- July 31, 2024
Vikara July 2024 Update – All systems go for crypto’s mission to the Moon!
Between Trump’s assassination attempt, an inventory destocking cycle, job market weakness, accelerating disinflation, and a Federal Reserve that is offsides, we haven’t seen such an asymmetric setup since we launched Vikara. What a time to be investing in digital assets.
We spent most of July trying to ignore the many micro distractions that pale in comparison to what is taking place at a macro level. The Ethereum ETF is a distraction, the US election is a distraction, the halving is a distraction. While these are incremental positives, we suggest investors zoom out.
The Fed is about to pivot. It has all the data it needs to claim victory on inflation, we expect it to lay the groundwork this week for a 50bp cut in September. This will allow the PBOC and ECB to ease, while the BOJ slow walks its way out of a decade of ultra loose monetary policy at the wrong time.
Chart 1 shows commodity markets believe US rates should be >3% lower given current economic demand. The divergence since mid-2020 is a function of the Federal Reserve policy mistakes during and after Covid which have now run their course. The question is if another mistake is made.
Chart 1 – US 10-year yields (candle) versus LME metals index relative to gold (orange) (2009-2024)
Source: Tradingview.com
For this reason, we believe the Fed lowers rates faster than the market expects. The consequence of incorrectly delaying an easing cycle has far worse implications on the downside than it did when it mistakenly waited to see if inflation was sticky on the upside.
We are entering a period of loose fiscal and monetary policy, with a US economy that avoids a recession, and a firming regulatory backdrop for the digital assets. If we are right, the digital asset bull market is yet to begin despite BTC near all-time highs.
While Fed easing cycles will push many investors into traditional asset classes like real estate or bonds, the potential returns from a well-constructed digital asset portfolio are considerably higher in our view. As a minimum, an allocation into digital assets will complement a diversified portfolio.
Our portfolio of digital assets gives our LPs tier one exposure to the space. We have completed rigorous due diligence on every token we own and it is well placed to capitalize on the significant asymmetry that markets have created. Now is the time to allocate into digital assets.
Macro
The final inning of an inventory destocking cycle always lasts for enough time to force central banks to pivot. With many geopolitical risks impacting supply chains, as well as most of the western world being at the ballot box in 2024, is it any wonder that businesses keep destocking (Chart 2).
Chart 2 – S&P500 days of sales of inventory (1997-2024)
Source: BofA Global Research, FactSet
Inventory destocking cycles convince the best economists that growth is faltering. We will never forget hearing a CEO of a major steel distributor say that “the entire industry held its breath” into the end of the destock in late 2015. Copper prices tell us all we need to know (Chart 3).
Chart 3 – Copper prices (LTM)
Source: Tradingview.com
As nominal growth is impacted by destocking, real growth appears to undershoot and forces policy makers to pivot. The Federal Reserve is offsides right now, with ISM new orders showing us how quickly the destocking has accelerated (Chart 4).
Chart 4 – US ISM services PMI (2010-2024)
Source: Ollari Consulting
Small business hiring plans have been weakening for months, often seen as a leading indicator for US unemployment (Chart 5). The trend is anything but supportive of a >5% Fed funds rate.
Chart 5 – Small business hiring plans versus US unemployment (1985-2024)
Source: Gravekal Research, Macrobond, @MichaelAArouet
The decrease in full-time jobs has reached 1.55 million year over year (Chart 6), with the overall weakness in employment markets being hidden by the creation of short-term employment opportunities.
Chart 6 – YoY change in full time works (1969-2024)
Source: Refinitiv, BLS, DOL, @jeffweniger
As employment data continues to be revised lower, the weakness is starting to show up in US unemployment (Chart 7), which has moved to its highest level since November 2021.
Chart 7 – U.S Unemployment Rate (%) (1948-2023)
Source: Charlie Bilello
The unemployment rate is climbing as payroll growth is slowing (Chart 8), changing the calculus for the Fed. We expect the Fed to communicate a need to ease in the near term, opting to act sooner (despite the election cycle) to avoid another policy mistake.
