21Shares Research Newsletter - Issue 52

Market Outlook

With less than two weeks until the next Bitcoin Halving on May 13 — when Bitcoin’s block reward will halve from 12.5 BTC to 6.25 BTC — there’s some evidence that the market is optimistic about its long term impact on Bitcoin prices. Bitcoin has experienced a price surge in the run ups to both the 2012 and 2016 Halving; the chart below shows exactly this, we looked at the performance of Bitcoin in the periods starting 30 days prior to the previous Halving events.

Bitcoin's price following the 2012 Halving was 16% higher than 30 days prior and 12.97% higher than 30 days prior before the 2016 Halving. Currently, Bitcoin's price is 11.95% higher than the date 30 days prior to May 13 2020 which is significantly higher than where Bitcoin's price was in 2012 and 2016 — only 1.99% and 3.07% higher respectively.

There have been many arguments made as to why the Halving could affect Bitcoin prices over the long term. On a fundamental level, the most obvious and consequential change will be that miners will receive less Bitcoin per block they mine. As mentioned above, instead of receiving 12.5 BTC per block mined they will receive 6.25 BTC per block. In previous occasions, this has had little impact on the marginal miner’s bottom line due to Bitcoin’s substantial price appreciation over the last 10 years. The chart below shows how the US dollar value of Bitcoin’s block reward has changed over time through the previous two Halvings.

In general, the price of Bitcoin has generally appreciated enough in the months following the Halving that miners are compensated for their reduced income in USD terms immediately following the Halving — for example, the block reward in USD terms did in fact drop noticeably in the tail end of 2016 but then increased by around 40 times to its peak in late-2017.

Given this, it’s likely that the fundamental impact of the Halving will likely be felt up to 12 months after the event itself as miners may anticipate that there will eventually be the Bitcoin appreciation needed to maintain their previous bottom lines. In such a case, miners may be willing to operate in unfavourable conditions for a prolonged period of time due to long term positive expectations of future potential income based on historical precedent. In addition, generally low energy prices due to a drop in demand from Coronavirus-related lockdowns is likely to help protect their bottom lines.

The last week was one of the best in recent memory for the whole crypto asset market with every large-cap crypto noticeably up. This likely in part buoyed by positive sentiment towards the upcoming Bitcoin Halving on May 13 which will likely be a substantial driver of volatility in the coming days — BTC (13.2%), ETH (14.62%), XRP (7.36%), BCH (10.13%), and LTC (9.23%).

On-chain volumes were down from an average of $2.13B per day to $1.94B — BTC ($1.46B), ETH ($315M), XRP ($92.6M), BCH ($57.8M), and LTC ($19.9M).

Webinar - State of Crypto Webinar | April 23 2020

Last Thursday, April 23rd, we hosted our fourth webinar session — breaking down the factors driving the market over the past week and presented the findings of our new study on the factors that have hindered the mainstream adoption of Bitcoin.

In the first part, our senior associates Hansen Wang and Davide Vicini gave an update on the market along with a technical analysis of Bitcoin. Watch the presentation here. While, in the second part, our research associate, Eliézer Ndinga, covered the main factors that prevented Bitcoin from gaining mainstream adoption. Watch the presentation here.

Join us next Thursday, April 30th at 3 PM CET — our team will hold its fifth webinar. This time, we’ll first give an update on the crypto market. In addition, we’ll present our primer on how to value Bitcoin.

Sign up here.

News - Facebook Invests $5.7B in India's Reliance Jio Platforms | Techcrunch

What Happened?

Last week, Facebook became the largest minority shareholder (9.9%) of JIO Platforms, India’s largest telecom operator with a $5.7 billion investment at a pre-money valuation of $65.95 billion. Four years, after the ban of Facebook’s Free Basics by India’s telecom regulator, the Telecom Regulatory Authority of India (TRAI) — the firm has not given up on doubling down its presence in the region. And this financial investment, now the largest foreign direct investment in the technology sector in India, is a testament to Facebook’s commitment in India by tapping into JIO’s +300 million subscribers across its services.

Why Does It Matter?

It’s important to note that JIO platforms is a subsidiary of Reliance Industries owned by Mukesh Ambani, India’s richest man and a close ally of Indian Prime Minister, Narendra Modi. This being said, with the awaiting launch of the Libra later this year and Facebook’s panoply of services, the 21Shares team will closely follow what the future holds for Facebook’s ever-growing presence in the world and what the synergies will be for its upcoming payments platform. This investment would normally bring further antitrust scrutiny over Facebook but the fact that this move happened outside of America and due to political discourse currently being dominated by the Coronavirus pandemic.

Learn more here.

News - Binance Launches Crypto Mining Pool Amid Centralization Concerns | CoinTelegraph

What Happened?

Yesterday, the leading cryptoasset exchange, Binance shook up the entire community with the launch of a cross-platform mining pool service, called Binance Pool. In two days, the mining pool has already attracted more than 36,000 miners — large and small with a marketing tour de force that offers the service free of charge for the first month. Subsequently, Binance Pool will charge 2.5% — making it an especially attractive service in the mining market.

Why Does It Matter?

In light of the upcoming Bitcoin Halving that will most certainly reduce miners’ revenue — leading small miners to find alternatives with mining pools or close shops — there may be concerns over potential hashrate concentration caused by Binance’s new service. However, mining pools are not to be confused with mining farms. While the former enables anyone in the world with a mining rig to plug in and share profits, the latter is generally a single for-profit organization that owns or leases multiple mining-enabled computers. Mining pools by nature ensure a great decentralization than mining farms with a somewhat low barrier to entry for miners to generate revenue. Given this fact, Binance Pool entrance into the mining ecosystem is undoubtedly good for mining competition but does draw questions into the amount of economic power Binance has over the industry.

Learn more here.