21Shares Research Newsletter - Issue 77

Market Outlook - Legal and Regulatory Actions in Crypto, Square's Investment in Bitcoin And More

These past two weeks were not short of black swan events, which by definition shake up markets and spike correlations across assets. In light of the Commodity Futures Trading Commission (CFTC) and the FBI denouncing the BitMEX to illegally operate a derivatives trading platform for US customers, the CTO, Samuel Reed, of the leading crypto derivatives exchange was arrested on October 1st. But a few days later, a $5-million bond was issued to release him. This regulatory action has led the entire executive team, including Arthur Hayes, to officially step down on October 8th alongside hundreds of millions of dollars worth of Bitcoin withdrawn from the derivatives trading platform by market participants. Coincidently, there's been a significant amount of regulatory and enforcement news including a 70-page report published by the Depart of Justice of the United States (DOJ) as an enforcement framework for cryptoassets, which we’ll cover further in this newsletter.

Despite such news, the price of Bitcoin remained above the $10K mark and even surpassed $11,000 lately. We anticipate the price to oscillate at its current levels until the outcome of the US election alongside more clarity on the controversial negotiations on the stimulus package — and then consolidate once market uncertainty is demystified.

Weekly Returns

The entire market experienced a resurgence over the last week following its poor performance over the month of September — BTC (8.98%), ETH (13.99%), XRP (4.27%), BNB (10.97%), and BCH (9.34%).

News and Media Coverage

1. For our French speakers — with the collaboration of our research team, our Managing Director Laurent Kssis featured in the newspaper, Coin24, giving an overview of the recent price action of Bitcoin and the wider cryptoasset market amid unforeseen events that occurred over the past week including US President Trump's uncertain health — and a forward-looking perspective of the upcoming month with US elections. Read the full article here.
2. Cambridge Centre for Alternative Finance (CCAF), the international interdisciplinary academic research institute of the University of Cambridge focused on alternative finance, recently published their 3rd Global Cryptoasset Benchmarking Study reviewing the impact of significant changes in the industry by collecting data from 280 companies in 59 countries — and featured findings from our research team led by Lanre Ige and Eliézer Ndinga.

Despite the growing demand for cryptoassets accounting for more than 100 million users — the stage we are, at the moment, is similar to the Internet adoption in the late 1990s. Our research team discovered that market participants across the world face restrictions imposed by crypto exchanges due to regulatory concerns. The repercussions from regulatory bodies such as the recent crackdown on BitMEX by the CFTC alongside the FCA's ban on crypto derivatives are clear examples as to why such impositions exist. And a result, such restrictions might persist going forward — especially in light of the recent publication by the Department of Justice of the United States outlining an enforcement framework to combat the potential use of cryptoasset for illicit ends and another piece raising concerns on privacy-enhanced techniques. However, regulatory clarity and harmonization enable service providers, including in the DeFi segment, to understand the scope in which they can serve users based upon their geographic location. As a matter of fact, according to CCAF, the share of cryptoasset-only companies that did not conduct any KYC checks at all dropped from 48% to 13% between 2018 and 2020.

Today, with billions of Internet users, the fact that the crypto market currently accounts for 100 million users proves that we are still in the early phase of the adoption curve. Nonetheless, the silver lining is the fact that crypto-enabled transactions related to illicit activities such as dark marketplaces, ransomware wallets or fraudsters – have remained at 1% out of nearly $1 trillion of dollars transferred throughout the past year. In addition, the dollar amount of successful hacks on crypto exchanges significantly decreased lately despite an uptick in attempts and at 21Shares we are proud to enable greater adoption to the best performing asset of the last decade in a safe and regulated manner with our exchange-traded products. Find our report here and the University of Cambridge's Report here.

1. 21Shares ETPs holding Bitcoin, totaling over 2,000 BTC or more than $33 million in today’s value, are officially listed on the website Bitcoin Treasuries. The site was created to give transparency on the amount of Bitcoin held by publicly-traded companies and crypto-enabled financial products across the world — and was specifically launched upon the news of Square, the leading US-based merchant services aggregator which added $50 million worth of Bitcoin, precisely 4,709 bitcoins, to its balance sheet. The Fintech upstart justified such an endeavor to the fact that Bitcoin is an instrument of global economic empowerment to secure the financial future of individuals. The company published a concise Bitcoin Investment Whitepaper to document how they proceeded to purchase Bitcoin, custody, and protect their holdings with insurance.

According to Glassnode, 63% of the Bitcoin’s circulating supply of 18.5 million hasn’t moved from their assigned wallets in over a year, which is a testament to the fact that the majority of investors consider Bitcoin as a long-term investment. As a scare asset, it means fewer Bitcoins are available for newcomers. And the recognition of Bitcoin from publicly-traded corporations such as MicroStrategy and Square who invested hundreds of millions of dollars into Bitcoin combined — has undoubtedly strengthened the long-term resistance of the cryptoasset above the $10K mark.