21Shares Research Newsletter - Issue 48

Market Outlook

As we mentioned in previous editions of this newsletter, our research has shown that the Network-Value-to-Realized Value (NVRV) ratio can be useful to understand a possible market bottom. The NVRV ratio measures the ratio between Bitcoin's current price and Bitcoin's average (estimated) cost basis. When the ratio is below 1 it signals that Bitcoin's current price is below the average price that investors likely bought it for; on previous occasions this has happened it has signalled the bottom of a market drawdown.

The intuition behind this is that the average investor is unlikely to be willing to sell Bitcoin at a lower price than what they bought it for, so a price level at which that is the case is unlikely to be sticky. This proved to be true as Bitcoin's NVRV has lifted above 1 since March 12. We believe that this is likely to remain the case in the coming months.

In addition, Bitcoin’s correlation with the S&P 500 index has reached new highs in recent weeks following the large uptick in market volatility as the Coronavirus pandemic continues to wage a war against the global economy. The main reason for Bitcoin’s increased correlation with equities has been the large move towards a risk-off environment from all investors across asset classes; as Bitcoin has become increasingly institutionalized, it is also subject to the downsides of such institutional flight-to-safety investor movements. In the long term, however, Bitcoin is likely to increasingly become uncorrelated as it begins to offer a hedge against potential widespread monetary inflation or stagflation.

The top five crypto assets performed as follows: BTC (-0.86%), ETH (-1.98%), XRP (8.25%), BCH (0.22%), and LTC (0.11%).

The average on-chain transaction volume for the top-five crypto assets is as follows: BTC ($1.56B), ETH ($296M), XRP ($131M), BCH ($64.1M), and LTC ($20.2M). On average the total daily on-chain transaction volume number was down from $2.45B to $2.07B.

Research - Bitcoin: Research Primer

This research primer is a guide to understanding Bitcoin. It explains why Bitcoin is important, how the technology for Bitcoin is likely to change over the next decade, how we can value Bitcoin, and what the main risks associated with investing in Bitcoin are. We believe Bitcoin presents the investment opportunity of the decade, and that this research primer will help guide your investment decisions.

The report is available in English, French, German, and Italian.

Read the full report here.

News - Binance is Set to Acquire CoinMarketCap, the Deal Could Be Worth as Much as $400M | The Block

What Happened?

Binance is in the final stages of talks to acquire CoinMarketCap, The Block has learned. The crypto exchange is looking to pay as much as $400 million for the deal, people familiar with the deal told The Block. The cash-and-stock deal is expected to be announced this week. When completed, that would make it one of the largest acquisitions in the crypto space.

Just earlier this year, Binance CEO Changpeng “CZ” Zhao said that there are two acquisitions in the pipeline that he is “very excited” about. These are “major” and will have a “significant impact,” CZ said at the time. The CoinMarketCap deal could be one of those two deals.

Why Does It Matter?

At the start of the year, research from us and others, such as Blockchain Capital, argued that 2020 would be a year of significant (≈ $500M) acquisitions and this reported acquisition of CoinMarketCap by Binance is a confirmation of this prediction.

The core reason behind the Binance acquisition is eyeballs. CoinMarketCap is perhaps the most popular crypto website on the internet and Binance sees it as a way to increase the exchange's exposure to the retail audience. According to The Block, CoinMarketCap is estimated, by SimilarWeb, to have 80% more internet traffic than Binance and that is what the acquisition is predicated on — in spite of what the data provider's revenues or profits may be.

The acquisition may draw some amount of scrutiny due to antitrust/concentration concerns. Binance, if the move goes through, would have control over the top data provider and top exchange within the industry, given them unprecedented sway over how crypto investors get their information and then act on it. The move would equal the largest M&A deal in the industry as the table shows below (Source: Pitchbook and The Block).

Learn more here.

News - Mt. Gox Deadline Extended Again After Creditors Criticize Refund Proposal | CoinDesk

What Happened?

In the plan, proposed to Mt. Gox creditors at a March 25 meeting, rehabilitation trustee Nobuaki Kobayashi said he would, if authorized by the court, sell off some of the recovered cryptocurrencies in order to settle prioritized fiat currency claims.

Creditors would have the option of receiving reimbursement in Bitcoin (BTC), but the rehabilitation proposal says it was possible there would be an "insufficient amount" to settle all claims. As the trustee has ruled out making any additional purchases of bitcoin, some creditors would likely receive part of their claim in fiat currency, the plan said. But Kobayashi's proposal received significant pushback from creditors, not least because most creditors want to be reimbursed in bitcoin.

Alex Ortega, managing principal of Iverson Capital Group, the first company to buy Mt. Gox creditor claims in 2016, told CoinDesk that many creditors were dissatisfied with the rehabilitation plan and felt the trustee should not be allowed to sell recovered bitcoin in order to settle fiat currency claims first.

Why Does It Matter

The Bitcoin rehabilitation process has been a long-running saga with no end in sight. For some added context, Mt. Gox was the industry's most popular exchange in its early stages before it was found insolvent in 2014 and subsequently shuttered. The recovered Bitcoin from Mt. Gox has been placed into the care of the trustee Nobuaki Kobayasi and, importantly, the previous market sales of the holdings have had large effects on the market. While it remains to be seen how this saga will end — whether the trustee sells the holdings in full or if the creditors are eventually bought out — the actions of the trustee can drastically affect the state of the market.

Learn more here.