21Shares Research Newsletter - Issue 150

Market Outlook

The total crypto market has been oscillating around the $1.9T mark as the vast majority of the large caps roam within a 5-10% range throughout the past week. However, Bitcoin performed better by almost 1%, Ethereum 1.3%, while XRP and Terra are up by 3.6% and 17.3%. The three biggest factors that tend to drive the US economy into a recession are an inverted yield curve, some kind of commodity price shock or Fed tightening. The Federal Reserve’s two-day meeting started today, Tuesday, March 15 and is expected to land on a decision for the interest rate hikes by Wednesday, March 16.

Source: TradingView and CoinDesk

Bitcoin dodged a bearish scenario on Monday. As shown in the chart above, the Ichimoku cloud – a collection of technical indicators that show support and resistance levels, as well as momentum and trend direction – showed weekly support for Bitcoin near the $37K mark with a little tumbling overnight before stabilizing to rest near the $40K mark. However, the leading cryptocurrency is still well below last week’s all-time high, $42,600. To further understand the chart, it’s important to know that the Ichimoku cloud collects several averages, plots them on a chart, and computes a “cloud” in an effort to give a data-driven forecast.

On the regulatory watch, this week: US President Joe Biden signed an Executive Order titled Ensuring Responsible Development of Digital Assets, assigning government agencies to a number of tasks. Here are the key takeaways:

• The Attorney General, in consultation with the Secretary of the Treasury Department and the Chairman of the Federal Reserve, has 180 days to submit an assessment of whether legislative changes would be necessary to issue a US central bank digital currency (CBDC). A corresponding legislative proposal will follow; within 210 days.
• With regards to global competition, the Department of Commerce is asked to develop a framework for interagency international engagement with foreign counterparts to create an international forum to enhance the adoption of digital assets and standardized rules.
• National security agencies have 90 days to supplementary annexes on cyber security. The order asked agencies to also make sure that US cryptocurrency laws align with those of the country’s allies to ensure international frameworks and partnerships are responsive to risks.
• The Treasury, Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), Consumer Financial Protection Bureau (CFPB) among others are assigned to gather recommendations to develop a policy for the digital asset sector.
• The Treasury Secretary is assigned to conduct a report on the future of money and payment systems. The report should delve into the impacts of digital assets on economic growth, financial growth and inclusion, national security, and the extent to which technological innovation may influence that future.

Just today, it was reported that Saudi Arabia is considering accepting yuan when selling oil to Chinese customers, as oil surges amid the Russo-Ukrainian conflict. This foreshadows the scenario we have long anticipated at 21Shares, an effort to hedge against the dollar's hegemony with the rise of central bank digital currencies (CBDCs). Back in 2020, our Director of Research Eliezer Ndinga pointed out that leaders from Iran, Malaysia, Turkey, and Qatar were looking at cryptocurrencies as substitutes to the US dollar in bilateral trade agreements, according to this article.

This Thursday, March 17, the Senate Committee on Banking, Housing, and Urban Affairs will convene a hybrid session titled, “Understanding the Role of Digital Assets in Illicit Finance.” The hearing will focus on the potential use of crypto to evade sanctions amid the Ukraine-Russia conflict. Attending this hearing as a witness is Jonathan Levin, Co-founder and Chief Strategy Officer of Chainalysis, which recently found that the share of illicit transactions in crypto went from small to nonexistent in the past year, you can read more in its Crypto Crime Report 2022. Chainalysis also just released a new public oracle to help identify sanctioned addresses engaging with smart contracts.

On that note, Japanese authorities ordered crypto exchanges on Monday not to process transactions involving crypto-assets subject to asset-freeze sanctions against Russia and Belarus. However, joining the likes of Kraken and Coinbase Global, Tether indirectly declined Ukraine’s plea to halt transactions that involve Russian users. “Tether conducts constant market monitoring to ensure that there are no irregular movements or measures that might be in contravention of international sanctions,” the company said in a statement.

The crypto community in Europe let out a deep sigh of relief after members of the European Parliament’s Committee on Economic and Monetary Affairs voted against a version of the Markets in Crypto Assets, or MiCA bill that directed a ban on proof-of-work-based cryptocurrencies within the EU.

Dubai rolled out its first legislation on cryptocurrencies and is now in the amendments and approval phase. Non-fungible tokens (NFTs) and CBDCs are not covered in the Dubai Virtual Asset Regulation Law, which calls for the ban of “algorithmic tokens,” which interfere with supply and demand to control price and “privacy tokens,” designed to obscure token holders and trading patterns. On the matter, high-net-worth Russians were reported to attempt at liquidating billions of dollars of crypto last week through Dubai crypto companies as the invasion enters its fourth week.

South Korea’s newly elected president is a crypto proponent. Conservative Party candidate Yoon Suk-Yeol is a former top prosecutor who promised to deregulate the crypto industry to attract young voters. Will these vows be met? Only one way to find out.

