21Shares Research Newsletter - Issue 88

Market Outlook

Bitcoin’s price surged by more than 17% over the past 7 days by breaking above the $25K mark for the first time in history on December 25th, before topping $28K a couple of days later. This price action has been predominantly driven by retail investors, as banks and financial institutions were likely not as active on Christmas Day and during the weekend, which is a testament to the awakening interest in Bitcoin for the general public. On top of that, positive coverage on Bitcoin by renowned institutions such as the Wall Street Journal, has helped fuel this positive feedback loop.

As we head towards 2021, reflecting on this year with data points is particularly crucial and at the heart of 21Shares. The year 2020 has been nothing short of eventful starting with the current health crisis, which induced a market crash as you can see on the chart below. Equity markets buckled, volatilities and correlations spiked while bond yields bottomed akin to the 1929 stock market crash. As a result, social-distancing and containment measures have significantly accelerated, by orders of magnitude, the adoption of digital services including Bitcoin as predicted by Eliézer Ndinga at the wake of the pandemic: “the digital nature of cryptoassets with a finite and predictable supply uncorrelated to traditional monetary and fiscal policies with transportability that do not require social contact, have the chance to increasingly become an attractive asset.” What has been achieved in less than a year would have certainly taken decades to play out in normal times. As such, historians might consider this pandemic as a defining moment of the 21st century on many fronts.

Billions was invested in Bitcoin so far this year from notable institutional investors and corporates — starting with legendary hedged fund manager, Paul Tudor Jones in early May. But it took a few more months mainly in the second half of this year for institutional interest to take off and reflect in an uptrend in Bitcoin's performance which was specifically marked by the announcements of investments in the asset by Square and Paypal as you can see on the graph below.

For 2021, at 21Shares, we will expect continued institutional interest in the US and in Western Europe with larger investments coming from convervative financial institutions with billions of dollars in assets under management, similar to Insurance Giant MassMutual that purchased $100 million of Bitcoin. The positive reporting on Bitcoin from media giants like The Financial Times and The Wall Street Journal alongside from the Chinese State Media set the tone for an expansive adoption across the board especially with the looming Coinbase IPO effectively becoming the first sizeable US-based crypto business to go public. This IPO will raise more awareness on Bitcoin and the rest of the crypto market and will likely put Coinbase amongst the top 15 FinTech apps in the world. A Bitcoin ETF in the US and Bitcoin allocations by cities’ treasury reserves and central banks such as the Chinese central bank have the chance to become major drivers of various macroeconomic Bitcoin-related narratives going forward.

In addition, retail interest which remained relatively low this year will increase in tandem with higher price levels in the foreseeable future as Bitcoin just exceeded $0.5 trillion in market value — therefore the number of crypto holders currently at 100 million will surpass the 500 million mark.

The nascent crypto category of Decentralized Finance, totalling over $14 billion in AUM will continue its pace and will likely accelerate especially once products offering institutional-grade security and better user experience become comprehensively accessible outside the crypto community. The growing usage of DeFi will boost the buying pressure for Ethereum as the main settlement infrastructure for decentralized applications and the multi-phase upgrade of its blockchain — ETH 2.0 will undeniably help this growth expectation.

On the final note, in 2021 we’ll see more regulatory news as regulators across the world attempt to continue to professionalize the industry, with the news of the SEC's lawsuit against Ripple Labs and XRP being an example of this. Long-term this is likely to be positive for the industry as regulatory actions provide much needed clarity for crypto businesses, professional and retail investors.

Weekly Returns

The returns of the top five cryptoassets over the last week were as follows — BTC (13.82%), ETH (15.19%), XRP (-45.45%), LTC (14.76%), and BCH (12.69%).

Monthly ETP Returns

The performance of our line of ETPs over the last 30 days is as follows: ABTC (22.5%), AETH (20.6%), ABCH (16.3%), AXRP (-70.4%), ABNB (38.2%), AXTZ (-17.4%), HODL (14.5%), ABBA (30.4%), KEYS (28.3%), and SBTC (-31%).

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Media Coverage

The leading crypto journal, The Block, reported on the delisting of XRP from our index product suite (HODL and KEYS) in light of the U.S. Securities and Exchange Commission (SEC) lawsuit against Ripple Labs and its executives.

The US regulator has accused Ripple Labs of conducting unregistered security sales with their XRP cryptoasset. Shortly after the news, the leading US crypto exchange, Coinbase announced the suspension of XRP starting mid January next year — a move which has been followed by a number of other exchanges and market makers. The price of XRP nosedived by more than 60% since the SEC announcement on December 22nd.

You can read our official press release on the matter here. On December 23, 2020, the Bitwise Select 10 Large Cap Crypto Index (BITS10), the Index serving as the Underlying for the 21Shares’ KEYS ETP, was reconstituted in accordance with the applicable Index Methodology. XRP was removed as an Underlying Component from the Index and the respective XRP were reallocated to the remaining Underlying Components as per the respective announcement.

On December 24, 2020, MV Index Solutions GmbH as the index administrator of the 21Shares Crypto Basket Index (HODL5), the Index serving as the Underlying for HODL, decided and announced in line with the applicable Index Guide that XRP be removed from the 21Shares Crypto Basket Index (HODL5) and, therefore, as an Underlying Component for HODL. The replacement Underlying Component will likely only be communicated on the Monthly Rebalance Date. Based on Condition 9.3 and Condition 18, the Issuer has exercised its discretion and, to protect Investors' interests, decided to sell the XRP and to invest the proceeds in Bitcoin (BTC) and Ethereum (ETH) currently serving as an Underlying Component (proportional to current allocations). Such proceeds will be invested in the replacement Underlying Component as soon as known in line with ordinary rebalancing procedures. time period, to remove XRP from the basket following the announcement of the Index Provider.

“As part of our quick intervention, the board was able to remove XRP using its broad network of liquidity providers in order to liquidate its XRP position with the ultimate aim of reducing market impact and protecting investors to which it was able to achieve”, said Hany Rashwan CEO and Chairman of the board of directors of 21Shares, "thanks to our trusted partners, our main objective remains to replicate accurately our index and we were able to successfully conduct this ad hoc task despite the difficult trading conditions”.

The board of directors of 21Shares wishes to inform the market that it is also monitoring the situation in regard to AXRP, the single asset ETP tracking the underlying component XRP.