21Shares Research Newsletter - Issue 79

Market Outlook - Analysing Sources of Demand for Bitcoin in the Wake of #EndSARS, PayPal to Support Bitcoin, and More

General markets have slumped due to the recent awareness that a US stimulus bill is extremely unlikely to happen before the election; therefore potentially not until January if Biden is elected and Democrats hold the Senate or even more uncertain in other outcomes associated with Trump being re-elected or republicans holding the Senate. Cryptoasset markets have bucked that trend with Bitcoin displaying tremendous strength over the last few weeks driven by several factors that have strengthened the market’s resolve for long-term Bitcoin demand.

We can generally separate the demand for Bitcoin into two different categories — investment-driven and fundamental demand. Investment demand encompasses demand for Bitcoin from users who expect its price to appreciate over the long run and aim to actively trade the asset to make money from its volatility. Fundamental demand encompasses demand for Bitcoin from users who aim to use it for its strength as censorship-resistant money; to transfer value to other parties when one would be prevented from doing otherwise.

Over the last week, there have been several large examples of both forms of demand for Bitcoin. Reading Microstrategy’s or Square’s memos for why they decided to invest in Bitcoin are all examples of investment-driven demand for the asset. In contrast, the heavy use of Bitcoin over the last few weeks in Nigeria to facilitate the funding of the #EndSARS movement, the anti-police brutality protests in Nigeria, is an example of fundamental demand. Here Bitcoin was an extremely useful way for tech-savvy supporters of the leading #EndSARS organization, the Feminist Coalition, in Nigeria, for the worldwide Nigerian diaspora alongside a variety of other communities in response to government-led restrictions of funding for such protests. The chart below shows the growth in the daily bitcoin balance received by the Feminist Coalition during the early days of the protests.

Advocates of Bitcoin often cite such examples of Bitcoin’s use as a censorship-resistant payment rail as it does represent its fundamental use case, but often news stories of investment demand often crowd out fundamental and oftentimes vital demand use. It’s crucial to understand, however, that the investment demand for Bitcoin is predicated on its continued use as a censorship-resistance form of money.

The fact that Bitcoin can be used to avoid unjust financial oppression during uncertain times or can help individuals avoid the worst of hyperinflation also helps build the value of Bitcoin as a long term alternative to Gold and a Store of Value 2.0. Given this fact, it’s important that resources and services are dedicated to understanding and developing the fundamental demand of Bitcoin where necessary if the asset is to continue to develop. The early signs are promising and we believe that Bitcoin will continue to excel as a Plan B for the global economy. The increasing adoption of its fundamental use cases as well as the strength of its investment demand in the face of a global pandemic are testaments to that fact.

Weekly Returns

The performance of the top five cryptoassets was as follows — BTC (9.65%), ETH (6.82%), XRP (2.08%), BCH (8.41%), and BNB (7.73%). The market was noticeably up across the board, driven by Bitcoin’s surge above $13K which marked the market’s recent turn to a bullish mood.

Media Coverage

Our 21Shares Bitcoin ETP (ABTC) is among the ETPs with the highest returns of the last 30 days, with returns of 6.8% — outperforming the spot market (based on the CCCAGG BTC/USD index by CryptoCompare) which experienced returns of 6.6% over the same time frame!! Learn more about ABTC here and read the full article here.

On October 21st, $5.3 million in trading volume across our ETPs led to over $1 million in shares creations, making it our best trading day since the inception of 21Shares — surpassing the latest all-time high of $4.4 million on August 3rd this year.

On October 23, our Research Associate, Lanre Ige was featured in Cointelegraph talking about the move from several corporations, such as Square and Microstrategy, to invest their treasuries into Bitcoin and how it could lead to others following their lead. . Read the full article here.

The same day, our other Research Associate, Eliézer Ndinga, appeared on Coin24, a French-language newspaper, where he gave his thesis on why financial institutions and corporations alike have been massively investing in Bitcoin. Read the full article here.

For those of you understanding French, our Managing Director, Laurent Kssis was interviewed by Emmanuel Garessus from the Swiss French-language daily newspaper, Le Temps where he gave his perspective behind the recent uptick in the price of Bitcoin. Read the full article here and below.

Cointelegraph and their Head of Research Demelza Hays featured our product suite in their latest report which recognizes the fact that 21Shares plays an important role in fostering institutional adoption for cryptoassets in Europe, specifically in Germany-speaking countries! This report is the result of a survey conducted across 55 asset allocators combining €719 billion including pensions, insurance companies, banks, family offices, and HNWI. You can read the full report here.

News - PayPal to Allow Cryptocurrency Buying, Selling, and Shopping on Its Network | Reuters

What Happened? Paypal, the leading online payments system, will offer to more than 300 million customers the option to purchase cryptoassets such as Bitcoin starting sometime in the first quarter of next year.

Why Does It Matter? With a current user base of 100 million crypto investors according to the findings of the University of Cambridge, adding potentially another 400 million from Paypal and co is an important milestone to move along the S-curve for cryptoassets. In fact, the investor base of cryptoassets only accounts for 2% of the Internet population, estimated at over 4 billion individuals, which shows that we are still in the early phase of Bitcoin’s technological maturity.

But the more exciting news about this is the fact that cryptoassets will be available on Venmo in Q1 next year. Acquired by Paypal in 2013, Venmo is among the most cherished social payment apps by over 60 million Americans and is used regularly for ordinary payments such as rent and groceries. This crypto integration into Venmo means market participants will have the possibility to invest and transfer Bitcoins to their entourage, which unequivocally fosters a sticky network effect and as a result, significantly boosts crypto adoption. As our Research Associate, Lanre Ige reported to CoinTelegraph, corporations are often trend-following and we can expect several other corporations to follow the lead of Square and Microstrategy, as the returns of the assets continue to impress.

In the wake of this health crisis, Eliézer Ndinga, co-leading our research team, predicted that Bitcoin will also increasingly attract financial institutions as a digital-native asset, scarce and uncorrelated with traditional financial assets over the long run. Since the start of the year, Bitcoin has returned over 80% and more than $10 billion in Bitcoin has been added to the balance sheet of publicly-traded corporations such as MicroStrategy and Square.

On October 22, Legendary hedge fund manager, Paul Tudor Jones stated on CNBC that he likes Bitcoin more than ever and described the cryptoasset as the ultimate inflation hedge and as an investment akin to the early days of Apple or Google. While JP Morgan, a longtime skeptic of Bitcoin published a research note indicating that Bitcoin will become a preferred store of wealth over gold for future investors, chiefly millennials, which will significantly increase the market value of Bitcoin.

Learn more here.