21Shares Research Newsletter - Issue 139

Market Outlook

In the last seven days, Bitcoin has recovered from its losses, with a 7-day performance north of 5% but the overall market sentiment from short-term-oriented investors remains bearish. As the net unrealized profit and loss (NUPL) metric indicates below, given the current price developments, less than 50% of Bitcoin investors could sell the underlying at a profit.

Historically, when this indicator fell below the 50% mark, there were relatively larger sell orders. In fact, according to Glassnode, investors, which bought Bitcoin between 6 to 12 months from now account for 32% of the selling pressure. This is an all-time high for this cohort of investors in the past 2 years, which were usually representing less than 10% of the sell orders. In other words, there are significantly more investors selling Bitcoin with a cost basis between ~$19K and $63K. For the record, as of writing Bitcoin trades at $48.5K or around 23% down from its highest value reached in April this year during the period between December 2020 and September 2021.

The silver lining is that value investors fully grasp the long-term upside of the asset class and its overall infrastructure despite the CoinMarketCap pricing bug affecting various service providers last week. This vulnerability and its associated systemic impact showed how more robust the overall pricing infrastructure of this industry needs to become. The diversity, transparency and quality of price feeds will be an important development to keep an eye on for the coming year and there are a few contenders on the market such as CoinGecko.

Outside the Bitcoin market, at 21Shares, we have observed various important developments in the NFT sector and a rapid recovery of Ethereum competitors such as Terra and Avalanche, with a respective performance of 63% and 49% in the past week:

Adidas launched its world’s first NFT in partnership with renowned NFT projects such as the monkey avatars Bored Apes. This NFT drop showcased what’s possible with blockchain technology and effectively make NFTs accessible to anyone on the Internet and fungible for other cryptoassets, as a receipt and proof of ownership to redeem Adidas' special physical goods. In this case, it will be sometime in 2022, a hoodie and the tracksuit worn by the Bored Ape that Adidas owns, and upcoming digital experiences.

As our Research Lead predicted earlier this year, “brands (more likely shoe manufacturers — Nike maybe) will start selling limited editions via NFTs. The early adopters will get the physical version delivered to their desired address or pick it up at a store showing proof of ownership on their Opensea profile”.

The major benefit of NFTs is accessibility, unforgeability — meaning no one can steal it or counterfeit it, fungibility against other cryptoassets and fiat currencies and most of all a 24/7 secondary market on the Ethereum blockchain accessible via Opensea, Zora, FTX, Coinbase and many more.

In the coming year, we expect more use cases in the NFT sector with movies, marvels, cartoons — which will use NFTs as perks, financing mechanism, and more innovation that have yet to be invented.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (-2.77%), ETH (2.30%), BNB (-0.13%), SOL (8.24%), and ADA (8.35%).

Net Inflows per 21Shares ETP

The net outflows of our ETPs amounted to -$691K in the past week. Find the breakdown of the inflows and outflows per ETP below.

Media Coverage

As we inch closer to the new year, media outlets have been publishing roundups of trends and forecasts to what’s to come in 2022. ETF Stream featured our board member Cathy Woods, CEO and co-founder of ARK Invest, in a roundup for the ETF industry’s biggest people moves in 2021. “One of the year’s blockbuster moves was that of Cathie Wood, founder, CEO and CIO of ARK Investment Management, joining the board of directors of Amun, the parent company of cryptocurrency exchange-traded product (ETP) issuer 21Shares,” Theo Andrew wrote. “Her move to support 21Shares’ endeavors was a major coup for the issuer and a big moment for the European crypto ETP market.”

Cointelegraph also made a roundup that they featured us in, this time about Altcoins. Giving a roundup on Algorand’s performance in 2021, Cointelegraph attributed November’s spike to our ETP launch. “On Nov. 18, 21Shares announced the launch of a physically-backed Algorand exchange-traded product which helped spark a rally in the price of ALGO to a yearly high at $2.99,” Jordan Finneseth wrote.

Last but not least, our very own Co-founder and President Ophelia Snyder participated in the Opening Bell Ceremony, celebrating Forbes 50 over 50 and 30 under 30 honorees, Ophelia has been featured in the latter. You can read the feature here.

News - Highlights from Hearing on Stablecoins in Capitol

What happened?

Last Tuesday, the US Committee on Banking, Housing, and Urban Affairs, met in an open session about stablecoins. Witnesses invited discussed with representatives of the committee how stablecoins work, how they’re used and the risks associated with them. In the hearing, the following witnesses testified:

• Alexis Goldstein, Director of Financial Policy, Open Markets Institute
• Dante Disparte, Chief Strategy Officer and Head of Global Policy, Circle
• Jai Massari, Partner, Davis Polk & Wardwell, LLP
• Hilary J. Allen, American University Washington College of Law.

Why does it matter?

The hearing discussed strong opinions about stablecoins and suggestions to ban them altogether. Goldstein and Allen argued that stablecoins present the overpromise of financial inclusion, while being almost exclusively used for crypto speculation. However, Disparte made it a point to say that Circle’s USDC, a three year-old digital currency, stands at more than 40 billion in circulation and cumulatively supports more than 1.4 trillion in onchain transactions. Circle’s Chief Strategy Officer translated these figures into efforts to enhance financial inclusion, responsible innovation and integrity. Disparte also mentioned the Circle Impact initiative that has allocated USDC dollar reserves in Minority Depository Institutions (MDIs) and community banks across the country, hoping it will accrue to billions of dollars over time, strengthening the balance sheet of these banks and, thereby, strengthening their communities.

Waging a war against DeFi as a whole, American University Professor Allen voiced extreme measures in opposition to stablecoins, suggesting either a complete ban or a license to those who issue stablecoins outside of the DeFi ecosystem. Massari, however argued that requiring stablecoin issuers to to be insured depository institutions as suggested by the President’s Work Group on Financial Markets (PWG), is not necessary. This is due to the difference between both business models of banks and stablecoin issuers; banks are subject to leverage and riskier capital ratios that assume relatively illiquid and riskier assets than cash. Instead, Massari recommended that Congress consider an optional federal charter for stablecoin issuers that would preempt the need for state-by-state licensing in return for supervision by federal regulators.

As Ranking Senator Pat Toomey alluded to during the hearing, stablecoins have proven to be a financial product in demand and to some extent in need (in the case of remittance), therefore if the US doesn’t befriend it, it will find others. At 21Shares, our thesis is that more regulatory oversight on stablecoins will provide more clarity, but we do not believe that an outright ban will benefit the end-users especially in places where stablecoins play an important role in financial inclusion; namely in the Bolivarian Republic of Venezuela where Circle partnered with Airtm to deliver aid to Venezuelans using USDC. This has helped pay Venezuelan health workers from frozen funds and dire conditions during the pandemic. This is a testament to the fact that stablecoins can enhance the living conditions of workers around the world, while also boosting the demand for the US dollar, specifically best suited for remittances and day-to-day operations.