21Shares Research Newsletter - Issue 55

Market Outlook

As we’ve argued, one of the biggest long term impacts of the just-passed Bitcoin Halving has been that it has helped further solidify Bitcoin as a viable asset for institutional investors to invest in. High profile investors from the likes of Chamath Palihapitiya and Paul Tudor Jones have talked about Bitcoin’s growing use case as a Store of Value and the event of Bitcoin’s block reward falling from 12.5 BTC to 6.25 BTC helps solidify Bitcoin’s fundamental properties — namely its finite supply.

Watching the volumes and open interest on both Bakkt’s and CME’s Bitcoin futures contracts, as well as interest in exchange-traded and structured products — such as the 21Shares ETP line — will be the key data point to track over the coming months to understand institutional interest. Anecdotally interest seems to have been bolstered noticeably by the Halving but only time will tell. We can also visibly see an increase in volumes on the CME post-Halving. Interestingly, Bakkt’s custody services has reported that it has on-boarded 70 institutional clients — the floodgates may just be opening.

The crypto asset market had a strong performance across the board, with every single large cap crypto asset posting noticeably positive returns — BTC (9.76%), ETH (11.33%), XRP (3.53%), BCH (5.06%), and XRP (6.54%).

On-chain volumes fell from $3.29B per day to $2.74B — BTC ($2.07B), ETH ($373M), XRP ($100M), BCH ($42M), and BSV ($29M).

Webinar - CornerTrader and DisruptNetwork Webinars - May 19 – 20, 2020

This week, two members of the 21Shares team will respectively participate in two conference calls and if your schedule allows, we recommend you to join them with us!

Tuesday May 19th from 5:30 PM to 6:30 PM CET, our Senior Associate, Davide Vicini, will be the main speaker in the webinar held by CornerTrader. Sign up here.

The next day, Wednesday May 20th from 3:00 PM to 3:45 PM CET, in an event hosted by DisruptNetwork, our Director of Business Development, Sina Meier, will share her story on how she broke into the cryptoasset industry. She will also talk about how to pave the way for more women who may want to join the crypto asset industry. Sign up here.

News - Renminbi Internationalisation Deferred | OMFIF

What Happened?

In the midst of capital controls and anti-corruption campaigns raising uncertainty in China, there has been an increasing desire from Chinese families and businesses to move their capital out of China as reported by the Official Monetary and Financial Institutions Forum (OMFIF).

Why Does It Matter?

The emergence of a China-centred blockchain system, which would undoubtedly make it easier for the Chinese government to oversee and track the financial activity of its citizens, will not meet the rising need for financial freedom. As such, amid market uncertainty, high-net worth families and businesses as they are seeking safer places to store their wealth — might find an inherently digital, censorship-resistant and neutral asset such as Bitcoin increasingly start to make sense in their portfolios.

However, Bitcoin might not be the first cryptoasset of choice to flee renminbi-denominated assets due to market volatility. USD-pegged stablecoins such as USD Coin (USDC) might end up being just as attractive assets for those seeking to avoid losing large portions of their wealth due to price fluctuations over the short and medium terms.

The only roadblock, in such a case, would be if crypto exchanges and other liquidity providers prevent China-based investors from opening accounts due to specific clauses in their terms and conditions — a phenomenon the 21Shares research team discovered in this study. Nonetheless, it is safe to say that if our hypothesis holds true, there could eventually be capital flowing from stablecoins to Bitcoin from Chinese institutional investors and high-net worth individuals, especially in the case that they are predominantly tech-savvy.

Learn more here.

News - Terminal Deflation Is Coming | Foreign Policy

What Happened?

The Federal Reserve has expanded its balance sheet from $4.1 trillion in late February to over $6.5 trillion by mid-April — primarily through the medium of market-wide asset purchases, to the benefit of capital markets and big business. It’s been predicted that the Fed’s balance sheet could reach $9 trillion by the end of 2020.

On the other side of the economic spectrum, over 36 million individuals have filed for employment benefits according to Foreign Policy. The collapse of consumer demand — a phenomenon which is likely to linger for an extended period — as well as the lack of sufficient policy targeted to treat this issue, will potentially spell a future period of deflation within the US economy.

Why Does It Matter?

Recent asset price inflation within the credit and stock markets does not accurately reflect the state of the US economy. Suffice it to say, there has been (some may argue for the last forty years) a significant decoupling of the financial economy from the real economy — where on the one hand large businesses can receive cheap loans or sell equity at inflated prices through capital markets and, yet on the other hand, millions of Americans have been forced to deal with pay cuts, furloughs, or unemployment.

While the crypto asset industry is not a panacea for such problems, at its core Bitcoin can be viewed as an attempt to build a financial system without the need for large institutions or businesses who have often thwarted the financial wellbeing of individual citizens. Paradoxically, recent economic events may in fact move Bitcoin away from being typically retail-driven and people-first movement to increasingly becoming more institutionalised than ever before.

Learn more here.