ASTR - Trading Binance Japan's Launch

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Home Bias

Home bias is the tendency of investors to invest more in their home country's assets than would be justified by their share of the global market.

A recent study by the IMF and MSCI All-World Index found that all five of the largest countries by market size have a significant home bias. For example, the United States has a domestic equity allocation of 66%, while Japan has a home bias of 56%, even though it only holds 8% of the global market.

There are several reasons why home bias exists. Some of the most common reasons include:

• Familiarity bias: Investors are more likely to invest in companies and markets that they are familiar with. This is because they feel more comfortable with what they know, and they may have a better understanding of the risks involved.

• Language barrier: Investors who do not speak the language of a foreign market may find it difficult to research and understand the companies that are listed there. This can make them feel less confident about investing in those markets.

• Transaction costs: Investing in foreign markets can be more expensive than investing in domestic markets. This is because there are often additional fees associated with buying and selling foreign stocks.

• Regulatory barriers: There may be regulatory barriers that make it difficult for investors to invest in foreign markets. For example, some countries may have restrictions on who can own shares in their companies.

• Herd mentality: Investors may be influenced by the behavior of other investors. If they see that other people are investing in foreign markets, they may be more likely to do the same.

Whilst this bias can have a number of negative consequences for investors domestically over the long run, it also happens to be a repeatable phenomenon that can be taken advantage of in specific circumstances.

Binance Japan

Today, Binance announced its long-awaited return to the Japanese markets. In a blog post titled ‘Introducing Binance Japan’, the exchange announced that 34 markets would open for trading on or after August 14, 2023, with yen withdrawals activated on August 20.

With the aforementioned home bias in mind, only two of the above are known to be based and run out of Japan: ASTR and JASMY.

• ASTR is a scalable platform used by dApp developers to lower costs and improve interoperability, including via the use of Layer 2 features such as Plasma and zero-knowledge rollups. Astar also features cross-chain interoperability underpinned by Polkadot.

• JASMY is a data token that aims to create a more secure and transparent data ecosystem. It is also based in Tokyo, Japan, and has a team of experienced engineers and data scientists.

Whilst both projects have the potential to be significant players in the Japanese crypto market, we believe that ASTR stands out as a good proxy play on this theme.

ASTR

Astar Network is the leading layer-1 blockchain in Japan. It is one of the top para chains on Polkadot and is valued at just under $250 million. Astar provides the infrastructure for building dApps with EVM and WASM smart contracts, whilst offering developers true interoperability with cross-consensus messaging (XCM) and a cross-virtual machine (XVM).

While other para chains on Polkadot only offer EVM compatibility, Astar Network will also support WASM. This will enable support for not only Ethereum-based projects, but also L1s such as Solana, Near, etc., as well as popular languages such as C, C++, and Rust.

WASM is Polkadot's native VM, and Astar Networks plans to collaborate with Parity and the ecosystem to promote web assembly in the Polkadot ecosystem and make Astar Network the main smart contract hub on Polkadot.

One of the key things setting it apart from other ‘Japanese tokens’, is the partnerships they have secured. Notably, ASTR partnered with the fourth-largest company in Japan - NTT Docomo, which happens to be the country's more important telecommunications company. Over the years, TT Docomo is set to invest $4 billion in Web3 and sees Astar Network as a key player in the development of the Japanese Web3 ecosystem.

Earlier this year, Japan approved a Web3 white paper to promote industry growth in the country. Prime Minister Fumio Kishida set a goal of making Japan a crypto hub and has designed a national strategy around creating policies to enable the expansion of blockchain. Specifically to this article, one of the advisors on this project was Sota Watanabe - The founder of none other than the ASTR network.

It’s no surprise, therefore, that since speculation of Binance’s Japan launch began, ASTR has outperformed a basket of tokens also set to be listed. This confirms our thesis that ASTR is well-positioned for those wanted to gain exposure to the Japanification theme that is likely to prevail into the August 14th Launch.

Given the relatively small market cap of the token - just $245,000,000, and the lack of other real ‘pure plays’ on this narrative, we are looking for a significant move towards the 0.075 handle on the ASTR leg - approximately 40% higher than current prices.

As we want to hold the token until August 14th, we will be hedging the trade with a corresponding short ETH-PERP position. This will enable us to sit in the trade with more size and reduce the impact of a market-wide fall between now and then. This synthetic spread looks more like the below chart, where we believe the downside to be closer to 7.45% than the 15% inferred by a naked long position shown above.

Overall, we believe this is a solid token that could benefit in the coming weeks from Japan opening up its crypto markets. Binance’s launch acts as a great catalyst to play into, and if the trade works as expected - could hold a significant upside.

As always, Nothing in this newsletter should be considered financial advice. We are publishing our trade ideas for educational purposes only. Please contact a financial advisor and do your own research before making financial decisions.

Gai