Chart 8 – Civilian unemployment rate versus nonfarm payrolls (2022-2024)
Source: Bureau of Labor Statistics/Haver Analytics, @RenMacLLC
A slowing labour market is creating wage disinflation in the service industry, with the quit rate for those working in accommodation and food services falling to a fresh cycle low (Chart 9).
Chart 9 – Accomodation and food service wages versus JOLTS quit rate (2005-2025)
Source: Bureau of Labor Statistics, Haver Analytics, @RenMacLLC
Wages, the labour market, and core PCE inflation are now all slowing in unison (Chart 10).
Chart 10 – US Core PCE Price Index MoM (2016-2024)
Source: TheDailyShot
Broad based disinflation is supportive of the Fed being accommodative (Chart 11), with more than half of 74 US CPI components running below 2.0% YoY (the first time since 2020).
Chart 11 – Proportion of US CPI component above 2% YoY based on 74 components (2010-2024)
Source: BofA Global Research, BLS, Haver, @MikeZaccardi
In addition, nearly 70% of US CPI components are no longer rising >0.2% on a MoM basis (Chart 12).
Chart 12 – % of US CPI Components Rising >0.2% MoM (2010-2024)
Source: @VrntPerception
The substantially lagging rental component of CPI, which makes up over 30% of the index, has accelerated lower (Chart 13).
Chart 13 – Rent of primary resident and owners’ equivalent rent (2018-2024)
Source: Council of Economic Advisors, Zillow; Bureau of Labor Statistics; CEA calculations, Daily Economics
Interestingly, many real time data points suggest this CPI component may go negative at some point in the future also (Chart 14).
Chart 14 – CPI shelter quarterly average versus BLS new tenant rent index (2010-2024)
Source: Bureau of Labor Statistics, Reuters
Market commentators continue to suggest higher for longer rates are required, but the MacroBond Fed model (which has been reasonably accurate), is supportive of rate cuts (Chart 15).
Chart 15 – MacroBond Fed funds rate model (1986-2024)
Source: Macrobond, Nordea, @MikaelSarwe (inflation, output gap, neutral rate, labour market, S&P500)
The accelerating decline in the US economic surprise index (Chart 16) may motivate the Federal Reserve to act sooner as the risk a hard landing increases.
Chart 16 – U.S Economic Surprise Index (Jan 1, 2024 – Jun 28, 2024)
Source: @RonStoeferle
World financial conditions remain tight (Chart 17). This is why we are less bearish than we would be given the macroeconomic backdrop as global central banks can support lower growth considerably from here with looser policy.
Chart 17 – Global financial conditions index (2009-2024)
Source: Ollari Consulting
Smaller central banks have been pivoting for months, with 14 of 34 global central banks in easing mode, versus only 10% in July 2023 (Chart 18). As can be seen, there is a lot more easing to potentially come.
Chart 18 – Percent of central banks in easing mode (1998-2026)
Source: Ned Davis Research, Daily Chartbook, BofA Global Research
June was also the first month that no global central bank hiked rates since October 2020 (Chart 19).
Chart 19 – Monthly number of global policy rate hikes (2001-2025)
Source: BofA Global Investment Strategy, Bloomberg, @MikeZaccardi
Markets are likely to fear the first rate cut from the Federal Reserve because since 1990, on average, the S&P 500 has fallen after it occurs due to the fear of recession (Chart 20).
Chart 20 – Trading Days First Fed Rate Cut to S&P Market Low vs. S&P 500% Change from First Fed Cut to Market Low (1974-2020)
Source: @Barchart
While this is somewhat concerning, interest rate cuts were not always a negative for markets. In periods before 1990, when high inflation began falling and growth remained modest, Fed rate cuts were often positive for markets (Chart 21).
