21Shares Research Newsletter – Issue 104

The market-driving news of the week was Coinbase’s pivotal direct listing which saw the company initially go public at more than a $100B valuation — before settling at a valuation of around $65B as of today. Coinbase’s listing represents a large milestone in the increasing legitimacy of the cryptoasset industry as it forces traditional finance to pay more attention to the lucrative business models facilitated by Bitcoin and blockchain technology.

Given the direct listing mechanism used by Coinbase, where the company did not issue new shares but rather investors and employees were free to sell their own shares on the market (with no lockup), Coinbase (ticker: COIN) fared poorly on the listing date. It has since consolidated in the $330 range as investors come to terms with the fundamental value of the company.

Some of the largest initial providers of liquidity for Coinbase shares were leading investment funds in Coinbase such as Paradigm and USV, as well as Coinbase’s executive team.

There are three medium-term implications of the outcome of the direct listing: (1) the new wealth enjoyed by Coinbase employees and investors could potentially flow back into the crypto market; (2) the crash in the cryptoasset market following the listing shows that there was significant overleveraging by traders on the first day “Pop”; (3) Coinbase’s direct listing will likely be a forebearer of many other crypto-businesses going public.

Following the Coinbase direct listing, the wider crypto market experienced a deleveraging-driven downturn as the chart below shows.

The returns of the top five crypto assets over the last week were as follows — BTC (-12.05%), ETH (-5.63%), BNB (-8.38%), DOT (-19.02%), and ADA (-15.42%).

The performance of our line of ETPs over the last 30 days is as follows: ABTC (3.12%), AETH (20.43%), ABCH (68.39%), AXRP (125.94%), ABNB (85.65%), AXTZ (35.42%), HODL (-0.42%), ABBA (-0.1%), KEYS (2.42%), SBTC (-0.31%), and ADOT (-6.49%).

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Our Head of Southern Europe, Massimo Siano was interviewed by the journalist Raffaele Ricciardi of Repubblica to discuss the state of the institutional adoption of Bitcoin with Coinbase’s direct listing. Repubblica is the second most-read national daily newspaper in Italy. You can read the full article here.

ETF Express featured the outstanding performance of our Binance ETP (ABNB) in their latest article “Crypto ETP numbers keep astonishing with 21Shares’ Binance ETP returning over 1,000 per cent YTD”. Give it a read here. In the same vein, Borse Munchen featured our latest research note on the performance of ABNB, the world’s best performing ETP and ETF in March. Available to read here.

Crypto Briefing covered the prediction of our Senior Research Associate, Eliézer Ndinga on the future of stablecoins in China. You can read the full article here.

For the record, last Friday, April 16th, Binance completed the highest (in $USD) quarterly token burn in history: more than $595 million at that time by removing over 1 million BNB out of circulation.

What Happened?

On Sunday, April 18th, Li Bo, the deputy governor of China's central bank, mentioned Bitcoin as an investment alternative akin to gold. However, he delved into potential stringent regulatory actions on stablecoins if they were widely used for payments. In this case, stablecoin issuers would need to be regulated like banks to operate in China

Why Does It Matter?

China has taken a rather friendly tone towards Bitcoin with the deputy governor of their Central Bank indicating that Bitcoin is an investment alternative, akin to gold, rather than a threatening digital currency to their sovereignty. This positive stance on Bitcoin from Chinese officials, at this point, is no surprise. A few months ago, the Chinese State Media indicated that the rise of Bitcoin will cause downward pressure on Gold. The chart below testifies that this trend is happening. The total known ETF holdings of gold have been on a sharp decline since Q3 2020 while the Bitcoin-to-gold spot ratio has been on a tear due to the fact that Bitcoin has experienced unprecedented institutional adoption demonstrated by its price action.

For example, Larry Fink, CEO of BlackRock confessed to CNBC that Bitcoin will become a great asset class. Inflation concerns and climate risks take over the conversation between BlackRock and its clients such as sovereign wealth funds. As such, this is a testament to the fact that we are still in the early innings of the adoption of Bitcoin as an emerging store of value in the untapped market of wealth management accounting for almost $90 trillion in AUM. At the moment, Bitcoin is still in its price-discovery stage since the cryptoasset broke its previous all-time high of $19.9K.

Blockchain technology also enables instantaneous transfers of synthetic US dollars which are usually called stablecoins or cryptodollars. These are ideal for payments to circumvent the daily volatility of Bitcoin especially in the case of a market correction as previously discussed in the Market Outlook section. However, stablecoins could represent a potential threat to the Digital Yuan efforts, China's CBDC, given the fact that their adoption happens underground in China. If stablecoins reach a significant size in transaction volume, China could contemplate the idea of a ban in this decade.

While China seems to embrace Bitcoin as digital gold, their stance on stablecoins might turn out to be the opposite of the US. For example, Tesla, Time Magazine, and WeWork will accept a handful of cryptoassets as a form of payment for their respective services. Though bitcoin is not an ideal channel for day-to-day payments, the product-market fit lies in stablecoins such as USD Coin (USDC) in this scenario.

At 21Shares, we also anticipate a more friendly regulatory environment in the US rather than in China. For instance, Gary Gensler, who taught a crypto course at MIT, was sworn in last week as the SEC Chairman, while Brian Brooks, former head of the OCC has been appointed CEO of the US entity of Binance — the largest crypto exchange in the world.

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The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.