China and US Equity Analyst

Roger Xie

Cross Asset Strategy

<ul>
<li>Crypto trading volume has rebounded shocking 70% in October from the level in 3Q21, fueled by the first-ever regulatory approval of bitcoin future ETF and the rise of bitcoin price. Download data software Apptopia also suggested renewed interest for broad range of cryptocurrency trade app, such as <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> and <a href="https://www.smartkarma.com/entities/robinhood-markets-inc" target="_blank" data-smartkarma-citation="entities:33532:1" rel="noopener">Robinhood Markets (HOOD US)</a>. Those engagement metrics DAU and MAU have also reflected the greater interest.</li>
<li>Bitcoin price has been volatile this year. It briefly peaked at $64000 in April. Then China started to clamp down on crypto mining and transaction activities, bitcoin price was down by half from the peak in May. However, blockchain technology, by its nature, has been proven to be flexible to expand the network and relocate the computing nodes as supply/demand changes. We have observed the mining and computing power has been shifted from China to other places in the world. </li>
<li>The much-awaited bitcoin-linked ETF has received green light from US market watchdog Securities and Exchange Commission (SEC) recently. The listed funds from Proshares and Valkyrie offer investor exposure not to crypto itself but to bitcoin future. SEC has signaled that it would prefer ETFs that track bitcoin future due to easy regulation. But investors believe the ETF holding bitcoin directly will received SEC approval in next step. </li>
</ul>


Crypto trading volume has rebounded shocking 70% in October from the level in 3Q21, fueled by the first-ever regulatory approval of bitcoin future ETF and the rise of bitcoin price. Download data software Apptopia also suggested renewed interest for broad range of cryptocurrency trade app, such as Coinbase (COIN US) and Robinhood Markets (HOOD US). Those engagement metrics DAU and MAU have also reflected the greater interest.
Bitcoin price has been volatile this year. It briefly peaked at $64000 in April. Then China started to clamp down on crypto mining and transaction activities, bitcoin price was down by half from the peak in May. However, blockchain technology, by its nature, has been proven to be flexible to expand the network and relocate the computing nodes as supply/demand changes. We have observed the mining and computing power has been shifted from China to other places in the world. 
The much-awaited bitcoin-linked ETF has received green light from US market watchdog Securities and Exchange Commission (SEC) recently. The listed funds from Proshares and Valkyrie offer investor exposure not to crypto itself but to bitcoin future. SEC has signaled that it would prefer ETFs that track bitcoin future due to easy regulation. But investors believe the ETF holding bitcoin directly will received SEC approval in next step. 


Crypto: Trading Activities Rebound as Investors Rush for Inflation Hedging

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/robinhood-markets-inc" target="_blank" data-smartkarma-citation="entities:33532:1" rel="noopener">Robinhood Markets (HOOD US)</a>'s share price has been trending downwards in the past few weeks after reaching a 52 week high of $55 per share on 2 August. Robinhood's share price has declined to $40.93 per share, which is now approaching the IPO price of $38. In our view, there are two major factors including a potential ban on payment for order flow and lower trading activity that are likely to lead to lower share price in the weeks ahead. Potential Ban on Payment for Order Flow (PFOF) - All in all, there does not seem to be an overwhelming evidence to suggest that SEC will side with the status quo and not ban PFOF. Although the probability of banning PFOF may be less than maintaining the status quo, the former could involve a significant slash in Robinhood's share price.Lower Trading Activity on a QoQ Basis - As of September 2021, new downloads of <a href="https://www.barrons.com/articles/two-problems-loom-for-robinhoods-stock-51632930724" target="_blank" rel="noopener">Robinhood app</a> are estimated to be down about 78% on a QoQ basis. Daily active users are down about 40% YoY. The recent increased volatility in the global equities and cryptocurrencies markets have caused millions of retail investors in the US to become more cautious and they have not been as active in trading stocks and cryptos in the past three months as compared to 1H 2021. Given that transactions based services accounted for 80% of total revenues in 1H 2021, a decline in active trading of stocks and equities would negatively impact the company.

