21Shares Research Newsletter - Issue 45

Market Outlook

Global markets, as well as crypto asset markets, crashed over the last few days due to the effects of the Coronavirus pandemic beginning to emanate throughout the economy. Most notably, due to decreased oil demand from China, the OPEC failed last Friday to come to an agreement on oil production cuts due to disagreements between Russia and Saudi Arabia. As a result, oil prices fell on Monday by the most in one day since the 1991 Gulf War — plummeting 34% to $27.34 a barrel. This reverberated through global markets with most asset classes and indices down on Monday, extending worries about further second-order effects of the Coronavirus on the economy.

While Bitcoin has generally been uncorrelated to other asset classes and indices, as the chart above shows, Bitcoin nosedived in line with most other markets. This is likely due to this current macro downturn — and fears of a deflationary recession — forcing large holders of Bitcoin such miners and fund managers to sell their risk assets (namely Bitcoin) for cash to meet liquidity or margin requirements respectively. We believe that over longer time periods Bitcoin will generally remain uncorrelated, especially in the face of any future potential inflationary pressures. The top five crypto assets performed as follows: BTC (-11.34%), ETH (-13.43%), XRP (-12.84%), BCH (-19.43%), and LTC (-18.38%).

The average on-chain transaction volume for the top-five crypto assets is as follows: BTC ($1.89B), ETH ($439M), XRP ($234M), BCH ($108M), and LTC ($28.1M). On average the total daily on-chain transaction volume number was down from $2.60B to $2.70B.

News - Facebook is Shifting Its Libra Cryptocurrency Plans After Intense Regulatory Pressure | The Verge

What Happened?

Facebook is altering its plans for its Libra cryptocurrency project following months of severe regulatory pressure and political pushback, according to a new report from The Information published last Tuesday.

According to the report, Facebook no longer intends to make the Libra token — the actual blockchain-based cryptocurrency it’s in the process of developing in partnership with the nonprofit Libra Association — the centerpiece of its digital payments strategy. Instead, Facebook’s Libra project will reportedly transition to supporting both existing government-backed currencies, like the US dollar and the euro, and the Libra token when it is eventually completed and ready to launch.

Additionally, The Information says Facebook is delaying the launch of its separate Calibra digital wallet, which was to be a primary showcase for the Libra technology by allowing anyone with a smartphone to acquire and store the cryptocurrency and then pay for various goods with it. The wallet will now support multiple currencies, of which Libra will be just one.

Why Does It Matter?

The chart below shows the already crowded USD-backed stablecoin sector where Facebook's Libra revamp would be another. It is likely Facebook's stable coin would quickly come to be the most popular within the sector, though it remains unclear why exactly consumers would use the product. For currently existing US stablecoins, the biggest use case has been that they allow investors (especially outside of the US) to get access to dollars — in a similar way to the function of the eurodollars market. Due to the likely regulatory difficulties the project will face anyway, it is unlikely that Facebook's Libra would target a similar use case.

Learn more here.

News - India's Supreme Court Lifts Crypto Banking Ban and South Korea Implements New Crypto Exchange Laws | CoinDesk

What Happened?

According to a report from Bloomberg, a three-judge bench of the court ruled on Wednesday in favor of petitions by crypto exchanges and startups that opposed the decision made by the Reserve Bank of India (RBI) in April 2018 banning domestic financial institutions from providing banking services to crypto exchanges. The central bank's decision at the time forced crypto exchanges in the country to either close, relocate to other jurisdictions or shift their business model to crypto-to-crypto and over-the-counter trading.

In addition, South Korean lawmakers voted Thursday to place tough new requirements on cryptocurrency exchanges, adding legitimacy to the country’s sprawling crypto economy – and potentially triggering a market consolidation down the road.

As reported by CoinDesk Korea, the legislation – an amendment to Korea’s existing Financial Information Act – shores up South Korea’s anti-money-laundering (AML) and counter-terrorism financing (CFT) framework for virtual asset service providers (VASPs).

Why Does It Matter?

Both cases show that lawmakers are willing to interact with the industry in good faith which will undoubtedly help entrepreneurs develop businesses in the industry. Looking at Google search interest for Bitcoin in both countries, India has seen a noticeable spike (70.83%) in search interest this week while South Korea has remained flat in comparison (8.33%). This is due to the fact that South Korea's bill does not actually affect investors and consumers directly compared to India's revocation of their crypto banking ban which had it very difficult for crypto asset businesses and exchanges to operate in the country — therefore directly affecting retail investors and consumers.

Learn more here.