Chart 21 – S&P 500 performance on year after first fed rate cut (1971-2007)
Source: Josh Brown – Ritholtz Wealth, Daily Chartbook
At the end of the day, it all comes down to growth, with equity markets performing well after the Fed cutting cycles if economic growth remained positive (Chart 22). This is why understanding the inventory cycle is so critical. Growth remains intact in our view and the inventory destocking will end.
Chart 22 – S&P500 total return indexed to start of Fed cutting cycle (1955-2024)
Source: DataStream, Goldman Sachs Global Investment Research, @MikeZaccardi
We remain positive on US growth, with disposable income and employee compensation running above inflation (Chart 23) helping the consumer despite slowing growth.
Chart 23 – Disposable Income and Employee compensation (2020-2024)
Source: Carson Investment Research, FRED, @sonusvarghee, @RyanDetrick
There is also now more households with no debt while at the same time many benefitting from higher rates through higher interest earned. Of the household debt that remains, only 11% has an adjustable interest rate. A vast majority of Americans have not yet been negatively impacted by the Fed’s rate hikes (Chart 24).
Chart 24 – Share of household debt that adjusts with market interest rates (1985-2020)
Source: Moody’s Analytics, Charlie Bilello
The strength of the consumer can be seen in discretionary spending, which remains above pre-pandemic levels for all income cohorts (Chart 25). The consumer is not yet struggling.
Chart 25 – Share of discretionary spending in total spending by income (2019-2024)
Source: BAC internal data, BofA Global Research, @MikeZaccardi
The US economy is likely to trudge through, something that cannot be said for China, with its housing market declining 7.9% year-over-year last month (the largest decline in history) (Chart 26).
Chart 26 – China’s second-hand home prices (YoY%) (2011-2024)
Source: National Bureau of Statistics, @Barchart
The continued decline is highlighted in China’s central bank liquidity, which shows how dire things are onshore (Chart 27).
Chart 27 – 6 month change in Central Bank Liquidity Index
Source: @crossbordercap
East Asia Economics’ take is spot on, highlighting that the most likely outcome for China is to be a source of global disinflation for years to come (Figure 1). This is why central banks are offsides, and its why we are about to enter a very supportive monetary policy regime.
Figure 1 – East Asia Economics view on China markets likely path
Source: Paul at East Asia Economics
We are watching the turn in Chinese interest rates, where higher rates are a sign of rebounding growth in a command economy. As it stands today, the economy is still in free fall (Chart 28).
Chart 28 – Chinese 10-year nominal interest rates (2003-2024)
Source: Tradingview.com
The inventory destocking and softer labour markets should provide an opportunity for the Fed to pivot, with growth restabilizing as it comes to an end. At the same time, board-based disinflation will continue, and it will be much less of a focus moving into 2025.
As discussed in many of our prior monthly updates, this is a perfect backdrop for digital assets. While many believe that they have missed the cycle, we believe only the changing regulatory environment and the ETF approvals are priced in. The real cycle will begin in the coming months.
Digital Assets
The month for digital assets began as June ended, ugly. While most non-BTC tokens had been grinding lower since March, BTC finally made a move to the downside, bottoming at $53.5k on July 5, the lowest level since late February (Chart 29), although both BTC and alts have since recovered most of the drop over the past month.
Chart 29 – Bitcoin (green/red candles) versus Total3 (orange) (YTD 2024)
Source: Tradingview & Vikara Capital
Many credit the BTC drop to German and US governments deciding to move Bitcoin they hold from confiscations on exchange at the exact same time and sell. Add in the Mt Gox distributions, which have been a more than decade long saga, and BlockFi, who have engaged Coinbase to distribute any crypto owed after it went bankrupt in 2022, again, at the same exact time, and you have FUD.
Specifically, the German government sold their remaining BTC on July 13, selling a total of 50,000 BTC. Further, the US government moved nearly 4,000 BTC onto Coinbase (the same Coinbase they previously sued for being an unregistered exchange!). The US government also moved 28,000 BTC to Coinbase on July 30. In terms of Mt Gox, they are finally distributing (not all at once) $9.4bn worth of BTC to approximately 127,000 Mt Gox creditors.
