Hedging: the platform provides a bear market profit gold key — two of the Exploration Series

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

Research Institute of Tong Tong

Song Shuangjie, CFA; Linky

Guide reading

In the bear market, the platform passes through the Davies double killing process, and the pure multi head strategy can not guarantee the profit in the bear market, and the hedging is the golden key to the bear market profit.

abstract

Valuation is an old investment learning. As far as the stock market is concerned, the stock has been born for more than 400 years, but the current widely used relative valuation method and absolute valuation method are still less than 100 years. In the course of the stock valuation development, each valuation method has its own dependent valuation information base, and is also limited by the objective conditions such as the computing power and the investor group. At present, the relative valuation method in the stock valuation can be applied to the platform valuation, and it does not have the information base needed to apply the absolute valuation method.

The scarcity determines the valuation premium of the exchange, and the stock exchange is not yet scarce. The valuation of the traditional stock exchange is much higher than that of the traditional brokerage and Internet broker. This is mainly due to the higher concentration of the exchange industry, the long accumulated brand effect or the high administrative barriers in some areas, which further enhance the scarcity of the stock exchange. Although the stock exchange has the characteristics of both securities dealers and exchanges, it has low entry threshold and fierce competition because the industry is in the early stage.

There is a significant discount in the valuation of the stock exchange in the stock market compared to the valuation of the stock market. Bear market does not eliminate the interest of mainstream capital on the stock exchange, for example, the PE valuation of Coinbase and Bithumb in the stock market is 18.6 times and 15 times respectively, compared with the valuation of Binance, Huobi and OKEx in the pass market is only 6 times, 4.5 times and 12 times respectively. The main reasons are two reasons: 1) the stock market emphasizes the long-term factors such as industry status, technical strength and market layout, and the stock market pays more attention to the short-term performance. In the case of the bear market turnover and the exchange performance decline, the investor is reluctant to give the platform overvaluation value; 2) the equity and platform equity equity property is significantly different.

Hedging is the golden key to a bear market profit. Through the comparative analysis of the three platforms of Binance, Huobi and OKEx, it is found that Binance is the most competitive and developing potential. First, the rate is at a lower level in the industry, and then OTC and contract business are expected to become the new profit points in the future. From the real access of the platform, the Binance month access is far higher than the Huobi and OKEx, and the OKEx access is the lowest and the valuation is high. In specific investment, a pure multi – head strategy cannot guarantee a bear market. We can build valuation based hedging strategies, such as BNB underestimating relative OKB and greater potential in the future, and can gain relatively stable profits by making more BNB short OKB.

Risk hints: the exchange performance is over – expected, and quantum computer technology advances by leaps and bounds

Catalog

1 stock valuation and platform certification

1.1 two types of stock valuation methods

1.2 can the stock valuation method be applied to the platform certification?

2 the core of the valuation of the exchange: Scarcity

2.1 scarcity determines the valuation premium of the stock exchange

2.2 the current stock exchange is not yet scarce

There is a significant discount in the valuation of the 3 pass exchange in the market.

3.1 equity market: strong interest in capital and higher valuation

3.2 card market: low valuation, comparable to the price of Chinese Cabbage

The two reasons for the low valuation of the 3.3 pass market

4 Hedging: the golden key to bear market profit

Comparison and analysis of 4.1 pass exchange

4.2 more BNB empty OKB may be a good bear market strategy

text

An investor needs to learn only two courses, how to understand the market and how to estimate it.

– Buffett

Buffett says, “an investor needs to learn only two subjects: how to understand the market and how to estimate it.” Buffett’s understanding of the market is to do the reverse thinking of “I am greedy in the fear of others and fear me when others are greedy.” his understanding of valuations emphasizes the buying of companies with a margin of safety, and the margin of safety is the core and cornerstone of Buffett’s whole value investment system. In the current market of freezing point, Buffett’s thinking of reverse investment and the idea of sticking to the margin of security are worth our reference.

We are in the “copy platform platform”? Not so urgent, we also need to wait for Davies double kill – one of the series of exploration valuation Exploration Series.

1 stock valuation and platform certification

Valuation is an old investment learning. As far as the stock market is concerned, the stock has been born for more than 400 years, but the current widely used relative valuation method and absolute valuation method are still less than 100 years. The stock is initially regarded as a variant of the bond, so the stock valuation uses the bond valuation method to use the dividend rate valuation. Until the mid 20s of twentieth Century, the relative valuation method, represented by the P / E ratio, began to replace the dividend rate valuation and was used to this day. The absolute valuation method after the collapse of the US stock market in 1929 began to be applied to the stock valuation.

