21Shares Research Newsletter - Issue 146

Market Outlook

We are beyond thrilled to announce the release of our new magazine, presenting our thesis on Web 3, The Future of the Internet. Download the report here.

Our research team spent the past months interviewing community members, founders, developers, learning new technologies, and testing out protocols and apps — in an attempt to build a comprehensive report on the whole Web 3 stack. The objective has been to write this magazine as a guide to understand the next generation of Internet services and explain why blockchains are at the heart of this innovation. In addition, we hope this report will serve as a reference in the next decades, akin to how younger generations seek books to fathom the Internet of the mid-1980s and the Web of the early 1990s. Enjoy the read!

The crypto market mildly retroceded some of the profits gained since early February to see Bitcoin and the rest of the large caps losing roughly 10% over the week. Despite this market decline, it’s important to emphasize that Bitcoin’s volatility is roaming around 3%, the lowest it’s been over the past few months. With that said, several global macroeconomic factors have materialized that throw light on the market downturn.

For one, the CPI reached a 45-year high at a 7.5% increase. The worse-than-expected figures have instilled fears that the US economy could be headed towards a recession as the Fed will be expected to aggressively tighten its loose monetary policy by advocating for a 50 bps in its March hike, as echoed by the central bank’s loudest hawk. This in turn, puts risk-on assets classes such as crypto and tech stocks in a challenging spot.

In addition, the geopolitical tension between Ukraine and Russia was aggravated as the white house, and the UK advised their citizens to leave Ukraine immediately as an invasion was imminent. This situation now seems to be cooling down as Russia announced it’ll be calling back some of its troops from the border following the completion of their military drills. What’s remarkable about Ukraine’s developing situation is that NGOs and anti-Russian groups have been resorting to accepting Bitcoin as a payment as it is resilient to censorship and confiscation.

Another troubling development worth noting is Canada’s newly imposed emergency powers drafted to authorize financial institutions to cease providing financial assistance to anyone involved in furthering the convoys ‘illegal’ blockades and occupations. This once again highlights the urgent need for a censorship-resistant currency. It appears that COVID has granted a blank check for unprecedented interfering powers that governments will likely use for vaguely criminalizing disputable sets of activities they don't see ‘fit’. Having a disintermediated currency will be the only way toward regaining full autonomy over one's finances.

Important to remember that times of extreme uncertainty add fuel to the volatility experienced in global markets and usually invite investors to opt for safer haven assets. A trend reversal in the risk appetite can be surmised by looking at the 10-year treasury yield that topped 2% for the first time since late 2019. Nevertheless, with the current soaring inflation, investors will still be ultimately left with negative interest rates on their bond yields. The Bitcoin futures market is also trading at a 6% annualized premium, reinforcing the general cautious sentiment that investors are hedging their long spot positions while indicating a reduced likability that an impulsive move to the upside could be on the table in the near term.

However, unlike the previous market drawdowns in May and November of 21 where there was a reasonably consistent pattern of inflows catalyzed by spooked investors selling their holdings to make up for the market uncertainty, large investors have actually been adding to their BTC stack, amounting to almost 220K over the past 7 weeks. Not only is this behavior atypical of the previous market downswings, but this rate of accumulation has been the most aggressive and fastest since September of 2019.

What’s more, is that there has been a significant drop in USDT activity - a metric that historically coincides with reapportionment to the purchase of BTC and the long tail of crypto assets. Bitcoin’s hash rate has also exploded to an ATH underscoring the fact that the world continues to invest new resources for mining the asset and bolstering its security, despite the short-term disruption. A development that is complemented by the exchanges’ liquid supply falling to a three-year low of 2.5 million coins.

Looking beyond the external macro factors’ impact on the global markets, crypto has and is continuing to receive unmatched attention from legacy players in the traditional financial world. Blackrock, for instance, announced its intent to launch a crypto trading service for its investor clients through its Aladdin platform. Meanwhile, Wells Fargo has finally flipped their stance and admitted that crypto is a viable asset class that’s just about to enter its hyper-adoption phase. Singapore’s largest lender, SPB, have also publicized their plans to launch a 24/7 online exchange available to its retail customers. Even Uber’s CEO revealed his resolution for the company to accept crypto in the not-so-distant future.