While the selling pressure did seem to impact both the BTC price and sentiment, it was short lived. But timing of the moves was interesting none the less.
While alts have underperformed BTC all of 2024, this has also been the case in previous periods at earlier points in the cycle. For context, we have included a Bitcoin versus Total3 (token index ex-BTC & ETH) chart from August 1, 2020 to the peak in November 2021 (given where we are in this cycle this equates to August 1, 2024 through November 2025). BTC outperformed alts for the first half of the period, with alts significantly outperforming BTC, ending more than 500% higher by November 2021 (Chart 30).
Chart 30 – Bitcoin (red/green candle) versus Total3 (orange) (August 1, 2020 – November 9, 2021)
Source: Tradingview & Vikara Capital
Assuming history does repeat itself, and by the looks of Chart 31, it is, we are moving towards the Banana Zone, where most boats rise, and rise quickly.
Chart 31 – BTC 4-year price cycle: 2016-17 (blue) vs 2020-21 (purple) vs 2024-present (orange)
Source: x.com; @MaxBecauseBTC
If the above charts do not induce a little FOMO, give us a call and give you a push. 😏
While the spot Ether (Ethereum) ETF launch coupled with the excitement around The Bitcoin Conference (aka Bitcoin Nashville), the world’s largest BTC event, took center stage in July, plenty of industry firsts occurred during the month.
- Hamilton Lane, a leading global private markets investment management firm, announced it has launched its first tokenized fund, the Senior Credit Opportunities Fund (SCOPE) on Libre, a joint venture between WebN Group and Nomura’s Laser Digital, and built on Solana. Libre allows Solana’s users access to several on-chain funds, including SCOPE, as well as the Brevan Howard Master Fund and Blackrock ICS Money Market Fund.
- Atari announced they will bring classic titles to Base, Coinbase’s Ethereum layer-2 scaling blockchain. Players can mint NFTs that act as their access pass and play the classic game Asteroids on the blockchain.
- Cantor Fitzgerald announced a $2 billion Bitcoin financing business, offering leverage to BTC owners.
- Franklin Templeton and Japan’s SBI Holdings announced a JV to establish a crypto exchange-traded fund management company to offer ETFs to Japanese investors.
- Fidelity announced a partnership with Chainlink to bring NAV data onchain, with investors in the $6.9 billion Fidelity Institutional Liquidity Fund being the first to have access to data onchain in real time.
- RWA tokenization platform Ondo Finance (ONDO) and Noble blockchain have launched Ondo US Dollar Yield (USDY) on Cosmos, marking the introduction of the first native yield-bearing dollar stablecoin on the Cosmos ecosystem.
- Agricultural RWA platform AgriDex settled its first trade on Solana, delivering over 200 olive oil bottles and numerous wine cases travel from South Africa to London.
- Circle, the issuer of the USDC stablecoin, became the first global stablecoin issuer to secure an Electronic Money Institution (EMI) license, a prerequisite to offering dollar- and euro-pegged crypto tokens in the EU under the Markets in Crypto Assets (MiCA) regulatory framework.
- Global payments platform Stripe expanded its cryptocurrency integration into the Europe Union (EU), allowing consumers to buy Bitcoin, Ether, Solana and others using their credit or debit cards.
- Japanese conglomerate Sony announced it will launch a cryptocurrency exchange called S.BLOX Co.
- Ferrari announced it will allow crypto payments to its network of European dealers from the end of July 2024 after a successful launch in the USA.
- Taiwan Mobile, the country’s second-largest telecommunications provider, has received a virtual asset service provider (VASP) license from the country’s Financial Supervisory Commission (FSC), paving the way for it to open a cryptocurrency exchange.
- Italy’s state-owned bank Cassa Depositi e Prestiti SpA completed a $27.2m digital bond on Ethereum layer-2 Polygon, a first in the country.
