88%

NVDA Nvidia Corp $130,831 $521 $62 $1,738 $128,510 98%

GOOG Alphabet Inc-Cl C $674,371 $34,234 $1,819 $383 $0 $19,075 $618,860 92%

TSLA Tesla Inc $64,871 $5,983 $9,539 $2,867 $46,483 72%

FAANNG Composite $2,834,887 $112,476 $1,819 $9,584 $23,359 $106,882 $2,580,767 91%

S&P 500 $28,618,706 $4,541,372 $4,556 $359,580 $1,140,730 $3,988,148 $22,017,705 77%


6/19/20180.97x

Avg since 20142.39

0.4x

0.8x

1.6x

3.2x

6.4x

12.8x

25.6x

51.2x

Jul '13 Nov '13 Mar '14 Jul '14 Nov '14 Mar '15 Jul '15 Nov '15 Mar '16 Jul '16 Nov '16 Mar '17 Jul '17 Nov '17 Mar '18 Jul '18 Nov '18

P/BE 30D Avg since 2014

Slide 44

Since 2014, Bitcoin traded at 2.4X P/BE mining… compared to 0.97X todayCurrently, BTC trades at 0.97 P/BE mining. This is a discount to its long-term average of 1.82X.

• Since 2014, the P/BE has averaged 2.4X, compared to 0.97X currently. • Applying 2.4X (the P/BE average since 2014) to the projected YE break-even cost implies a $21,948 price for

BTC by year-end. The point is that considering P/BE, BTC has substantial upside from current levels.


x

Implied YE 2018 Price:

Fully-loaded break-even: $9,145

P/BE target: 2.4X

Implied: $21,948

Figure: P/Break-even mining for BitcoinBreakeven mining cost is 30D average


0%

50%

100%

150%

200%

250%

300%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec '69 Jun '72 Dec '74 Jun '77 Dec '79 Jun '82 Dec '84 Jun '87 Dec '89 Jun '92 Dec '94 Jun '97 Dec '99 Jun '02 Dec '04 Jun '07 Dec '09 Jun '12 Dec '14 Jun '17

90 Days Rolling Volatility on Daily Return (Annualized)

Recession Gold - Longer History Bitcoin (RHS)

Slide 45

Figure: Annualized volatility of gold and bitcoinSince 1969

Bitcoin volatility is high, so it is not as stable as Gold yet…We compared the annualized volatility of gold and bitcoin (90d volatility annualized) to compare the relative stability of each.

• Bitcoin annualized volatility is high relative to gold and is an argument for why it is not as reliable a store of value compared to gold—however, as shown on the chart, gold’s volatility was similarly high during the early 1970s when gold was first freely priced (gold standard abandoned).


Gold had very high annualized volatility when it first traded freely



Executive Summary

• Overview





Proxy Speculation Use Ratio

Bitcoin today $1,969 billionExchange volume (USD)

coinmarketcap.com

$808 billionAdj. on-chain volume (USD)

coinmetrics.io

~2.5X

If Bitcoin was acurrency

US Dollar $1,966 Trillion(spot, futures, options)

$20.4 Trillion(GDP)

~96X

If Bitcoin was acommodity

Oil$81.2 Trillion

(ICE, CME only)$2.6 Trillion

(annual consumption)~31X

Slide 47

Figure: Comparative speculation to use ratio of Bitcoin vs USD and vs OilVarious (see below)

Bitcoin speculation levels low compared to FX and commodities…While speculation has risen as a share of Bitcoin trading (per article on the previous page), the level of overall speculative share for BTC trading is low compared to traditional markets.

• Using data from coinmarketcap and coinmetrics, BTC speculation to use ratio is 2.5X. This compares to 96X for USD and 31X for oil (see following pages). Hence, there is room for substantially higher speculation.

Source: Fundstrat, Bloomberg. https://www.eia.gov/todayinenergy/prices.php https://www.cmegroup.com/daily_bulletin/monthly_volume/Web_Volume_Report_CMEG.pdf https://www.world-exchanges.org/home/index.php/statistics/annual-statisticshttps://www.bis.org/publ/rpfx16.htm

Figure: # internet users worldwideFrom IDC. From 1993 to 2017

FANG benefitted from the growth of the internet…FANG has produced sizable gains since 1997 and as shown below, this is function of FANG operating in a secularly growing market.

• From 1998 to now (20 years), the number of global internet users rose from 147 million to 4.2 billion.


7

16

36

70

147

248361

513 587 682817

1,018 1,0931,319

1,574 1,802 1,971 2,267 2,497 2,802 3,079 3,366 3,696 4,157

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Amazon

Netflix

Google

Facebook

40.0

80.0

160.0

320.0

640.0

1,280.0

2,560.0

5,120.0

10,240.0

20,480.0

40,960.0

81,920.0

163,840.0

Dec '97 Mar '99 Jun '00 Sep '01 Dec '02 Mar '04 Jun '05 Sep '06 Dec '07 Mar '09 Jun '10 Sep '11 Dec '12 Mar '14 Jun '15 Sep '16 Dec '17

Slide 49

Figure: Comparative performance of Top 7 Consumer stocks versus S&P 5001997 to now

FANG: Since ’97 to now (~20 years), FANG up 1,567X…FANG returns have been astounding since 1997.

• The returns generated by FANG stocks was a multiple of the growth in internet users—this makes sense. The idea of network value would argue the value creation would be a multiple of the growth in users. In fact, it is almost a perfect log function.


