21Shares Research Newsletter – Issue 136
The global equities market took a substantial hit at the end of last week as the news of the new COVID variant started making headlines, as it corresponded with the thanksgiving holiday, dragging the crypto market alongside. Even though the panic-induced rally caused a substantial sell-off in the US stock market and oil industry - prompting a 2% decline for $SPX futures, another 2.5% for the DOW session and a drop of more than 10% for oil on November 26th - the crypto market surprisingly had its mildest market correction YTD with Bitcoin losing only a conservative ~20% from its recently reached all-time-high value (see below).
That said, the foreseen levels of panic turned out to be an over-reaction as this week commenced with the US stock market bouncing back and enjoying a 1% increase to recover almost half of Friday’s sell-off. The trend reversal was attributed to US president Joe Biden easing nerves by explaining that Omicron was not a cause for concern and that imposing lock-downs, as a remedy, isn't back on the table for the time being. Worth noting that the head of federal reserve, Jereme Powell, is expected to testify later today at congress on the CARES act, where he is to discuss the ramifications of the Omicron Variant on the US economy and its impact on the hawkish monetary policy that was recently adopted to curb the rising inflation. According to his released testimony, the infectious variant complicates the plan to control inflation as government spending will be clamored for in case existing vaccines don’t prove effective against the virus’s mutations and lockdowns get reinstated. A notion that despite its bleakness could prove to once again be a catalyst for risk-on industries such as crypto.
To that end, Bitcoin’s on-chain data substantiates that the current market turbulence was treated as rather a buying opportunity resembling that of the March 2020 COVID crash, than a time of tribulation for the asset class. Entities holding 100-10K coins have persisted with accumulating the asset over the past 7 days by scooping roughly $3.5B worth of BTC, suggesting an imminent continuation of the market’s uptrend. Another telling story was the changing hands of Bitcoin from long-term-holders (LTH) towards the short-term-holders, a trend that usually denotes the beginning of a bull market distribution as LTH typically buy the downside and sell on the upside, while STHs do the opposite. The long-term-holder net position change chart has just printed the first negative candle since October 2020, symbolizing a potential strong impulsive movement that could lead Bitcoin into its last extended rally of the cycle.
Most notable about Bitcoin’s PA was its behavior around the $50K mark during the week’s end. As shown below, investors have placed larger-volume-driven limit orders around the 50K zone upwards of the 40k area, as illustrated in the trading volume profile section. A notion that was backed by Bitcoin’s impetus bounce as it left the accumulation zone on Sunday night. This can be explained in that investors tend to have an appetite for buying BTC at a higher price as it confirms that the bull-market is still in-tact rather than sometimes risk and buy lower. Finally, SOPR on-chain indicator can be seen as the last confirmative data point that depicts that holders aren’t willing to sell their asset at a loss yet as the ratio bounced off the 1 mark level over the weekend.
While Bitcoin experienced a laudable moment as the network’s second biggest mining pool, foundry, claims to have evidence that almost 69.72% of their energy mix is now non-fossil fueled based, it was Ethereum that stole the spotlight as it continues to underpin the collaboration of traditional finance and crypto native partnerships. Adidas formed an alliance with Coinbase to utilise their ETH-based, soon-to-be-launched NFT service, while companies like Buddweiser continue to embrace the ultrasound asset by changing their twitter name to beer.eth. In that regard, DEXs reached a remarkable cumulative volume of $100M throughout November, while DeFi users on Ethereum network reached a staggering 4 million users. This bullish momentum has carried Ethereum to reaching a momentous milestone of securing $500B in market cap, putting at it roughly ~50% of Bitcoin’s market sizing, and inching closer to the flippening phenomena
The returns of the top five crypto assets over the last week were as follows — BTC (0.48%), ETH (2.3%), BNB (6.62%), XRP (-6.8%), and ADA (-8.14%).
The net Inflows of our ETPs combining $50.13 million in the past week, were as follows: ABBA (+$ 792,259.81), ABNB(+$1,324,399.66 ), ABTC(-$ 7,120,583.37), ADOT (+$ 10,992,585.32), AETH (+$ 9,542,571.99), ASOL (+$ 12,029,879.23), AVAX(+$ 15,911,157.05), HODL (+$ 4,368,329.28), HODLX (+$ 547,953.50), KEYS(+$ 848,318.85), Poly (+$ 92,831.79)
Our last newsletter was featured on several news outlets, some of which are Cash Online and Trending Topics (links in German). They especially highlighted our Research Lead’s take on the call for an EU-wide ban on proof of work crypto mining by the directors of Sweden's financial services and environmental protection regulators.
“Even if Bitcoin was 100% mined with clean energy, which is the case in Norway and Sweden, this debate comes down to whether Bitcoin deserves to exist to be eligible to use any energy assets,” wrote Eliezer Ndinga, 21Shares’ Research Lead. “Questioning the existential merit of an asset class is a fruitless debate when this involves conflicted ideological ideas rather than objective and data-driven research to make policy-making decisions.”
In other news, ETF Stream featured 21Shares in a report about how ETF issuers can no longer afford to avoid the crypto market. “Bitcoin ETPs have already started to make their mark in the European ETF market,” wrote Tom Eckett, who continued to point out that 21Shares’ Bitcoin ETP launched in 2019 was the pioneer.
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European Council, Parliament to Negotiate Regulation Framework on Markets in Crypto-Assets
A few days ago, the European Council published the approved version of a 2020 proposal for regulation on Markets in Crypto-Assets (MiCA). The purpose of the proposal is to create a regulatory framework for the crypto-assets market that supports innovation and draws on the potential of crypto-assets in a way that preserves financial stability and protects investors. Crypto-asset issuers and offerers, better known as foundations, developers and companies behind coins or tokens, as well as service providers such as exchanges and custodians, have all been tackled in the proposal.
Next steps should be that the Council and European Parliament will enter trilogue negotiations on the proposals. Once a decision is made, which might take a few years, the framework will be put into effect.
Why does it matter?
This could be one of the most important regulatory frameworks that tackles crypto in the world, these are our reasons. Once the Council and the Parliament meet at a provisional political agreement, these rules will have to be followed by every entity operating in the European Union. However, these rules could very likely evolve into international standards due to the so-called “Brussels Effect”.
Here are the highlights of the framework, in order of regulation weight, from lightest to heaviest:
- Issuers and offerers of NFTs, utility tokens, crypto-assets offered for free, rewarded crypto-assets, self-custody and hardware wallets will not be bound to the rules described in the regulation.
- Fully decentralized exchanges and DeFi applications will also not be bound to the rules mandated by the regulation, for the time being.
- Issuers of crypto-assets that do not belong to any of the previously mentioned categories will have to follow through some standards in terms of the contents of whitepapers as well as in marketing communications. These standards can be summarized to “be fair, clear and not misleading.”
- Issuers of stablecoins will face heavy regulations. Only recognized credit institutions and ‘electronic money institutions’ are allowed to issue stablecoins, be they e-money or not.
- Centralized exchanges and custodians will face heavy regulations. The framework mandates several obligations which include applying for official authorization in the EU; acting in the best interest of clients; capital requirements, safeguards and insurance policies; following organizational requirements; protecting the crypto-assets and funds of clients; holding the crypto-assets of clients in separate accounts than the accounts belonging to the exchange; maintaining effective and transparent complaint handling procedures; identifying, disclosing and preventing conflicts of interest; having resilient trading systems with sufficient capacity to deal with peak order and message volumes.
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.