While we won’t spend time on it given the large amount of coverage, the Ether (Ethereum) spot ETF began trading July 23. So far, $1.3bn has moved into the new ETFs, with Blackrock and Bitwise leading the way.
Figure 2 – Spot ETH ETF flows (July 23, 2024 – July 29, 2024)
Source: Farside Investors
At the same time, $1.7bn flowed out of the legacy Grayscale Ethereum Trust (ETHE), which first launched as a private placement in 2017 and was uplisted to the NYSE as one of the newly approved spot Ethereum ETFs on July 23. It’s much higher fee structure, at 2.50% versus 0.19%-0.25% fees for its competitors, naturally led to reallocations out of ETHE, leading to the significant outflows. The same thing happened when the spot BTC ETFs launched, with the legacy Grayscale Bitcoin Trust outflows lasting 11 days.
Moving onto regulation/legislation. While its valid to question the motive, attention to crypto amongst the establishment is at all-time highs. Many credit Donald Trump with kicking off political support in the USA as he began to court crypto bros earlier this year. Other leaders like Javier Milei in Argentina and Nayib Bukele in El Salvador openly support digital assets, with El Salvador holding nearly 6,000 BTC in its treasury. With all three leaders having spoken at Bitcoin Nashville, it’s hard for even those that have no interest in the space to ignore.
In terms of messaging, in typical Donald Trump fashion, he made grand proclamations in support of crypto. One quote that stuck out was:
“If crypto is going to define the future it’s going to be mined, minted, and made in America. If Bitcoin is going to the Moon, as they say, I want it be America that sends it there.”
He delivered a crowd pleaser by promising to fire SEC Chair Gary Gensler “on day one” if re-elected. He also stated that his administration’s policy will be to keep 100% of all BTC the US Government currently holds, or approximately 210,000 BTC acquired via confiscations, as a strategic national Bitcoin stockpile.
Independent presidential candidate Robert F. Kennedy Jr. also spoke in Nashville, promising to pass an executive order requiring the US Justice Department to transfer all BTC held by the Fed into a strategic reserve. He also said he would require the Treasury Department to purchase 500 BTC daily until the US governments ownership totals at least four million BTC.
At the same time, US Senator Cynthia Lummis (R-WY) introduced a bill for a “strategic Bitcoin reserve” where she proposed that the US government buy 5% of the world’s Bitcoin supply and hold it for at least 20 years.
State reps even jumped aboard, with Louisiana Governor Jeff Landry suggesting the state start a BTC strategic reserve (Figure 3).
Figure 3 – LA Governor Jeff Landry on a BTC Strategic Reserve
Source: x.com @LAGovJeffLandry
Democrats, who largely demonized crypto up until very recently, have begun to shift their stance. A group of 14 Democrat members of Congress, led by Wiley Nickel (D-NC) (who was also a speaker at Bitcoin Nashville), sent a letter to the Democratic National Committee (DNC) on July 26, asking for the following:
- Add pro-crypto language to the party platform
- Choose a Vice President who is pro-crypto and knowledgeable about digital assets
- Select a pro-innovation SEC Chair
- Engage in a meaningful way with industry
Figure 4 – Democrat Congresspeoples’ letter to the DNC
Source: x.com
It was reported that Joe Biden was recently exploring a crypto advisory committee prior to dropping out of the presidential race, with Kamala Harris advisers having apparently approached top crypto companies to “reset” relations between the Democratic party and the industry.
In response to her candidacy, crypto investor, author and podcaster responded with a suggested template, which seems sensible.
Figure 5 – Suggestions for Democrats to “reset” relations with the crypto industry
Source: x.com @nic_carter
Interestingly, Republican Senator Roger Marshall, who co-sponsored Digital Asset Anti-Money Laundering Act (DAAMLA), a controversial anti-crypto bill he co-sponsored with Democratic Senator Elizabeth Warren in 2022, recently withdraw his support for his own bill, meaning it no longer has bipartisan sponsorship. Currently there are 18 congresspeople left supporting the bill, with only one Republican, Senator Lindsay Graham. Looks like Elizabeth’s Warren’s anti-crypto army is having a tough time recruiting soldiers.