Robinhood Markets (HOOD US)'s share price has been trending downwards in the past few weeks after reaching a 52 week high of $55 per share on 2 August. Robinhood's share price has declined to $40.93 per share, which is now approaching the IPO price of $38. In our view, there are two major factors including a potential ban on payment for order flow and lower trading activity that are likely to lead to lower share price in the weeks ahead. Potential Ban on Payment for Order Flow (PFOF) - All in all, there does not seem to be an overwhelming evidence to suggest that SEC will side with the status quo and not ban PFOF. Although the probability of banning PFOF may be less than maintaining the status quo, the former could involve a significant slash in Robinhood's share price.Lower Trading Activity on a QoQ Basis - As of September 2021, new downloads of Robinhood app are estimated to be down about 78% on a QoQ basis. Daily active users are down about 40% YoY. The recent increased volatility in the global equities and cryptocurrencies markets have caused millions of retail investors in the US to become more cautious and they have not been as active in trading stocks and cryptos in the past three months as compared to 1H 2021. Given that transactions based services accounted for 80% of total revenues in 1H 2021, a decline in active trading of stocks and equities would negatively impact the company.

Robinhood - Impact of the Potential Ban On PFOF & Lower Trading Activity

Latest News from the World’s Leading Innovators

Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Thematic (Sector/Industry)

Headline Developments SpaceX (private) has completed the world’s first all-civilian mission to space, sending four passengers into Earth’s orbit without any professionally trained astronauts.  The mission lasted 72-hours, setting off on Wednesday last week and landing (below) on Saturday, 30 miles (48 km) east of the Kennedy Space Center in Florida (from where they launched).

Headline Developments SpaceX (private) has completed the world’s first all-civilian mission to space, sending four passengers into Earth’s orbit without any professionally trained astronauts.  The mission lasted 72-hours, setting off on Wednesday last week and landing (below) on Saturday, 30 miles (48 km) east of the Kennedy Space Center in Florida (from where they launched).

Headline Developments China has likened online computer games to opium, causing shares in Tencent (700.HK) and NetEase (9999.HK) to drop 10% and 15% respectively.  The article, which appeared in state-run Economic Information Daily (before being removed), said more than half of China’s children were nearsighted and online games affects their education; adding that gaming addiction is widespread and could negatively impact their growth.

Headline Developments China has likened online computer games to opium, causing shares in Tencent (700.HK) and NetEase (9999.HK) to drop 10% and 15% respectively.  The article, which appeared in state-run Economic Information Daily (before being removed), said more than half of China’s children were nearsighted and online games affects their education; adding that gaming addiction is widespread and could negatively impact their growth.

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<div>A pandemic fuelled retailed trading frenzy and strong market performance in 2020 enabled <a href="https://www.smartkarma.com/entities/futu-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FUTU US)</a> to benefit from unprecedented growth in paying client additions and trading activities.  A recent USD1 trillion selloff of China offshore equities and a shift in investor sentiment however, compounded by escalating regulatory scrutiny, has led to concerns whether the high growth seen in 2020 and early 2021 would persist in coming quarters.  We lay out 4 hypotheses for a potential negative re-rating focused on growth declines, continued investments, regulations, and licensing concerns. </div>

A pandemic fuelled retailed trading frenzy and strong market performance in 2020 enabled Futu Holdings Ltd (FUTU US) to benefit from unprecedented growth in paying client additions and trading activities.  A recent USD1 trillion selloff of China offshore equities and a shift in investor sentiment however, compounded by escalating regulatory scrutiny, has led to concerns whether the high growth seen in 2020 and early 2021 would persist in coming quarters.  We lay out 4 hypotheses for a potential negative re-rating focused on growth declines, continued investments, regulations, and licensing concerns. 

Futu Holdings - An Inflection Point Imminent?

United States

Robinhood Markets, Inc. operates a financial services platform. The Company offers brokerage and cash management applications such as stocks, exchange-traded funds, options, and cryptocurrency. Robinhood Markets serves clients in the United States.

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Robinhood Markets (HOOD US)

Crypto: Trading Activities Rebound as Investors Rush for Inflation Hedging

The much-awaited bitcoin-linked ETF BITO and BTF have received green light from SEC recently. But investors believe the ETF holding bitcoin...

Roger Xie

Robinhood - Impact of the Potential Ban On PFOF & Lower Trading Activity

In our view, there are two major factors including a potential ban on payment for order flow and lower trading activity that are likely to lead to...

Douglas Kim

Weekly Innovation Review (WIRE) #50

SpaceX (private) has completed the world’s first all-civilian mission to space, sending four passengers into Earth’s orbit without any...

Granite Bay Capital

Weekly Innovation Review (WIRE) #43

Headline Developments: China has likened online computer games to opium, causing shares in Tencent (700.HK) and NetEase (9999.HK) to drop 10% and...

Granite Bay Capital

Futu Holdings - An Inflection Point Imminent?

Strong retail participation and market performance enabled Futu Holdings to benefit from strong growth. Given a shift in investor sentiment, we...

Jason Yap, CFA

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