May that be, the rate of adoption across the wider crypto-verse pales in comparison to the mainstream infiltration transpiring within the metaverse and NFT industries. Only this past week, Youtube stated its intent to integrate NFTs to advance content monetization and combat online fraud. At the same time, OnlyFans has already enabled its NFT profile picture feature to ameliorate user verification. The list doesn’t end here as McDonald’s disclosed they’ll be building a restaurant in the metaverse featuring home delivery, while Gucci has opted to buy virtual land in the sandbox game. Finally, the United Nations will display the notorious boss-beauties NFT collection to celebrate women’s day.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (-3.5%), ETH (-6.13%), BNB (-1.42%), XRP (-8.75%), and ADA (-10.84%).

Net Inflows per 21Shares ETP

The net inflows of our ETPs amounted to $37.06M in the past week. Find the breakdown of the inflows and outflows per ETP below.

Media Coverage

Our very own Research Lead Eliézer Ndinga was invited on Australian national TV to talk about the latest issue of our State of Crypto magazine focusing on Web3, which you can get a copy of here.

“Decentralized Finance is a fascinating sector in crypto, this represents about $200 billion in total market value today, we see decentralized exchanges directly trying to disrupt crypto exchanges such as Coinbase and Kraken, some of these decentralized financial services, like for example Uniswap, are having a lot more trading volume compared to Coinbase on a daily basis. These are just the early innings of this sector. Only 2% of the entire Internet population have access to crypto-assets, specifically through DeFi, and that’s why we’re very excited about the future,” Eliézer told AusBiz

Crypto Valley Journal featured our newest products in our fast-growing family of ETPs; Decentraland (MANA) and FTX (FTT). “Adding the worlds’ first NFT and single Metaverse ETP and one of the world’s leading crypto exchanges to our product suite is a key milestone for us in making crypto accessible for everyone,” 21Share’s CEO and co-founder Hany Rashwan said on this occasion.

In a TV report on Fox News about the Bitcoin heist last week, 21Share’s co-founder Ophelia Snyder was invited to comment on the matter. “This experience proves once and for all that crypto is not anonymous. Crypto’s always been about pseudonyms, you have these strings and you can actually trace account balances where they come from to every account that has ever been since Bitcoin was mined all the way through today. It’s not something that’s really doable in other types of financial systems and this should really give people a lot of comfort about the sector,” Ophelia told Fox News.

Our previous newsletter was also featured on AktienCheck in German. You can subscribe to the German version of this newsletter here.

News - Intel Introduces New Crypto Chip for More Energy-Efficient Mining

What happened?

Intel announced it’s rolling out a “blockchain accelerator” later this year that promises over 1,000x better performance per watt than mainstream GPUs for SHA-256 based mining. This marks the beginning of an era for both the crypto industry at large and Intel, which announced its dedicated roadmap to work on blockchain technologies. So far, three companies have already preordered the technology, including Bitcoin mining company GRIID Infrastructures, Argo Blockchain, and Jack Dorsey’s BLOCK, formerly known as Square. More details about the product will be made public during the International Solid State Circuit Conference later this month.

Why does it matter?

The high energy consumption carried out during the process of mining Proof of Work cryptocurrencies including Bitcoin and Ethereum, has been a major concern worldwide. It has led to blackouts in cities like Almaty, Kazakhstan, which led to imposing more taxes on miners and new regulations to confine their consumption. This innovation would help alleviate these pain points and save a lot of miners from the hassle of relocating to foreign lands for a better electricity supply.

Not only will Intel’s initiative boost more confidence in Bitcoin and rectify misconceptions, it will also better diversify the sector of manufacturing mining hardware. Bitmain, a hardware company headquartered in China, holds a good weight of the market over 90%. In the past few years it has become the leading force in Bitcoin mining with the development of the ASIC chip, which saw its processing power soar to around 29 percent of all the hashing power globally.

Speaking of China, the global supply chain crisis has disrupted operations of some of the largest Bitcoin mining companies in North America, including Riot Blockchain and Bitfarms. Intel’s blockchain accelerator is implemented on a tiny piece of silicon to avoid any supply chain ordeals.