21Shares Research Newsletter - Issue 137

Market Outlook

The overall crypto market experienced a trembling sell off on Friday December 3d, exacerbated by the largest long liquidations in a single day in the past 3 months. The total long liquidations amounted to $2.05 billion USD across multiple derivative venues such as Deribit, BitMEX, Binance and OkEX, surpassing the 3-month record of $1 billion USD long liquidations on September 19th this year.

The crypto industry is under a K-shaped recovery and a very different one compared with past corrections wherein historically market recoveries were led by Bitcoin’s rising dominance above the 40% to 45% mark. In other words, this $2 trillion industry is getting large enough that it starts to have defining use-case-specific or sector bull and bear markets. Despite the fact that Bitcoin has resulted in a 75% YTD performance, this time, the cryptoasset has been one of the laggards in the top 10 ranked by market cap, trading down ~26% from its highest traded value at $69K. As of writing, Bitcoin trades over $51K, up 12% from its lowest 7-day value at ~$45K reached over the extended sell-off this past weekend.

Bitcoin holds the characteristics of an emerging store of value in the long run but it is important to note that market participants, especially short-term-minded investors, are no different from the equity market. According to blockchain analytics firm, Glassnode, Bitcoin investors realised the third largest capitulation in history over the weekend, with over $2.18 billion in realised losses. As such, specifically in the short run Bitcoin’s price movements can make the asset behave like a risk-on asset impacted by macroeconomic events such as the rise and uncertainty around the Omicron variant or the unexpected SEC rejections of bitcoin spot ETF applications this year.

The market interest and attention have shifted to the smart-contract vertical while the tokens of some of Ethereum-based largest DeFi applications remain in the negative territory from their all-time high such as Sushiswap (-74%), Uniswap (-61%) and Curve (-92%):

• Terra, another competitor of Ethereum, got into the top 10 rank for the first time in history. While the entire market was bleeding from the sell-off, Luna — Terra’s cryptoasset has been trading mainly in price discovery mode and surpassing Solana for the third place in assets under management in DeFi amounting to $13 billion. Terra stands behind Binance Smart Chain: 2nd place at $17.9 billion and Ethereum: 1st place at $170 billion.
• The Ether:Bitcoin (ETH:BTC) market-value indicator crossed for the first time in 3 years, the 50% mark. In other words, Ethereum takes over 50% of Bitcoin’s market capitalization. The uptick started this past summer fueled by the rise of NFTs predominantly.

It is too early to tell whether Ethereum will flip Bitcoin’s market value in the near future but the pace of innovation to solve Ethereum current issues such as market manipulation and high transaction fees are under significant progress. It’s important to note that most solutions are in their early phase of development and adoption life cycle but they are here to stay with the right execution plan alongside sustainable community engagement. Flashbots leads the fort to solve market manipulation, while scalability applications pop up in an attempt to scale Ethereum to millions of transactions per second in the long run and reduce high transaction costs. On that note, StarkNet launched on mainnet last week indicating a great upcoming year for Ethereum scalability solutions.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (-11.60%), ETH (-7.61%), BNB (-7.08%), SOL (-9.76%), and ADA (-11.30%).

Net Inflows per 21Shares ETP

The net Inflows of our ETPs amounted to $42.97 million in the past week. Find the breakdown of the inflows and outflows per ETP below.

Media Coverage

We are incredibly ecstatic to share that 21Shares’ co-founder Ophelia Snyder has been featured in Forbes’ monumental 30 Under 30. “Snyder co-founded 21Shares in 2018 to build sophisticated crypto investing technology her mom could use,” wrote Forbes. “Now valued at $700 million, the firm charges about a 2% management fee for 15 ETPs in 4 countries. With over $2.5 billion AUM it is on track for $60 million revenue this year.”

In other news, The Defiant featured the commentary of our Research Lead, Eliezer Ndinga for a story about Uniswap’s new terms of privacy sharing wallet addresses. “Uniswap had made their partnership with TRM Labs clear in its updated Terms of Service FAQ,” wrote The Defiant, paraphrasing Eliezer’s commentary. “Uniswap is not the only DeFi interface relying on analytics firms like TRM.”

We are delighted to announce the listing of its Bitcoin and Ethereum ETPs on Nasdaq Sweden. 🇸🇪

We are honored to have the opportunity to work with one of the world's most established stock exchanges and are looking forward to a successful collaboration. Learn more about our partnership here. Congratulations to the whole team of 21Shares for this remarkable listing. More to come!

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News - Crypto Executives to Testify Today Before Congress on “Digital Assets and the Future of Finance”

What happened?

The US House Committee for Financial Services has invited top executives of six major companies working in the crypto industry to testify at the Congress on December 8, 10 AM (EST). The panel titled “Digital Assets and the Future of Finance” will discuss the challenges and benefits of financial innovation in the United States.

The panelists invited will attempt to persuade Congress of loosening their fist on crypto regulations to not hinder financial innovation that could potentially harm the industry more than it protects investors. The “witness list” is composed of the following:

• Jeremy Allaire, co-founder, chairman and CEO of the Circle, a peer-to-peer payments technology company that issues the USDC stablecoin.
• Samuel Bankman-Fried, founder and CEO of FTX a cryptocurrency exchange platform.
• Brian P. Brooks, CEO of Bitfury Group, a private infrastructure provider in the blockchain ecosystem.
• Charles Cascarilla, CEO and co-founder of Paxos Trust Company, a financial institution and tech company offering a variety of crypto services such as cryptocurrency brokerage, asset tokenization, and settlement.
• Denelle Dixon, CEO and executive director of Stellar Development Foundation, a non-profit organization that supports the development and growth of Stellar, an open source, decentralized protocol that allows low-cost cross-border transactions, from digital currency to fiat money.
• Alesia Jeanne Haas, CEO of Coinbase Inc. and CFO of Coinbase Global Inc., one of the leading cryptocurrency exchanges in the world.

You can watch the webcast here.

Why does it matter?

As America prepares to regulate Gary Gensler’s “Wild West,” this will mark the first time major stakeholders in the industry will testify before lawmakers, let alone show face in Congress. There has been a general mood of multiplied frustration among the crypto community in the US, after Gensler and Trump’s SEC Chairman Jay Clayton bonded over their verdicts on crypto regulations at a fireside chat moderated by the latter at the Digital Asset Compliance and Market Integrity Summit last Wednesday. When asked about the SEC’s intention to regulate crypto, Gensler quoted his predecessor saying that cryptocurrency tokens are predominantly utilized to raise money for entrepreneurs and therefore meet “the time-tested definitions of an investment contract and are thus under the securities laws;” Clayton, flattered, nodded in approval. Given that Clayton is currently an advisor to crypto companies added to the disappointment.

The upcoming panel might open talks on the Token Taxonomy Act, or so hope its authors Congressman Warren Davidson and Director of Government Relations at Blockchain Association, Ron Hammond, who first introduced the bill in 2018. The Token Taxonomy Act aims to establish clarity for businesses, consumers, and regulators operating in the growing US blockchain ecosystem. The bill specifies that digital tokens are not securities for regulatory purposes and provides for the tax treatment of virtual currencies by excluding from gross income any gains from virtual currency transactions up to $600.

Today’s hearing is an event highly anticipated by the global crypto community, not just in the US, as regulation is one of the factors the performance of cryptocurrencies are de facto pegged to.