1.1 two types of stock valuation methods

The stock valuation methods include two kinds of relative valuation method and absolute valuation method. The relative valuation method uses the relative multiplier to compare the valuation level of different companies in different industries or industries. The commonly used indexes are PE, PB, PS, EV/EBITDA and PEG. As the relative multiplier will return to the mean in the long run, the lower the relative multiplier is, the cheaper the valuation is, the greater the possibility of obtaining excess returns for a long time. The absolute valuation method uses the company’s financial data and calculates the intrinsic value of the stock through a rigorous valuation model, including the cash flow discounting model (DCF, Discounted Cash Flow Model), the dividend discounting model (DDM, Dividend Discount Model), the free cash flow discount model (FCFF, Free Cash) and other specific methods.

1.2 can the stock valuation method be applied to the platform certification?

In the course of the stock valuation development, each valuation method has its own dependent valuation information base, and is also limited by the objective conditions such as the computing power and the investor group. For example, after the 1929 American crash, mandatory information disclosure ensured the availability and reliability of the information needed for the valuation, which played a key role in the application and application of the new valuation methods. Although the absolute valuation method has been put forward in the 30s of last century, it has not been truly applied until 60s. In addition to the defects of the method itself, the computing power and the investor group have severely restricted the application of the absolute valuation method.

At present, the relative valuation method can be applied to the platform valuation, and it does not have the information base needed to apply the absolute valuation method. As far as platform valuation is concerned, the calculation capacity does not constitute an obstacle to the valuation. The main difficulty lies in the lack of supervision in the early period of the industry. The large exchanges do not disclose detailed financial statements and do not have the information base for the application of the absolute valuation method. The information requirement of the relative estimation method is relatively low and can be applied to the platform pass valuation.

2 the core of the valuation of the exchange: Scarcity

There are many factors affecting the valuation, such as the industry, the development stage, the growth, the level of governance and the scarcity, among which scarcity is the main factor to determine the valuation premium of the stock exchange.

2.1 scarcity determines the valuation premium of the stock exchange

Investors are willing to give higher valuations of scarce exchanges, and the value of scarcity can be clearly seen through the comparison of traditional stock exchanges and securities brokers.

The high monopoly of the traditional stock exchange industry, the high administrative barrier and the century old store. The merger and acquisition integration of the stock exchange industry has never been interrupted. Before the mid 90s of twentieth Century, the exchanges mainly through the domestic mergers and acquisitions to expand the scale and improve the efficiency. Since the end of twentieth Century, the exchange industry experienced a wave of transnational mergers and acquisitions, and the industry concentration was further promoted, for example, 14 securities and futures exchanges and 5 clearing houses, such as the existing New York exchange and the pan European exchange under the Intercontinental Exchange Group. The high administrative barriers to the stock exchange industry in some areas further enhance the scarcity of the stock exchange. In addition, many stock exchanges in the world are “one hundred years old”, such as the New York Stock Exchange was founded in 1792, the London exchange was founded in 1801, the Tokyo exchange was founded in 1878, and these exchanges have been well known both at home and abroad, and new exchanges are difficult to compete with these old exchanges. According to Visual Capitlist, 60 of the world’s largest exchanges have completed 93% of the world’s stock trading, and the NYSE has topped the market value of $18 trillion and 500 billion, more than the market value of the last 50 of the 60 exchanges.

The competition pattern of the securities industry is much more severe than that of the exchange industry, and the competition is very fierce. There are a total of thousands of traditional brokerages and Internet brokerages from the global scale, and there are 131 in China alone. From the valuation point of view, the PE of transnational securities firms such as Goldman Sachs, Morgan Stanley and Nomura holdings are 14 times, 10 times and 8 times respectively, and the PE of the A stock broker is 15 times, and the pure Internet brokers such as the Jiaxin finance, the Asian trade holding and the PE of E-trade are 22 times, 22 times and 17 times respectively.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

The price of scarcity determines the premium, and the stock exchange is valued higher than the traditional brokerage and Internet broker. Not only is the valuation level of traditional brokerages lower than the exchange, but pure Internet broker valuations are far below the average about 29 times the valuation level of the stock exchange.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

2.2 the current stock exchange is not yet scarce

The trade exchange industry is still in the early stage, and the supervision is out of position, and the industry entry threshold is low. The early stock exchanges were organized by brokers or government agencies, supervised by the regulatory authorities and self-discipline organizations such as the Securities Industry Association. At present, the exchange industry lacks supervision, information disclosure, charge rules and so on are not transparent, and even a lot of organizations borrow the name of the exchange to cut the real leek. The lack of supervision has led to a low threshold for the industry to enter, and almost everyone can open an exchange. According to CoinMarketCap statistics, there are more than 10 thousand trading exchanges around the world, far greater than the number of stock exchanges.

