Last September we wrote about capital allocation & risk asset ramifications in a 0% interest rate world. We said:
“QE Infinity turned your savings account into your checking account, the bond market into your savings account, the equity market into the bond market, the venture market into the equity market, while given rise to the crypto market as the new venture market.”
We wrote about Bitcoin & SaaS Stocks in June, and SPAC’s and the Financialization of Everything in July. While these are all different themes, the growth in every one of them over the past nine months can be in part tied back to that same overarching narrative about the unprecedented fiscal & monetary experiment that Central Bank’s globally have embarked on since the COVID-19 pandemic started. The market is incredibly efficient at creating supply seemingly out of thin air to meet demand. This happens at both the asset level and the company level across nearly every asset class / sector, and the past 12 months have been a PhD level course in the markets ability to act swiftly to take advantage of these changing demand dynamics.
Since the market bottomed last March 23rd the S&P is +77%, the Dow Jones +78%, NASDAQ +90.5%, and WCLD +115%, while Bitcoin is +815%. In the two years prior to 3/23/2020 there were 102 SPAC IPO’s that raised a total of $28B; since that point in time there has been ~700 SPAC IPOs in the US raising $217.2B with IPO’s inclusive of SPAC’s, with total equity offerings of $658B (IPO’s + secondaries). We’ve seen companies like MSTR which haven’t grown revenue YoY in over 7 years raise a $900M convertible at 0.0% interest with the explicit use of proceeds to buy Bitcoin. We saw heavily shorted stocks such as GME, AMC, & BB move 100%-1000%+ in a matter of days in January-February, resulting in stress on the public equity settlement infrastructure, culminating in a Congressional hearing.
Not only have there been an unprecedented amount of SPAC IPO’s, but many are multiple times oversubscribed in a matter of days / weeks enabling sponsors to raise hundreds of millions of dollars (a number of these same sponsors have traditional fund vehicles where that process takes months or even years to raise comparable amount of capital). This access to capital has changed the composition of the SPAC sponsor market, which has evolved considerably since last summer, with top tier PE funds such as Thoma Bravo & corporates with a strong track record of M&A, spins & splits, such as Liberty Media & POST raising their own vehicles.
We’ve seen an explosion in brokerage accounts with companies like eToro growing brokerage accounts from 12.3M to 17.5M in ’20 and have already saw 1.2M new accounts YTD in ’21. Robinhood saw accounts go from 10M to 13M+ in ’20. This has led to an explosion in copycats both domestically and internationally with companies like SQ & PYPL looking to double down / offer equities, and strong interest in fractional US equities globally in LatAm, Africa, & SE Asia where access has previously been restricted to the wealthiest individuals. Access to equity markets isn’t enough though and companies like RH are generating ~65% of PFOF from option trading with 13% of customers trading options, 2% trading multi leg options & 3% utilizing margin. This has resulted in some companies raising capital looking to gamify option trading, enabling users to directionally bet on underlying stocks, abstracting away the option trading behind the scenes. We’ve seen margin usage for retail investors reach all time highs across the brokerage industry broadly.
In the past 12 months there has been over 10,000 companies that have raised $200B+ of VC funding. Per Pitchbook there have been over 650 of Venture Funds raised during that time period. We’ve seen the creation of rolling funds allowing for general solicitation of quarterly investors in public forums like Twitter, and an explosion in a new subset of solo GP funds, where venture investing is mostly a part time job. Seed rounds raised a median of $2.5M at a $10.5M post-money valuation in ’20, this compares to $1.8M / $8.25M in 2017 & $1.3M / $7M in 2015. We’ve seen the time between funding rounds cut dramatically with some companies such as Fast reaching $1.0B valuation inside two years. In hot sectors such as FinTech it’s becoming all too common to see a Series A & B inside 18 months from a Seed Round. We’ve seen companies founded in 2017–2018 approached by SPAC’s to go public. In addition to SPAC’s on the growth equity side, we’ve also seen increased interest (and capital) for crossover funds (which we wrote about here). Tiger Global is averaging a new venture investment ever 48 hours in 2021. This has led to a response from traditional venture funds who are raising larger & lager growth funds looking to become closer to full private lifecycle investors themselves. But there’s still even greater demand and people who cannot access the venture ecosystem via those vehicles that want to in greater size, which has led to the proliferation of secondary funds and private company trading venues like CartaX & Forge.
Last August per Altan Insights, the Reg A+ platforms that offer fractionalized access to alternative assets more broadly, had 192 offerings and a $49M market cap, today there is nearly 500 offerings and $150M of assets (+206.1%). Prior to 2020 there were only 10 trading cards that ever sold for $1.0M+ in history, earlier this month Goldin Auction had 5 cards sell for $1.0M in a single night. We’ve seen new records including a $5.2M Mickey Mantle card, a $4.6M Luka Doncic card (he’s still 22), and $3.9M Mike Trout card during that time. In August of ’20 Rally had 106 offerings with a total market cap of $12.0M, today that’s 228 offerings with a market cap approaching $28M. In a recent Forbes article co-founder Rob Petrozzo mentioned the marketplace now has over 200,000 users; few of whom would have had access to these assets previously.
The total crypto market cap excluding Bitcoin has grown from $61B to $685B over that time period (+1024%). The total value locked in DeFi has increased from $1.0B to $41.4B (+4,040%). BNB has increased from $1.8B to $40B, with DeFi protocols like UNI going from $0-$15B and AAVE from $0-$5.3B, and other crypto favorites like SOL going from $0 to $6B+ over that time period. NFT’s have seen $750M+ of sales of which 95%+ has occurred YTD. Beeple sold an NFT for $69M at Christies, the third highest all time for a living artist at the point of sale, and fourth highest all time adjusted for inflation.
With Coinbase set to hit the public markets everyone got to take a look at their S1 which showed 43M verified users, 2.8M monthly transacting users, $90B of assets on the platform and ’20 revenue of $1.27B and $527M of EBITDA. This was enough for even the biggest crypto skeptics in financial services to re-evaluate their own offerings with firms like Morgan Stanley slowly starting to unroll it to PWM clients & rumors of E*Trade & Ameritrade looking for solutions imminently. Coinbase “only” raised some ~$500M LTD, which has led to distant laggards like Kraken raising at $10B+ valuations which would have been unfathomable 12 months ago.
This isn’t restricted solely to pure financial assets. The median sales price of a house sold in the US has increased 6.0% YoY as of the last reading which was in October and is probably closer to 7–7.5%+ during 1Q21. There are countless anecdotes of houses selling for 10–30% over asking price in a matter of days, no inspection needed. Of course, like any well-functioning market, this has resulted in greater supply with the number of new one family holds sold peaking at nearly 1.0M new homes last August (977,000) which was the highest level since December of 2006.
Whether it’s the number of IPO’s (traditional + SPAC), venture fund raising environment (for startups & fund managers themselves), 10 figure NFT’s, 7 figure trading cards, housing records, or certain crytpocurrencies going from $0 to billions inside of 12 months, it’s clear the unprecedented fiscal & monetary policies of governments & central banks globally in response to COVID-19 have kicked off a wave of frenzy within nearly every corner of the financial market.
We have no clue how or when this will all end but the markets’ ability to create supply to meet this temporary demand has been fascinating to watch over the past 9 months. We just passed the 12-month anniversary of the March low & very few would have predicted at that point in time what’s transpired since, just as it’s foolish to try to predict what will happen over the next 12 months.
With this macro backdrop knowing what you own and why you own it is more important than ever. Don’t be complacent that the diamond hands or laser eye memes will be there when this liquidity eventually dissipates.