21Shares Research Newsletter - Issue 74

Market Outlook

One interesting analysis is to track how Bitcoin’s volatility changes, especially in response to risk-off moments, and comparing that to the volatility of traditional assets such as the S&P500 and Gold. Bitcoin’s volatility is currently around the same level it was at the start of the year, prior to the Coronavirus pandemic — currently at a level of 3.05% — compared to 1.20% for S&P500 and 1.50% for Gold.

While the current sell-off has shaken the market to some extent, Bitcoin’s volatility is still noticeably lower than the levels it reached on early March 12 in response to the Coronavirus-induced market crash. We can expect volatility to stay at its current levels in the coming months as volatility and price movements within the crypto market are focused on its Decentralized Finance (DeFi) segment at current. It’s possible, however, that this long period of tempered volatility could lead to a breakout for Bitcoin before the end of the year.

Bitcoin’s rolling 30-day correlation with both the S&P500 and Gold have been consistently on an upward trend since the start of the year, driven by the Coronavirus crisis. The Bitcoin-S&P 500 correlation began at 0.0633 on January 7 2020 to 0.524 on September 21 2020. Following a similar trend, the Bitcoin-Gold correlation began at 0.170 on January 7 2020 to 0.543 on September 21 2020.

As we’ve argued before, Bitcoin’s increasing correlation with traditional assets signifies that the asset is increasingly contained within the type of portfolios, institutional and high-net-worth, that also contain large holdings of traditional assets such as Gold and constitutions of the S&P 500.

Weekly Returns

The cryptoasset market faced one of its most difficult weeks in this year, with the entirety of the market noticeably down as some of the exuberance around Ethereum’s DeFi sector cooled down — BTC (-4.68%), ETH (-6.26%), XRP (-6.25%), BCH (-7.93%), and LINK (-18.37%).

Media Coverage

We’ve got some great news today, we just hired our first COO, Lucy Reynolds!
Lucy joins from WisdomTree Europe’s leadership team where she was Head of Product Management. Prior to that, she was the Head of Product Development at ETF Securities where she was a part of the executive team and instrumental in building their suite of Exchange Traded Products in Europe, the US, and Australia. Before working at ETF Securities, she spent 7 years at Dechert LLP where she worked in their London, New York, and Munich offices acting for a wide range of fund and asset management clients including ETF Securities as they set up their first products.

Lucy will work closely with our founders, Ophelia Snyder and Hany Rashwan in overseeing the growth of 21Shares. Her appointment comes at a time when we’ve seen our assets pass $100 million and our products listed on regulated markets in Europe with listings on Deutsche Boerse and the Vienna Stock Exchange. Read the press release here.

News - MicroStrategy Exposes World's Largest Sovereign Wealth Fund to Bitcoin | Decrypt

What Happened?

Last week, on September 14th, MicroStrategy (Nasdaq: MSTR), the largest independent publicly-traded business intelligence company, completed its acquisition of 16,796 additional Bitcoin at an aggregate purchase price of $175 million. Since their first purchase last month adopting Bitcoin as their primary treasury reserve asset to maximize long-term value for their shareholders, they have accumulated a total of 38,250 Bitcoin at an aggregate purchase price of $425 million, inclusive of fees and expenses.

Why Does It Matter?

Among the shareholders of MicroStrategy, which indirectly hold Bitcoin, there are high-profile asset managers such as Blackrock Fund Advisors, The Vanguard Group alongside the Norwegian Government Pension Fund — with combined assets under management worth more than $15 trillion. Based on their ownership of MicroStrategy, Arcane Research discovered that the Norwegian Government Pension Fund, or simply the Oil Fund, is indirectly entitled to almost 600 Bitcoin or more than US$6 million as of September 22, 2020. See the ownership breakdown below.

This is an important milestone in the institutional adoption of Bitcoin. As a matter of fact, the Oil Fund is undeniably the world's largest sovereign wealth fund with US$1 trillion in assets under management, including 1.4% of all global stocks and shares.

Mr. Saylor, CEO of MicroStrategy, explained his opinion on Bitcoin, “We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of Bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value. Bitcoin is digital gold – harder, stronger, faster, and smarter than any money that has preceded it. We expect its value to accrete with advances in technology, expanding adoption, and the network effect that has fueled the rise of so many category killers in the modern era.”

At 21Shares we anticipate this trend to intensify in the near future as Bitcoin continues to be recognized as a risk-on asset with superior features to gold alongside its strong return profile of +50% since the start of the year. On the final note, Kraken, one of the leading US exchanges, became the world’s first Special Purpose Depository Institution (SPDI) approved by the US state of Wyoming — is a testament to this pattern happening on a global scale (Source: The Fund).

Learn more here.