The competition is fierce, and the exchange has not yet established a long-term competitive advantage. At present, the industry pattern is still unstable, on the one hand, since this year, the concentration of industry concentration has been declining trend, on the other hand, the turnover of exchange turnover is constantly changing, the existing industry status may be replaced at any time, which has not been seen for a long time to establish a long-term competitive advantage.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

There is a significant discount in the valuation of the 3 pass exchange in the market.

3.1 equity market: strong interest in capital and higher valuation

Bear markets do not dispel the interest of mainstream capital for the exchange. According to Recode data, hedge fund Tiger Global led a $8 billion valuation of $8 billion for a new round of $500 million in the U. S. stock exchange, the largest US exchange, Coinbase, which was also a 4 fold increase in the valuation of Coinbase when it bought Earn at $120 million in April this year, compared with $1 billion 600 million in 2017. Under the continuing downturn in the 2018 market, the high valuation of Coinbase shows that mainstream capital is optimistic about the future of the trading industry.

The price earnings ratio of Coinbase is about 18.6 times higher than that of traditional securities, but it is not as good as that of the traditional stock exchange. The net profit rate of the traditional exchange is about 25%-55% (the average net profit rate of the top 9 exchange groups in 2017 is about 43%), and the income is about $1 billion in Coinbase2017. The net profit calculated at 43% net interest rate is 430 million US dollars, and the valuation of the $8 billion is 18.6 times PE, which is higher than the traditional brokerage, but less than the traditional stock exchange.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

South Korea’s biggest stock exchange Bithumb’s latest valuation is $930 million, and PE is about 8 times. The BK group of Singapore was valued at $930 million for $353 million to buy Bithumb, then BK group thought its valuation was low and its valuation was adjusted to $1 billion 800 million unilaterally. According to BTC South Korea’s semi annual report and Yonhap report, the three quarter profit of $74 million in the first three quarters of Bithumb2018 was 91 million dollars in the first three quarter, 91 million dollars in the first three quarter, about 8 times the value of the $930 million valuation, and about 15 times the value of $1 billion 800 million, equivalent to Coinbase.

3.2 card market: low valuation, comparable to the price of Chinese Cabbage

At present, the business model and feedback mechanism of the stock exchange are very close, and the competition is very fierce. From the point of view of the product, Binance currently only supports trading spot, Huobi and OKEx have OTC and contract transactions; from the charge mode, the three exchanges are charged according to the total amount of investors’ monthly transactions or the number of documents held. From the feedback mechanism, Binance and Huobi are using 20% of the quarterly profit for the repo platform, and OKEx return 50% of the fee per week.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

Unlike the institution – led European and American stock market, most of the market is the participation of the retail investors and the contribution of the trading volume. The average amount of investment in the retail market is less. For example, in South Korea, 31.3% of the respondents have invested the evidence according to the survey of the Samurainn, but the average amount of investment is only 5 million 660 thousand won (RMB 34 thousand and 400 yuan).

The three major platform charges 40 percent off preferential requirements, most of the retail customers are difficult to meet the requirements. The three major platforms and 40 percent off favorable conditions are as follows: Binance requires 6000 BNB and 40 thousand BTC transactions ($240 million) for 30 days, and Huobi requires 6000 HT per month for about 60 thousand yuan, and OKEx30 day transactions need to reach 24 thousand BTC. Therefore, it is difficult for most retail households to meet the 40 percent off preferential requirements. According to the average rate of 40 percent off, the sales of Binance, Huobi and OKEx18 in the first half of the year were 212 million, 230 million and $181 million (OKEx deducted 50% return), and the net profit of transaction business was 85 million, 92 million and 36 million dollars, respectively.

