Disclosure: Multicoin has established, maintains and enforces written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to its investment activities. Multicoin Capital abides by a “No Trade Policy” for the assets listed in this report for 3 days (“No Trade Period”) following its public release. At the time of publication, Multicoin Capital owns HT, BNB, FTT, and LEO tokens.
Exchange tokens are currently the most interesting sector in crypto because they sit at the intersection of where there is demand today and where there will be opportunities tomorrow. We have previously expressed a thesis that exchange tokens are the best way to get exposure to open finance and that there is tremendous growth potential. There are significant barriers to scaling which give incumbents a clear competitive advantage. This has been confirmed by the horizontal integration of products by the biggest exchanges. We previously saw pure-play, specialty exchanges focused on a specific subset of derivatives (BitMEX, Deribit, CME) but have now seen futures integrated into the existing exchanges with great success (Huobi, OKEx, and Binance have all usurped BitMEX’s dominance in futures).
Exchanges are also able to be nimble with token economics and introduce new use cases to their tokens over time. We’ve seen this with virtually all exchange operators, whereby they add new products and integrations to offer token holders advantages over other users. Some examples include Binance’s Launchpad offering and Huobi’s Lock & Mining program.
We track the exchange token market closely (as noted in our Binance reports here and here; we also still hold a large long BNB position), and through our ongoing analysis of the space we noticed that there is a divergence between the fundamentals of Huobi and the current valuation of Huobi Token ($HT). After digging deeper, we believe that Huobi is misunderstood by the market and that $HT is undervalued at current prices, primarily because of information asymmetries that exist between the East and the West.
We are long $HT for a number of reasons, and because there are several near-term, compelling catalysts:
- Huobi is the best way to get broad exposure to increased blockchain and crypto excitement in China, which is now a national priority. Huobi OTC is the most liquid among all the CNY on/off ramp exchanges and is the most recognized brand for new Chinese users to get exposure to Bitcoin and other major cryptocurrencies.
- Contrary to a widely held Western opinion, Huobi’s volumes today are in fact very real, and they custody more BTC than every other exchange except Coinbase. Furthermore, Huobi is ranked second globally in spot volume (behind Binance), second in derivatives volume (behind Binance Futures), and second in derivatives open interest (behind BitMEX).
- Huobi appears to be making a commitment toward more transparency, which could help close the information asymmetry between East and West.
- Huobi has expanded their product offerings significantly in the past two years, most notably into derivatives trading (for details see the section below). We expect Huobi to continue innovating and adding other types of financial products, including options, staking, etc.
- Huobi recently open sourced the code for Huobi Chain, an initiative backed by the world-class team at Nervos and will be the first “compliant” exchange-chain in the world.
- $HT currently has the highest buyback ratio of any exchange token on the market at 17.8%. In fact, $HT’s buyback ratio is 4.4x higher than the exchange token industry average. We believe that it is mispriced and the buyback ratio should trade closer in-line with Huobi’s peers. For example, based on LTM burn metrics, that would imply a $HT marketcap of $4.3B, representing as much as 345% upside from today’s price.
In this report we explore the current operations of Huobi, detail the history of its products and operations, its tight-knit relationship with the government, and its trading volume (with a specific focus on its peer-to-peer OTC trading and expiry and perpetual contracts). We also explore Huobi’s recent effort to become a financial infrastructure provider in China by building Huobi Chain, which uses Nervos Muta SDK as its technology provider. With the fundamental support of steady growing trading volumes, attractive token economics, relative mispricing by the market, and a perceived blessing by the Chinese government, we believe that $HT is one of the best risk-adjusted investment opportunities in the cryptocurrency space.
Download the report (PDF) now to read our analysis of Huobi and $HT.