Crypto's K-Shaped Recovery: Ethereum Challengers Rise

Market Outlook

The crypto markets continue their K-shaped recovery since the market crash in May. Bitcoin and Ethereum are still trading 24% down from their peak, while a handful of cryptoassets within the top 15 by market capitalization, mainly Cardano (ADA), Solana (SOL), and Terra (LUNA), are in price discovery mode — breaking new highs. As of writing, over the past 30 days, Cardano spiked by 134.3%, while Solana and Luna returned 171.2% and 293.4%, respectively.

Cardano, Solana, and Terra have one thing in common; they are all competing against Ethereum. These blockchains are dubbed Layer 1 as they provide two main functionalities — settling on-chain financial activity and launching decentralized applications. The exception amongst them is Cardano, which does not yet offer developers an application functionality; however, this feature is on their roadmap launching on September 12th. In other words, these blockchains function both like FedWire and the Apple App Store or Google Play. The former is the real-time gross settlement system of central bank money used by Federal Reserve banks. The latter is a distribution platform for developers to launch applications and for users to download them.

They attempt to take some market share from Ethereum in these two quintessential verticals where Ethereum is ahead of the competition by orders of magnitude (see image below). At 21Shares, we believe this rise of Layer 1s outside Ethereum is predominantly driven and hyped by retail investors since institutional-grade investment products on these underlying assets are only available in our product suite, except for Luna, which no issuers offer at the moment. Additionally, the Solana and Cardano ETPs combined represent only ~5% of our assets under management, currently estimated at $1.79 billion. However, this might change soon with more institutional and corporate inflows. For example, Coinbase announced its intention to invest $500 million of its cash and cash equivalents in a plethora of cryptoassets, effectively making Coinbase, the public company (COIN), an index of these underlying assets.

At 21Shares, we’ll closely monitor what the future holds. There are laggards in the top 15, such as Polkadot and Cosmos; both are interoperability protocols of which the investment case has not fully resonated with investors. However, our research team believes the narrative will shift as Ethereum competitors continue to grow and the need for blockchain interoperability starts to surface — especially once Polkadot is fully functional with Parachains.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (10.9%), ETH (10%), BNB (24.47%), XRP (13.13%), and ADA (51.23%).

Net Inflows per 21Shares ETP

The net inflows of our ETPs combining $10.52 million in the past week, were as follows: AADA (+$ 6,429,828.22), ABBA (-$ 306,513.89), ABTC (-$2,104,370.47), ADOT (+$1,288,710.28), AETH (-$ 371,676.24), ASOL (+$5,117,627.79), AXLM(+$721,698.66 ), AXRP (-$2,049,393.90), AXTZ (+$855,185.79), HODL(+$339,096.04), SBTC (+$608,790.97).

Media Coverage

We’re thrilled to announce that 21Shares’ flagship biannually magazine, The State of Crypto, has finally seen the light and is ready to let you in on our team’s “Insights on Ethereum, the Future of Finance.” It will be up for grabs very soon, stay tuned! Here’s a sneak peek, though.

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Make yourselves available on the 30th of August for CV Summit, Zug, where our very own CEO Hany Rashwan is scheduled to give a keynote speech at the Digital Assets and Investors Circle - an annual event taking place at the heart of Switzerland’s crypto valley. Hany will discuss the establishment of fully regulated and compliant-ready digital asset ecosystems for financial institutional investors. You can book your tickets here.

News

Visa Makes Its First Swipe on NFTS

What happened?

Wanting to hop on that NFT (non-fungible tokens) bandwagon, financial services giant Visa announced yesterday that it has bought a CryptoPunk 7610, one of 3,840 female punks, for around $150,000 or less than 0.01% of their projected revenue in Q3 this year estimated at $5.97 billion. Launched in 2017 by Larva Labs, CryptoPunks are considered the original NFTs; a unique digital asset designed to represent ownership of a virtual item. They are a collection of 10,000-pixel art images of misfits and eccentrics. The transaction was facilitated by Anchorage Digital, a crypto custody bank and recently the first federally chartered digital asset bank holding crypto seized by the US Marshals.

From early paper credit cards to knuckle busters, Visa has maintained a habit of collecting several vintage pieces related to commerce. The decision to buy CryptoPunk 7610 was less about the punk itself and more about CryptoPunks in general, following the pattern of collecting historical artifacts.

Why does it matter?

Visa’s involvement in the embryonic NFT space is nothing short of impressive considering its position as the world’s avant-garde of payment processing networks. The move to purchase the CryptoPunk artifact can be considered as a stamp of recognition for the role that NFTs could serve in the future of commerce following in the footsteps of early paper credit cards and zip zap machines.

Beyond the historical sentiment of such an acquisition, Visa acknowledges the transformative power behind NFTs’ capacity to reforming industries such as entertainment, social media, retail, and commerce through its ability to give a facelift to fan engagement, refine customer relationship management and precipitate new potential streams of revenue. All of which is empowered on the back of blockchain’s technological ability to track the immutability of assets and data across varied ecosystems. Visa is cognizant of how the integration of NFTs can unravel even further use cases for certain niches like ticketing.

Now, in view of the firm’s role as a payment processing network, participating in the NFT market is an epoch-making moment as investing in collectibles is the first confirmative implementation of the technology that the global community can attest to, understand, and appreciate. That in addition to executing the transaction on the Ethereum blockchain through a regulated entity such as Anchorage signals a compliant process to which the wider public can safely get involved. Despite the lack of data on Visa’s interest in acquiring either Opensea or Anchorage, it still is a lucrative business opportunity for Visa to acquire the former as it facilitated a billion dollar of trading volume this month, so far. The ramifications of such a move can be cathartic, which is why we’ll be keeping a close eye at 21 shares to any related developments.