21Shares Research Newsletter - Issue 65

Market Outlook

On Wednesday 15 July a number of twitter accounts owned by popular figures and noticeable crypto companies were compromised in an attack on the platform. Some of the accounts hacked included Barack Obama and Bill Gates, as well as the two most popular crypto asset exchanges: Binance and Coinbase. These compromised accounts were used to post Bitcoin giveaway scams which tricked users into transferring funds to the hacker’s address. In total, the hackers reportedly targeted 130 Twitter accounts and successfully infiltrated around 45 of the accounts.

It is estimated that around $125,000 worth of Bitcoin was transferred to the hackers’ wallet addresses by the time Twitter got a hold of the situation. While the exact cause of the hack is unknown as of now, it has been suggested that a hacker was able to gain access to an internal Twitter admin tool that facilitated the exploit. The hack called into question Twitter’s security practices which have failed on previous occasions and also the role of Bitcoin in facilitating such nefarious behavior. Twitter’s stock fell slightly the day following the hack but has posted strong returns (7.80%) over the last week. This is more likely due to the general bullish market environment for technology stocks rather than specific optimism for the social media platform. Bitcoin, on the other hand, has remained flat throughout the week (-1.01%).

The Twitter hack calls into question some of the common issues with centralized social media platforms and the amount of power and control they have over society. While Bitcoin played a role in facilitating the hack, it also is an attempt to offer a new paradigm for organizing economic interactions built without the reliance on central authorities. The impact of the recent Cloudflare outage on key Bitcoin services shows that even applications built on Bitcoin still have centralization points but despite such issues, the technology in the long term is part of the wider push to build more resilient internet-based services. See the impact of the Cloudflare DNS outage on the broadcast of Bitcoin’s transactions below (Source: Satoshi.Info).

Weekly Returns

The crypto asset market was down over the last week with the Bitcoin forks, BSV, and BCH being some of the market’s worst performers. Much of the market’s recent gains can be attributable to the performance of a number of the “small-cap” cryptoassets — namely those within the “Decentralized Finance” segment of the market: BTC (-1.01%), ETH (-1.78%), XRP (-2.25%), BCH (-3.35%), and BSV (-6.45%).

Media Coverage

We've released a product-overview video with ETF Stream on our 21Shares Bitcoin ETP (ABTC), the world's first physically-backed Bitcoin ETP available on the SIX Swiss exchange, Boerse Stuttgart, BX Swiss, and Deutsche Boerse Xetra. Watch the full video here.

21Shares research notes are publicly available on Xetra’s website under the section “21Shares AG”, such as "Bitcoin's Correlation with Equities Approaches Local High, Likely to Fall" and "Post-Mortem Research Notes for the First Half of the Year 2020". See the list of our reports here.

For German speakers, our Managing Director, Sina Meier, and our Senior Associate, Hansen Wang, gave our first series of webinars “Back to Basics” with Crypto Valley Journal. Watch the full video here.

News - E.U. Adopts Groundbreaking Stimulus to Fight Coronavirus Recession | The New York Times

What Happened?

This Tuesday morning, EU leaders reached a landmark agreement on a €1.82 trillion stimulus after four days of somewhat bitter negotiations over the seven-year budget and recovery package to fight the Coronavirus recession. The overall budget for the years 2021-2027 is divided into two buckets: the multiannual financial framework (MFF) of €1.07 trillion and the Next Generation EU (NGEU) accounting for €750 billion. The latter is designed as a COVID-19 recovery package front-loaded over the first years where the capital will be raised on financial markets. NGEU is composed of €390 billion allocated as grants for the years 2021-2022 with the remaining €360 billion in form of loans.

The funds' allocation is based on the 2015-2019 unemployment rates and, as a rule, the maximum volume of the loans will not exceed 6.8% of each country’s Gross National Income (GNI). Prior to the disbursement of the funds, member states in the EU will prepare national recovery and resilience plans for the years 2021-2023. These national plans will be assessed by the European Commission within two months of the submission with country-specific criteria. Thereafter, the plans will be approved by the European Council with a qualified majority on a Commission proposal. The repayment schedule will be subject to satisfactory fulfillment of relevant milestones and targets, as well as containing a 38 years repayment period from now until December 31, 2058.

What Does It Matter?

With new coronavirus clusters emerging around the world only raising uncertainty over the pandemic evolution, disinflationary pressures are likely to prevail for some time especially in some of the hardest-hit sectors sensitive to social-distancing rules. A V-shaped recovery seems out of reach as higher precautionary savings to build buffers and repay the debt will continue to dampen expenditures on the consumer demand side partly due to lingering worries of infection.

This will put further pressure on both monetary and fiscal policy buffers especially in scenarios where insolvencies and capital misallocation prevail. Additionally, heightened uncertainty could lead to a somewhat difficult exercise for governments of ascertaining insolvent but viable firms as pre-existing business models might no longer be defensible over the long run. Early discoveries of capital misallocation by governments have started to emerge with PPP fraud charges in the US or fraudulent filings by companies to benefit from the furlough scheme in France.

It is safe to say that this new recovery package approved by the EU council could lead to a debt overhang in various economies such as Italy and Spain — the hardest-hit countries by this public health crisis, especially when insolvencies will start to kick in. The question remains over whether central banks and financial institutions will make capital allocation adjustments and shift resources towards the more promising sectors and firms. Learn More

News - The Fog of Numbers | The Federal Reserve of San Francisco

What Happened?

In light of the May 2020 unemployment rate, the Bureau of Labor Statistics reported an unemployment rate of 13.3% in the United States. However, the rate could have reached levels as high as 17% due to classification errors as large absenteeism in the workplace caused by the current crisis was not classified as unemployment.

Why Does It Matter?

Although GDP is not a flawless economic indicator, it is a critical barometer of economic activity. In the 07-08 crisis, the Great Recession, the projected GDP data was revised years later and dropped by more than 4%. In times of economic turbulence like this current public health crisis, the revisions could be even more drastic impacting how unclear the real extent of the problem and its consequences are.

As a gentle reminder, revisions are measured by the most recent data minus the initial release. As such, this makes decisions on economic policies a daunting task in real-time as measuring economic activity is a highly complex process that aggregates data from different sources and surveys. Only time will tell whether the Federal Reserve’s and other central banks’ intervention will prove successful and, at 21Shares, we will closely follow what the future holds on all fronts.

Learn more here.