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21Shares Research Newsletter – Issue 124

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Market Outlook

Today marks a landmark in the history of Bitcoin; El Salvador becomes the first sovereign country to officially accept Bitcoin as a country-wide legal tender on the same pedestal as the US dollar. El Salvador purchased 200 additional bitcoins yesterday, holding a total of 400 BTC valued at $20.4 million at today's price at $51K.

Though the use of Bitcoin as a medium of exchange or store of value is optional, the nation’s President is a fervent supporter and has pushed efforts to spur the adoption of the cryptoasset with a government-owned wallet, called Chivo. In doing so, each user of Chivo will be given $30 worth of Bitcoin, equivalent to two days of labor for a retail employee who earns on average $304 per month in El Salvador, assuming a workload of 5 days a week.

At 21Shares, we believe we are still in the embryonic stage before reaching widespread adoption of Bitcoin in El Salvador. It will take more time than expected as the country relies on a heavy cash economy, with only 58% of Salvadorians having access to the Internet, akin to the Internet penetration figure of the US in 2002. In addition, Bitcoin best serves as a long-term store of value rather than a daily payment method. Hence, we anticipate Salvadorians to adopt Bitcoin predominantly for the former use case. However, the latter use case with USD-pegged stablecoins like USDC is significant as El Salvador is heavily reliant on USD remittances representing ~ $6 billion or ~ 20% of its GDP.

Our thesis is that crypto adoption in El Salvador will increase in tandem with greater internet penetration and awareness to access crypto, along with user-friendly and privacy-preserving applications focused on education. However, relying on a single application like Chivo to access crypto also presents privacy and monopolistic issues. As such, we hope El Salvador will embrace competition, especially coming from the DeFi sector. All in all, El Salvador paves the way for other countries to adopt bitcoin as a legal store of value. For instance, yesterday Gabriel Silva, an independent deputy of Panama, introduced a ‘Crypto Law’ to encourage the country to become a crypto-enabled innovation hub.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (11.48%), ETH (14.47%), BNB (6.65%), XRP (16.96%), and ADA (1.8%).

Net Inflows per 21Shares ETP

The net inflows of our ETPs combining $34.87 million in the past week, were as follows: AADA (+$8,643,454.85), ABCH(+$ 580,227.11), ABTC (+$ 9,360,995.12), ADOT (+$ 2,986,689.07), AETH (+$ 5,086,595.32), ASOL (+$ 9,697,471.93), AXRP (+$ 3,375,929.68), AXTZ (+$ 283,823.99), MOON (-$5,141,399.32).

Media Coverage

We are extremely excited to share with you our Research Lead's latest interview with none but the Business Insider; “a research analyst at a $2 billion crypto firm lays out the bull case for polkadot that most investors are overlooking — and shares why cardano's ada is looking overvalued after a stellar run,” Kari McMahon wrote.

In other news, our analysis on Ethereum Killers turned a lot of heads in the media. “What is remarkable about this performance record is that, according to Swiss crypto asset manager 21Shares, Cardano, Solana and Terra have one thing in common - they are direct competitors of Ethereum. As it is explained, it is a Layer 1 category blockchains, as they fulfill two tasks - the processing of financial transactions within the blockchains and the hosting of decentralized applications (DApps). An exception is Cardano, which will only offer developers integrated app functionality from September 12, 2021,” German Boerse Online wrote.

Other websites like German Aktiencheck, Austrian Trending Topics, and Codelist picked up our last issue, highlighting that, at the moment, it is mainly private investors that are driving up prices. “But according to the crypto asset manager 21Shares, institutional and entrepreneurial players will soon turn to this trio,” Codelist wrote.

Swiss Crypto Valley also featured our Monthly Review last week. “A monthly review of what is happening in the crypto markets enriched with institutional research on the most important topics in the industry in cooperation with the Swiss specialist for digital assets, 21Shares AG,” they wrote.

News

SEC Quietly Investigates Uniswap

What happened?

Uniswap, the biggest decentralized exchange and market making platform, is quietly being investigated by US financial watchdog, the Securities and Exchange Commission (SEC), the Wall Street Journal reported. While Uniswap responded saying it’s committed to compliance with securities law by delisting security-like tokens from its platform a few months ago, the SEC hasn’t commented on the matter as of writing. Nonetheless, last month, the comments of Gary Gensler, SEC’s Head, on regulatory oversight on decentralized financial services built on public blockchains like Ethereum’s has spread regulatory consciousness for the developers behind these projects in the US. What we know is the following:

The SEC is looking into how investors use Uniswap and how it is marketed, according to people familiar with the investigation.

The investigation is under civil law, so it may or may not lead to charges.

Why does it matter?

It’s been a good year for Uniswap, so far, ranking 12th in market cap and generating more than $2M in trading fees on a daily basis. As DeFi rapidly found its product-market fit and experienced more than triple-digit growth since the start of the year , US regulators thought it’s time to see what these encrypted businesses are up to. This investigation lies within the SEC's effort to gain insight into crypto-nativeplatforms, inquiring on whether digital assets should be registered in the SEC. This notice from the SEC to Uniswap should also be one amongst many. Hundreds of projects are built on Ethereum, with some developers based in the US so it's likely that US-based crypto financial services received a similar notice.

Disclaimer

The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.

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