Few had crypto as a major policy issue as we looked forward to the 2024 presidential election, but we are ecstatic it has become one. That said, the reality is that many politicians newly found support of Bitcoin and the cryptocurrency industry is driven by personal gains and party agendas, with the ultimate purpose of courting voters, aka pandering. But if it translates to sensible regulation and pro-crypto bipartisanship, we’ll take it.
Before we move into the tokens section, we thought we’d ask – can you afford to ignore meme coins? They are the best performing sector of crypto in 2024. They led the most recent bounce after the early July BTC FUD. Higher profile tokens like POPCAT and MOG recently hit all-time highs at ~$1bn market caps.
So far this cycle, a relatively limited amount of new money has come back to the liquid digital assets market, with market participants (largely degens) rotating from sub sector to the next (same thing happened in 2020 with 2021 seeing a massive amount of new capital enter the crypto). But they gravitate back to memes en masse, and first when things turn.
So what happens when the inevitable new money comes in? When we get in the banana zone. People gravitate to easy-to-understand projects and narratives…meme coins.
But more importantly, memes coins are creating utility in the face of disclaiming there is no such thing with memes, just fun.
Look at Coinbase. They’re promoting a new meme on Base (Coinbase L2) called Mister Miggles. Mister Miggles was born out of a 60 second Coinbase commercial featuring a grumpy cat. You can mint an NFT of the video that made the cat famous with proceeds going to up and coming onchain creators. Over 85k NFTs have been minted so far. We believe this is a trend that will gain further steam with brands using memes and possibly meme coins as a way to further expand reach. And there is of course the token MIGGLES that has a current market cap of ~$65m.
Or take Nom Nom (NOMNOM), a meme on Solana. It’s a hamster that apparently loves eating anything and everything. This seems to have resonated with brands. Numerous high-profile consumer brands have engaged with the project in its very short existence (Figure 6). The nine brands in the collage below (Mountain Dew, Dunkin Donuts, KFC, Wendy’s, Chipotle, Chili’s, Little Ceasar’s Pizza, KitKat and Popeye’s) have collectively 9.3 million followers on X, including Wendy’s at 3.7 million, KFC at 1.6 million and Chipotle and Dunkin Donuts at 1.3 million each. It cost both Nom Nom and the brands essentially zero to create those “ads”. Imagine that ROI versus traditional advertising…😆.
Figure 6 – Leading brands engaging with Nom Nom
Source: x.com @nonnom_solana
While we aren’t a meme focused fund, the fact is communities like Pepe (PEPE), DogWifHat (WIF) or Bonk (BONK) are large and loyal. Many new tokens like Popcat (POPCAT), Mumu the Bull (MUMU) or Mog Coin (MOG) have grown significantly, both in terms of token price and following. All of the aforementioned tokens have performed well so far over this cycle. But we caveat, 99.99% of memes are likely going to or close to zero. Hence, buyer beware.
Tokens
Solana is back. After running into issues earlier this year with network congestion leading to a significant increase in dropped transactions, things appear to be back on track (using the network ourselves, things do appear to have improved).
Notably, Solana fees surpassed Ethereum on a weekly basis for the first-time the week ending July 29, 2024 (Chart 32).
Chart 32 – Total Economic Value: Solana versus Ethereum (July 22, 2024 – July 29, 2024)
Source: Blockworks Research; Total Economic Value = Transaction Fees + Maximal extractable value (MEV) Tips
A snapshot on July 29 also shows Solana topped Ethereum in active addresses, fees, revenue and 24hr DEX volume on a daily basis (Figure 7).
