21Shares Research Newsletter - Issue 72

Market Outlook

Bitcoin and the cryptoasset market can often go months whilst displaying extremely low correlation with traditional assets such as equities and treasury bonds. At the same time there have been periods where both equities and the crypto market have had extended sell-offs that coincided. To illustrate this point, the graph below shows the rolling 14-day correlation between the S&P500 and Bitcoin since 2013.

The 60-day correlation between Bitcoin and the S&P 500 reached an all-time high during the early March flash crash with a value of 0.652 — as funds and retail investors sold-off all their risk-on assets to cash. While correlations noticeably decreased in the following months, the Coronavirus has served as a catalyst for a pronounced short-term change in the way investors move in and out of their risk-on assets and cash positions. Following the latest market crash, the correlation between the S&P 500 and Bitcoin hit a level of 0.428 which is noticeably higher than the correlation between the two over the last ten years, which was only 0.0917.

We predict that the correlation between Bitcoin and the S&P 500 will decrease once again, especially as the world eventually moves past the devastating Coronavirus pandemic and its consequences. History shows that Bitcoin and the crypto market offer a much better bet as risk-on assets especially in the wake of short-term downturns (March 12 2020 or arguably even the last few days); Bitcoin's returns of 109% since March 12 demonstrate just that. We expect this trend to continue especially as investors increasingly consider Bitcoin within the same ballpark as the tech stalwarts for their growth investments.

Weekly Returns

The crypto market was noticeably down over the last week, as we mentioned in the Market Outlook section, driven by a capitulation of confidence within traditional equity markets and also a relapse of optimism following controversy around a popular DeFi project, SushiSwap — BTC (-13.39%), ETH (-26.61%), XRP (-18.43%), LINK (-22.97%), and BCH (-22.00%).

Media Coverage

Last week, you've most certainly heard the listing of our Bitcoin and Ethereum ETPs on Wiener Börse — Vienna stock exchange and now you are curious to learn more about our exchange-traded products? Listen to our CEO, Hany Rashwan, giving a concise overview and comparison of the structure of our products on the market at 10x10 - Next Generation Invest! Watch the full video here — from 13’45’’ to 34’43’’.

For the German-speaking audience among you, you can also listen to our Managing Director, Sina Meier. Watch the video here — from 34’43’’ to 45’11’’.

Did you know investors — be they retail or institutional can benefit from downtrends in bitcoin price in a safe and regulated environment? For example, last week, the price of Bitcoin nosedived by almost 6% in a day — with our Short Bitcoin ETP (SBTC), recently listed on Deutsche Börse's Xetra, the performance of your Bitcoin holdings would have returned +6% in the same day as SBTC seeks to provide a -1x return to the daily performance of Bitcoin! Learn more about SBTC here.

News - Police Raided Korean Crypto Exchange Bithumb, Says Report | Decrypt

What Happened?

Last week on September 2nd the largest cryptoasset exchange in South Korea, Bithumb, was investigated on suspected fraud charges by the Seoul Metropolitan Police Agency's Crime Investigation Unit. Two years ago, the exchange raised $25M through a token pre-sale, leading the South Korean police to raid Bithumb as its token, called BXA, never ended up listing on any cryptoassets venue including Bithumb. On the same day as the investigation, the chairman of the exchange, Lee Jung Hoon, was also arrested for trying to transfer some of his assets abroad without reporting it.

Why Does It Matter?

Launched in 2014, the cryptoasset exchange, Bithumb has been one of the major cryptoasset fiat on-ramps in South Korea, fostering a notable amount of adoption of cryptoassets in the region over the past six years. Amid the surge in the price of Bitcoin in August, after the pandemic-induced market crash before spring, the venue attracted more than 5.6 million web visitors, surpassing its year high of exactly 5 million potential users reached in March according to SimilarWeb. In the same month, the exchange generated nearly $450 million in trading volume within a day. But the recent police raid alongside the arrest of Bithumb’s chairman has added fuel to the fire and has driven panic in the crypto market.

This drama coincided with major exchanges such as Binance and Coinbase experiencing service outages, while the price of Bitcoin nosedived by more than 6%, dropping below the $10K-mark for the first time since late July. The aftermath of such news has put a strain on Bithumb’s trading volume, within a week the exchange has lost about 44% of its daily volume currently at $250 million. Such issues with current crypto exchanges, shows more than ever the importance of traditional financial vehicles in the crypto market, such as 21Shares ETPs, enabling crypto investments in a safe, friction-free, and regulated manner.

On the final note, as mentioned earlier in this newsletter, the manner to which the state of the global economy affects traditional assets will undoubtedly have an impact on the price action of Bitcoin, specifically in the short run — akin to the market crash this year and most recently last week with the extended sell-offs across the board. But there also many unknown unknowns at play with the lingering COVID-19 pandemic and at 21Shares, we’ll closely follow what the future holds on that front.

Learn more here.