Using the same method, the first half of the Bithumb fee income is about $292 million, plus the cost of cash, listed and market makers, close to the public disclosure of $293 million, indicating that our method of calculation is relatively reasonable.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

The PE of BNB is about 6 times. The Binance performance in the one or two quarter of 18 years was $350 million (Binance one or two quarter performance disclosure time in January 15th and April 15th), which was close to US $335 million according to its official web bulletin, but it was very different from the amount of performance measured according to the volume of transactions. During the half year, the average turnover of Binance day was $1 billion 633 million, according to the comprehensive 0.06% rate, the income was only 189 million US dollars and the net profit was $76 million. Even if the listing fee was 80 million dollars (200 months, average 400 thousand dollars per project), the gap still existed, the remaining part may be other business income, not as long-term profit. So, we think Binance is about $156 million after deducting other revenue, about $312 million in the year, about 6 times PE, and estimated at about $2 billion 500 million according to the same 8 times PE as Bithumb.

The PE of HT is about 4.5 times, and the PE of OKB is about 12 times. According to the same method, a profit of about $138 million (excluding the listing fee) was calculated in the month of Huobi2018 in the month of Huobi2018, in which the commission service contributed to a net profit of about 120 million yuan. According to the current annual net profit of $184 million, the PE is about 4.5 times. The annual profit of OKEx2018 is about 116 million yuan, and the total market value of $1 billion 360 million is calculated, and the PE is 12 times.

The two reasons for the low valuation of the 3.3 pass market

The stock market pays more attention to the long-term factors such as industry status, technical strength and market layout, while the evidence market pays more attention to short-term performance. In the case of the shrinking of the bear market turnover and the decline of the exchange performance, the investors are reluctant to give the platform an overvaluation value. The average daily turnover of Binance, Huobi and OKEx in the three quarter of 2018 was 1 billion 110 million, 690 million and $1 billion 60 million, compared with 2 billion 10 million, 1 billion 90 million and $1 billion 716 million in the first half of the year.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

The rights and interests of the equity and the platform are significantly different. From the static PE, there is a significant discount between the valuation of the platform and the valuation of the stock market. This discount is due to a series of shareholders’ rights, such as the right to dividend, the right to vote, the right to know, the right of the distribution of the remaining assets, and so on, but the holding of a platform can only enjoy the limited rights of the discounts of commission fees, the participation of the platform business and the voting on the market, which can neither participate in the operation of the company nor represent the ownership of the company.

4 Hedging: the golden key to bear market profit

Comparison and analysis of 4.1 pass exchange

Binance is the most competitive and developing potential. At present, the rates of different exchanges vary greatly, ranging from 1 to 3 per thousand. The current rate of Binance is at a lower level in the industry, and the low rate can make it more customers in the industry. On the other hand, the company’s performance can be relatively stable even in the future industry. In addition, Binance is not involved in the OTC and contract business, and these two types of business are expected to become a new profit point for the platform.

The OKEx has the lowest access and the valuations are high. After communicating with a large number of quantitative teams at home and abroad, we understand that many exchanges have brushes, so it is not enough to see only the turnover of the platform, so we introduce the real access data of the third party statistical agency SimilarWeb as a reference (including OKEx’s access to OKEx and OKCoin, Huobi including Huobi and Huobi global). The results show that the Binance monthly visits are much higher than that of Huobi and OKEx, and the average monthly access of OKEx is only 920 thousand, but the volume of turnover is the top 5. OKEx’s high valuations and relatively low levels of access make it difficult for investors to have a sense of security.

In addition, the Twitter fans of Binance, Huobi and OKEx were 864 thousand, 158 thousand and 289 thousand respectively, and Binance was the same as the highest, consistent with the conclusions obtained from the SimilarWeb data.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

4.2 more BNB empty OKB may be a good bear market strategy

In the specific investment, not now to buy undervalued platform certification will be able to make a profit, because the platform through the bear market through the Davies double killing process.

Although a pure multi – head strategy does not guarantee a bear market, we can build valuation based hedging based on the analysis of the above valuation. We believe that BNB is undervalued and has a greater potential for the future than OKB, and can gain a relatively stable profit by building a hedge strategy such as BNB short OKB. According to historical data, the hedging strategy is 33% in the period from June 7th to October 17th.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

Note appended:

For some reasons, some of the nouns in this article are not very accurate, such as: pass, digital, digital currency, currency, token, Crowdsale and so on.

 Hedging: the platform provides a bear market profit gold key -- two of the Exploration Series

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