Figure 7 – Solana vs Ethereum metrics (July 29, 2024)
Source: x.com @SolanaFloor
While most of the attention on Solana is currently on memes, there are numerous decentralized infrastructure projects we pay close attention to – Arweave (AR), Render (RNDR), Helium (HNT) and Hivemapper (HONEY), for example.
One of those mentioned above is San Francisco based Hivemapper, a decentralized version of Google Maps. It was founded in 2015 by Silicon Valley veterans Ariel Seidman and Evan Moss. The company is incentivizing people to map areas as they use dashcams in exchange for payment in HONEY, the network’s native cryptocurrency.
As of June 30, 2024, Hivemapper had collected 14.7m km (9.1m miles) of unique street-level imagery. This is up from 1m km (620k miles) one year ago (Hivemapper launched at end of Q4 2022). Google had mapped 60 million kilometers (37.2 million miles) as of mid-2023. The difference however is that this was done in 1.5 years compared to over 25 years for Google.
The company relies on individual contributors around the world to collect its street-view data, essentially building a crowdsourced mapping platform. Drivers purchase a $549 dashcam that includes a high-quality imager and precise GPS (Figure 8). In turn they get paid in HONEY tokens (see more on the economic model in Figure 10 below).
Figure 8 – Simplified Process of Mapping the World
Source: Hivemapper
This saves Hivemapper both opex and capex associated with building a Web2 competitor to Google Maps, which would likely be impossible given their dominance (this is the same model Helium (HNT) deployed for mobile networks).
A significant benefit over Google Maps is that maps are constantly being updated, whereas much of Google’s Street View imagery, particularly outside of urban centres, is over a decade old.
So far driver uptake has been excellent with the total number of drivers (aka Contributors) reaching more than 60,000 at June 30, 2024.
To date, they’ve mapped a significant amount of North America, Europe, Australia, Japan, South Korea, Thailand and Malaysia. They’ve also made inroads into parts of southeast Asia and the Middle East. They recently announced expansion plans in Asia, although they’ve readily admitted that they face unique challenges in the Asia Pacific region, such as complex street naming conventions, traffic laws, urban development, and non-standard roads, which hinder the creation of accurate and up-to-date maps. That said, they are building teams in various to distribute educational materials in native languages, targeting key regions and opinion leaders across Asia given the significant opportunity.
Figure 9 – Hivemapper Mapping Coverage (USA, Europe & Asia Pac/ME)
Source: Hivemapper
In mid-2023, Hivemapper launched an enterprise division to sell their map imagery API. With the growing demand for real-time street intelligence, especially for autonomous vehicles, many companies are seeking alternative map data sources hence the massive opportunity. Their first customer was the city of Shreveport, Louisiana, who bought dashcams for its garbage trucks with plans to buy mapping imagery to better respond to customer service issues. Since then they have onboarding a number of Fortune 500 companies along with government entities.
While the business model appears to be viable, the tokenomics are not perfect. 40% goes to rewards, albeit they employ a burn-and-mint structure, where tokens are earned by contributors while they are purchased by customers to spend on mapping data. This system is based on a Net Emissions Model; whenever map consumers burn tokens to access services on the network, an equivalent number of tokens is added back as Map Consumption Rewards (Figure 10). There is a proposal outstanding to modify this to model in order to create deflationary tokenomics (detail below).
Figure 10 – Burn and Mint System with a Net Emissions Model
Source: Hivemapper & MOIC Digital.
40% of the token supply goes to the team and investors.
- 20% to investors for providing the startup capital required to launch the Hivemapper Network
- 20% to employees of Hivemapper Inc. for building the technical and operational systems required to run the Hivemapper Network
The investor lock-ups are not great, with a one-year lock-up and then a one-year vest with 12 equal tranches at the end of the 13th month until the end of the 24th month anniversary of the Initial Token Distribution Date, which was November 3, 2022. Thus, all investor tokens will be free trading by November 2024.
