Crypto Defies Fed, Bitcoin and Ethereum Hit New Highs

Market Outlook

Despite the Federal reserve’s comments on attenuating its quantitative easing approach - in place since COVID’s breakout - the crypto market shrugged off the remarks and was able to absorb the selling pressure as both Bitcoin and Ethereum broke new all time highs to reach a valuation of $68.5K and $4850 respectively.

The FED’s hawkish tone is typically considered a bearish sign for risk-on assets such as crypto and equities, as it indicates that the central bank monetary policies will be focused on quelling the rising levels of inflation - which nullifies the bullish case for both types of assets as a hedge against inflation. It achieves this by unwinding the money-printing program that helped fund the governmental institution bond-purchasing scheme which was designed to keep the economy floating following the pandemic breakout with the suppressing of yields and lifting bond prices.

Bitcoin and Ethereum’s on-chain activity gives us a potent case that both assets were just consolidating before resuming their rallies. For BTC, this can be inferred through inspecting the behavior of long term holders (entities who haven’t touched their stack for over a year) as they typically avoid spending their assets during heightened rallies. In fact, the aforementioned entities have accumulated roughly about $2.8B worth of BTC over the previous week.

From an institutional market view, looking at the unsurpassed record of digital assets inflows valued at $8.9B amongst institutional crypto asset managers - which is already $2.2B higher than the entirety of last year, and to which BTC comprises almost $6.4B of the total aggregate - is yet another gauge that confirms the wider interest in amassing Bitcoin. The newly found enthusiasm for the trillion dollar asset can also be delineated through its upcoming major upgrade - Taproot Soft Fork - which should reduce the network’s gas costs, while propping up the underlying capabilities to host functional smart contracts.

On the contrary, Ethereum’s rally had been set off by the news of CME launching its cash-settled micro Ether futures on the 6th of December, in addition to the licensed money-transmitter and custodian Bakkt’s announcement that it will soon admit its customers to purchasing Ethereum. What is remarkable about ETH’s latest price action is that the network began experiencing declining gas fees after skyrocketing almost a ten fold since May’s crash - illustrated with the asset’s plunging trading volume throughout last week.

May that be, retail investors are once again seeking more economic L1 chains that would facilitate their DeFi and NFT transactions. A trend identified with some of Ethereum’s competitors such as Solana ($260) and Avalanche ($96.46) breaking to fresh all-time-highs. The cycle rotation wasn’t only provoked by users migration due to ETH’s prohibitive fees, but also lured by Solana’s investment arm, Solana ventures, announcing a $100M fund to nurture blockchain-based gaming development on the network, as well as its most recent integration with the crypto-native browser Brave. On the flip side, Avalanche foundation disclosed its $200M blizzard fund aimed at burgeoning the network’s ecosystem of NFT, DeFi and cultural applications which helped boost the token’s momentum. Finally, Polkadot too made headlines with its ATH break on the back of the eager excitement surrounding the landmark milestone of launching the 1st round of parachain auctions scheduled to go live on Thursday 11th of November.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (7.16%), ETH (4.9%), BNB (17.86%), XRP (13.45%), and ADA (8.2%).

Net Inflows per 21Shares ETP

The net inflows of our ETPs combining $53.27 million in the past week, were as follows: AADA (+$ 5,950,886), ABBA (+$ 2,186,457), ABCH (-$ 395,924), ABTC(+$ 3,033,491), ADOT (+$ 8,116,510), AETH (+$ 11,231,076), ASOL (+$ 12,170,348), AXLM (+$ 628,655), AXRP (+$ 3,113,480), HODL (+$ 4,818,220), HODLV (+$ 3,622,858), MOON (-$ 1,200,299)

Media Coverage

We’re excited to announce that our Solana ETP (Ticker: ASOL FP in Euro and ASOL NA in USD) just reached $200 million in assets under management. We’ve listed our Solana ETP along with Polkadot’s on Euronext Paris and Amsterdam on September 23. You can find our Solana primer here. Two weeks ago our Polkadot ETP (Ticker: PDOT GY) just joined our four other ETPs to have reached the key milestone of $100 million in assets under management.

AMBCrypto featured our Polkadot ETP in a report on Polkadot ETFs in Europe outperforming Bitcoin, Ethereum, and of course traditional finance. You can read more about Polkadot in our primer here.

Our previous newsletter was featured in a report published on Business Insider’s Markets portal, covering Ether’s all time high. "Ethereum's rally has most likely been driven by the Chicago Mercantile Exchange's announcement of micro ether futures," the report quoted our Research Lead Eliézer Ndinga.

Last but not least, we’re thrilled to announce that Bernhard Wenger has joined 21Shares as our new head of northern Europe. Bernhard was previously country head of Switzerland at State Street.

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News - Zimbabwe Explores Crypto as a Legal Tender

What happened?

A few days ago local news reported that Zimbabwe’s government is weighing options of adopting cryptocurrency as a legal payment service and is consulting various stakeholders on the merits of the virtual currency. This came from a statement from retired Brigadier Colonel Charles Wekwete at the Computer Society of Zimbabwe ICT Summit, confirming that the government is already in conversations with the private sector on the matter. Wekwete, who is also the permanent secretary and head of president’s office and cabinet’s e-government technology unit, elaborated that the government is working on developing regulations to protect consumers and help Zimbabwe's financial future.

Why does it matter?

The story of Zimbabwe’s financial crisis is a classic aftermath of a hundred years of colonialism. Primarily due to mismanagement of national resources, Zimbabweans have been suffering from hyperinflation since 2008; to an extent where inflation rate percentages for month over month were recorded in billions. Bringing back the Zimbabwean Dollar in 2019 and banning the use of foreign currencies as a legal tender didn’t solve the issue. By mid-July 2019 inflation had increased to 175%, sparking concerns that the country was entering a new period of hyperinflation. In March 2020, with inflation above 500% annually, a new task force was created to assess currency issues. By July 2020 annual inflation was estimated to be at 737%.

Given that inflation was the main driver that pushed Satoshi Nakomoto to invent Bitcoin to challenge traditional finance and almost everything it stands for, it’s safe to say that crypto is the best remedy for inflation. If adopted carefully using the right infrastructure, Zimbabwe will be in good hands and slowly but surely ease out of the hyperinflation it’s been suffocated with.

With Bitcoin’s Taproot upgrade just around the corner, Zimbabwe’s thought process comes right on time. The highly anticipated upgrade will optimize scalability, privacy, and smart contract functionality. Taproot will bring about a new address type, making Bitcoin spending look similar and fundamentally allowing users to save on transaction fees compared to previous address types. This is especially good news for El Salvador that has been having issues with transactions in its pursuit of mass Bitcoin adoption, and if Zimbabwe plans to follow suit, it will be good news for them too.