21Shares Research Newsletter - Issue 53

Market Outlook

The general consensus is that the market run-up in the last few days, where Bitcoin’s price has surged to around a $9,000 trading range, has been driven by positive market sentiment towards the prospect of the upcoming Bitcoin Halving on May 12, 2020.

As the chart above shows, Bitcoin’s Hashrate is up nearly 24% since the start of the year and this is despite the brief market downturn on March 12th. Current positive market sentiment is in response to the fact that Bitcoin’s hashrate continues to increase despite the Halving — which is a strong signal that miners are optimistic about their ability to mine profitably following the event. This could be for a number of reasons, such as large improvements in mining efficiency, high expectations of Bitcoin’s future price, or reduced marginal costs of mining due to cheaper electricity or other operating costs.

Markets will likely continue to be volatile throughout the next week due to speculation around the long term effects of the halving, but the fundamental data currently looks promising. The long-term impacts of the Halving may take months to hold on the market and the changes in the market that are felt in the coming weeks will be likely entirely driven by expectations of economic changes rather than tangible changes.

This week the crypto asset market continued its price rally with Bitcoin hitting over $9,000 on the first few days of May. It is likely the market will continue in its upwards stride up until at least the day of the Halving — BTC (14.31%), ETH (4.81%), XRP (0.98%), BCH (1.59%), and LTC (2.56%). Interestingly, Bitcoin outperformed the other major crypto assets noticeably — bucking the trend where other smaller assets tend to display volatility which is a multiple of Bitcoin's.

On-chain volumes were up by a large amount from an average of $2.17B per day to $2.99B — BTC ($2.34B), ETH ($379M), XRP ($178M), BCH ($68.9M), and LTC ($28.8M).

Webinar - State of Crypto Webinar | May 7 2020

Last Thursday, April 30th, we hosted another webinar session - breaking down the factors driving the market over the past week and gave a deep dive into the various valuation techniques applied to 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, Lanre Ige, answered the question many of you have asked: How to value Bitcoin? Watch the presentation here.

Join us next Thursday, May 7th at 3 PM CET — our team will hold its sixth webinar. This time, we’ll first provide you insights into the current state of the crypto market. In addition, we’ll present our primer on the factors influencing the price action of Bitcoin.

Sign up here.

News - How COVID-19 Is Impacting Startup Investing by Pension Funds, Hedge Funds, Wealth Funds, and Asset Managers | CBInsights

What Happened?

Equity deals and dollars from crossover investors such as hedge funds, pension funds and sovereign wealth funds, have significantly dropped from 2019 levels in the first quarter this year — reaching a year low with $28 billion invested across 552 deals. To put things in perspective, in Q4, 2019 — $40 billion was allocated to 737 startups, reflecting broader market uncertainty in the midst of the COVID-19 pandemic reports CBInsights.

Why Does It Matter?

Classified as high-risk investment profiles, venture and startup investments in general represent only a small portion of the portfolio of crossover investors such as mutual funds, pension funds and investment banks. Amid economic stress, asset and investment managers must rethink and model out their asset allocations, which oftentimes leads to riskier investments being kept as bay. For example, US hedged fund, Lone Pine Capital backed off startup investing this last quarter while it was an active investor in 2019.

As a new asset class and therefore considered risky investments, cryptoassets such as Bitcoin are not immune to such investment behaviors. The lingering uncertainty from this pandemic could potentially put on pause the adoption of cryptoassets from high-profile traditional financial institutions in the foreseeable future. Nonetheless, 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. Education of the fundamentals and benefits of cryptoassets along with improvements towards a smooth user experience will play a quintessential role to push the adoption forward.

Learn more here.

News - Antminer S9s Produce Around 23% of Bitcoin's Current Hash Rate | The Block

What Happened?

Less than the majority of Bitcoin’s miners rely on Bitmain’s Antminer S9s, Coinmetrics estimated that this mining rig version represented 23 percent of the current hash rate. While other miners anticipated the upcoming halving in the coming week by upgrading to more efficient mining rigs, a minority is still operating with their current supercomputers.

Why Does It Matter?

With the Bitcoin Halving on the horizon, many miners will have to make sure to remain competitive in the mining industry. It is important to note that miners have their incentives aligned to make sure the Bitcoin network is secure and that the Bitcoin price is trending upward or oscillates at a level to cover their operational costs such as rent, bills, and invest in updated and more efficient mining rigs.

There are two ways to keep mining in a competitive market with undoubtedly decreasing revenue in mid-May from $112,500‬ (12.5 BTC) to $56,250 (6.25 BTC).

Upgrade to more efficient mining rigs to get the chance to win the Block reward within 10 minutes. This option will require miners to either sell their less efficient mining rigs in the secondary market or get rid of them — and have a buffer to upgrade their mining rigs. If they do not have enough cash on hand, they will be forced to sell some of their earned BTC or buy these mining rigs with BTC. As a matter of fact, Antminer S19 Pro, the new mining rig launched by Bitmain is already sold out in the market.

In the past, whenever Bitmain launched a new version of mining rigs, we witnessed a surge in the Hash rate and eventually in Bitcoin’s price as miners likely stacked up more BTC at current price levels to sell at a profit to purchase efficient mining rigs.

The less efficient miners will be forced to join forces with mining pools to remain afloat. Last week, Binance launched a mining pool, Binance Pool, attracting in two days +36,000 miners. This indicates how prominent mining pools are becoming with the slash in half of the mining revenue.

Learn more here.