Token lock-ups for the team are slightly better, with token vesting in 24 equal tranches at the end of the 13th month to the end of the 36th month, thus all team tokens will be free trading by November 2025.
The last 20% goes to corporate and the Hivemapper Foundation.
- 15% to Hivemapper Inc. for providing ongoing R&D and operational support for the Hivemapper Network
- 5% to the Hivemapper Foundation that governs and facilitates the ongoing success of the Hivemapper Network
Further, there has been more supply (mint) than demand (burn) coming to market as Hivemapper mints tokens to pay the drivers mapping the world. To date, there has been very few tokens burned, as evidenced in Chart 33. Longer term, assuming they can sell the data, supply will reduce as tokens are used to pay for the data and services.
Chart 33 – Hivemapper HONEY Token: Mint vs Burn
Source: Franklin Templeton Digital Assets.
While token supply is currently an overhang, there are multiple Map Improvement Proposals (MIPs) proposed by the Hivemapper Foundation, including one that adjusts the burn-and-mint economics. The proposal’s goal is to increase the map data consumption deflationary influence on token supply, allowing HONEY to accrue value as customers derive more value from the data. Specifically, 75% of HONEY redeemed for map credits each week will be permanently burned and 25% will be reminted as Consumption Rewards, up to a limit of 500,000 HONEY per week in Consumption Rewards. Any overage will be permanently burned.
Given HONEY is a Solana token, it trades on Solana Dex’s, but also centralized exchanges Coinbase and Kraken. Volume was miserably low for the first year plus, but as more rewards were distributed, the circulating token supply has increased. Price performance has been weak, likely driven by new supply coming to market from driver rewards and lack of token demand outside investors.
Chart 34 – HONEY Performance (December 5, 2022 – July 30, 2024)
Source: CoinMarketcap
The circulating supply market cap is $163.2m with 21% of tokens max supply outstanding
Figure 11 – Hivemapper Valuation Metrics
Source: Coingecko
We like the Hivemapper concept. They are disrupting an effective monopoly in Google Maps at a fraction of the cost and with better outcomes.
Further, it’s a project with a viable use case, especially if one were to look to remove themselves from the traditional Web2 ecosystem where your data, like all your movements in a day, week, month or year, belongs to a tech giant such as Google.
Given their potential to monetize massive amounts of real-time mapping data, we believe at a $163m market cap, there is significant upside.
We plan to revisit Hivemapper in the near future as we detail what it means to “Decentralize Yourself”.
Luke McFarlane
Co-Founder & Portfolio Manager
Vikara Capital
Mark Riccio, CFA
Co-Founder & Portfolio Manager
Vikara Capital
Contact Us
Vikara is a liquid, open-ended fund investing in digital assets (excluding Bitcoin and Ethereum) with no lockups (add or redeem monthly). Vikara’s proprietary investment and rigorous risk management processes aim to outperform the broader digital asset markets. Founders have over 40 years combined investment experience at Millennium, Balyasny, Platinum, Merrill Lynch and Macquarie.
Vikara, in Sanskrit, describes the process of change. Its definition is constantly evolving, changing with economic cycles, technology, and geopolitics. It is a transformation of thought or logic, a modification in the direction of travel, an alteration in action or participation. It is one thing to want change, but another to drive it. We believe in a world where commerce doesn’t need intermediaries. Where people are paid directly for content, time, and effort. Where privacy, data and free speech is given, not something to opt-in for.
This material is for the general information only and should not be construed as an offer to sell or the solicitation of an offer to buy any security or asset in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any specific action based on this material. It does not constitute a recommendation or take into account the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The material is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only and only represent the views of the author and not those of Vikara, unless otherwise expressly noted.
This material is produced as of a particular date. Accordingly, this material may have already been updated, modified, amended and/or supplemented by the time you receive or access it. Vikara is under no obligation to notify you of such changes and you should discuss this material with your Vikara representative to ensure such material has not been updated, modified amended and/or supplemented.
Be the First to Know
Keep up to date with industry news and events