FANG ’97-now156,706% or

1,567X

S&P 500 ’97-now3,605% or

3.6X

70 4,157

# internet users(millions)

# internet users(millions) 60X

Figure: FANG vs Internet 2.0 winnersPer Fundstrat

FANG was only created 1-3 years after internet 1.0 loser…What most investors do not realize is that FANG companies were only created 1-3 years after their predecessor, losing entity.

• Hence, it did not take decades to see who the winner versus losers were.


Search

Social Media

Commerce

1.0 2.0Year of

InceptionYear of

Inception

2003

1999

19951995

Streaming 1995

2004

1994

1998

1997

YearsDifference2.0 less 1.0

+1

-5

+3

+2

F

A

N

G


Figure: It took less than 5 years for Facebook to beat MyspaceComscore

Facebook vs Myspace: FB surpassed within 5 years…Similarly, it took less than 4 years for Facebook to beat Myspace.

• As shown below, the monthly active users of Facebook surpassed Myspace by May 2009. This is about 5 years after Facebook was launched.

• Again, in internet time, this was a mere 5 years.

Source: Fundstrat, Bloomberg http://www.marketingprofs.com/charts/2011/5347/facebook-linkedin-and-twitter-hit-new-audience-highs

May 2009


Figure: Consumer spending (ex-Healthcare) as % GDP1960 to now

1980s FANG: Consumer spending 3X from 1981-2000, 54% to 58% of GDPConsumer spending rose from a multi-decade low in 1981 to a peak in 1999.

• During this time, PCE ex-healthcare, rose from $1,694 billion to $6,020 billion, or a 3X increase in 15 years.


Multi-decade low

Peak3X from 1981(nominal $)

Figure: Comparative performance of Top 7 Consumer stocks versus S&P 5001980 to 2000

1980s FANG: Top 7 Consumer stocks—WCHHGLD—1,171XThe comparative performance of the top 7 Consumer stocks vs S&P 500 is below. The top 7 consumer stocks (then) were: Walmart, Circuit City, Hasbro, Home Depot, Gap, Limited Brands and Dillards.

• The relative performance of these Top 7 large-cap consumer stocks was staggering, gaining 117,159% during that time, or a 1,171X compared to a 16X increase in the S&P 500.


80.0

160.0

320.0

640.0

1,280.0

2,560.0

5,120.0

10,240.0

20,480.0

40,960.0

81,920.0

163,840.0

Jan '80 Apr '81 Jul '82 Oct '83 Jan '85 Apr '86 Jul '87 Oct '88 Jan '90 Apr '91 Jul '92 Oct '93 Jan '95 Apr '96 Jul '97 Oct '98 Jan '00

Top 7 Consumer ’80-‘00117,159% or

1,171X

S&P 500 ’80-‘001,615% or16.2X

1980s FANG (’81-’00) has a return during this time that is similar to FANG (’97-’18)


1.9

19.950.0

23.0

227336

3,797 4,672

1

2

4

8

16

32

64

128

256

512

1,024

2,048

4,096

8,192

BTC Addresses>$1,000

Total BTCAddresses

Est. BTC holders(include exchange

accts)

Venmo Accounts PayPal Accts TWTR users(MAU, monthly

active user)

Total Global BankAccts

Visa & MasterCardActive Credit Card

Accounts

Units

(in m

illion

s)

Figure: Number of estimated accountsVarious sources

GLOBAL: 20% of Millennials own Crypto = 10X increase in wallets…We estimate there are approximately 50 million holders of Bitcoin (making some assumptions about BTC held in exchange accounts) and perhaps 2 million (but could be 2-10 million) with at least $1,000 of BTC.

• This is not the “mature” state of crypto as there are >225 million PayPal accounts and 4.7 billion Mastercard/Visa accounts.

Source: Fundstrat, Bloomberg. BTC. https://bitinfocharts.com/top-100-richest-bitcoin-addresses.htmlhttps://bitinfocharts.com/top-100-richest-bitcoin-addresses.html. Venmo. https://www.fool.com/investing/2018/06/15/how-big-of-a-threat-is-zelle-to-squares-cash-app-a.aspx. Paypal: num active accounts. Twitter: https://www.bamsec.com/filing/156459018008954/3?cik=1418091&hl=2642:2928&hl_id=4js_xe5bb. adult population * gallup poll estimate for # of adults pop with bank acct. Mastervcard and Visa. earning release supplements; assume avg 3 cards per account

~5x ~6x

~75x ~90x

Figure: Many tokens and alt-coins have been launched since 2009, but Bitcoin still dominant

SOV King: Bitcoin around >9 years…Crypto time 3X faster than internetIn the 9 years since the launch of Bitcoin, multiple alt-coins have been launched, but none has surpassed Bitcoin.

• In other words, Bitcoin is the store of value king—compared to developments in internet, crypto time is faster. Hence, we would have expected a platform to have surpassed Bitcoin, as a superior store of value.

Source: Fundstrat, Bloomberg, https://en.wikipedia.org/wiki/List_of_cryptocurrencies


DisclosuresThis research is for the clients of Fundstrat Global Advisors only. For important disclosures and rating histories regarding sectors or companies that are the subject of this report, please contact your sales representative or Fundstrat Global Advisors at 150 East 52nd Street, New York, NY, 10022 USA.

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Thomas J. Lee, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.

Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research

Conflicts of Interest

This research contains the views, opinions and recommendations of Fundstrat. As of the time of writing and publication of this presentation, Fundstrat does not know of, or have reason to know of any material conflicts of interest at the time of the publication of this presentation. The Company has no contractual relationship, nor have we received any compensation from any of the companies listed in this research report.

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