The NFTs market volumes hit the lowest since last July. OpenSea alone, as shown in the chart below, has fallen by 70% in trading volume. Moreover, according to data aggregated by DappRadar, Ethereum recorded a 33% drop in trading volume across the entire NFT market, as well as a nearly 61% drop on Solana, a 38% decline on play-to-earn game Axie Infinity’s Ronin chain.

Source: Delphi Digital

In other NFT news, CryptoPunks and Meebits were acquired by Yuga Labs, the company behind Bored Apes. This comes after scrutiny directed at Larva Labs, the creator of the NFTs, for its lack of guidance on IP rights and engagement with the community. On the occasion of the deal, Larva Lab commented that they are not fit to support the project. CryptoPunks sales surged to 1,200% after the acquisition.

At 21Shares, we believe that the NFT market will not stay down for long. Our thesis is backed by the rise of institutional adoption of NFTs and Web 3 tools, as we have seen in February and as we have mentioned in our last monthly review.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (2.41%), ETH (0.57%), BNB (-2.29%), XRP (7.56%), and ADA (0.24%).

Net Inflows per 21Shares ETP

The net outflows of our ETPs amounted to $3.66M in the past week. Find the breakdown of the inflows and outflows per ETP below.

Media Coverage

A few days ago, 21Shares’ Co-founder and CEO Hany Rashwan was featured on CoinDesk, whose Will Canny asked a number of industry participants if they thought Wall Street incumbents might start making deals for crypto companies. “Judging by history, I would predict that M&A will go the other direction,” Hany told CoinDesk. “Crypto companies are cash-rich fast movers that are building a fundamentally 10 times better product than traditional finance. We are looking at a lot of traditional finance assets that look very cheap right now.”

Ophelia Snyder, 21Shares’ co-founder and president, got featured on Blackwater Search and Advisory’s report explaining the global crypto ETP ecosystem. “The next chapter of Internet services will be built on cryp- to networks — starting with cryptonative financial services (DeFi) and digital media, games, music, and art (NFTs),” Ophelia said. “Of course, there’s more to come. Only 2% of the world’s internet population have access to this asset class; the world’s most used web wallet, Metamask, only has 21 million users. But the pace of innovation and growth is orders of magnitude faster than the late 90s adoption rate of the Internet.”

Our very own Director of Research Eliezer Ndinga was featured on Crypto News in a report explaining the performance of the market. “[A] trigger that’s been affecting the markets is the Consumer Price Index which will also be affected by next week’s interest rate hike, which will essentially track how much consumers will be impacted in terms of loans, investments, savings, job prospects, and prices for goods and services,” Eliezer said.

Also Amun’s Head of Tokens James Wang, was featured on NewsBTC to explain how index tokens allow to gain instant exposure to the best-performing and most liquidity assets, diversify portfolios, and help spread the risk. “For most investors, dollar-cost averaging is the most sensible way to allocate capital. DCA is a way of spreading out risk over time. Index investing is a way of spreading out risk over space,” James told NewsBTC. “By employing both, investors can gain crypto exposure without the headache of deciding when or what to buy.”

News - Stripe Partners with FTX, Rolls Out Crypto Features – NFTs Included

What happened?

Digital payments giant Stripe announced that it’s re-entering the crypto industry with a bundle of use cases that would give customers access to tools and APIs that facilitate buying and storing crypto tokens, cash out, and even trading NFTs. Stripe is also providing crypto businesses with compliance tools akin to Know Your Customer (KYC) to prevent fraud and illicit activities. FTX partnered with Stripe to improve their KYC protocols and to also provide payment services for the exchange. FTX and FTX US users will be able to buy crypto using debit cards and direct bank transfers via Automated Clearing House transactions.

Stripe also offers fiat payments API integration for crypto businesses to process crypto-to-fiat currency payments. These on-ramps will enable both fiat deposits and withdrawals for crypto exchanges, as co-founder John Collison put it on Twitter. Stripe’s brand new crypto tools will be available for its users in up to 180 countries, providing them with over 135 cryptocurrencies with fiat currencies.

Why does it matter?

We’ve seen many thought and market leaders, like David Heinemeier Hansson and Warren Buffet, change their minds about crypto, Stripe is one of them. In 2018, Stripe decided to stop supporting Bitcoin in payments, as they were “less useful” as such. On March 10, they updated the 2018 announcement with a disclaimer announcing their change of heart and their partnership with FTX. At 21Shares, we’ve always reiterated the thesis that increased institutional adoption is one of the effective ways for mass adoption, but in the case of Stripe, the roles were somehow reversed.

With the size of Stripe’s scope, this may come as bad news for smaller crypto projects that worked to appeal to L1s and decentralized applications to streamline their payments infrastructure as well as their KYC and KYB workflows. While in fact, Stripe is only raising the bar which only means that the competition is about to get a lot feistier.