Bitcoin’s Rise Amid Inflation: A Market Outlook

Market Outlook

Last year, the rise of the institutional adoption of Bitcoin started on the back of the prospects of inflation. A month after the kick-off of the first wave, legendary hedge fund manager, Paul Tudor Jones announced his investment in Bitcoin with cash-settled Bitcoin futures on the CME as a hedge against inflation in light of money printing or in other words quantitative easing (QE).

Fast-forward to a year later, lockdowns induced by COVID-19 outbreaks have led to supply-chain disruptions with factory closures and understaffed companies unable to timely unload trucks. Adding to the equation, the rebound in consumer spending as many countries like in Western Europe eased restrictions alongside geopolitical tensions between China and the US, have exacerbated the rise of asset prices, specifically commodity prices (see image below).

Many thought leaders in the crypto industry believe we are heading to a hyperinflationary environment. It’s worth noting that hyperinflation across countries and throughout history has one root cause: political crises triggering public distrust in institutions. The most recent example of a country suffering hyperinflation is Lebanon, caused by economic turmoil and corruption. Unlike what many may have alluded to, QE is not the root cause of hyperinflation. QE has, however, certainly driven up asset prices alongside low interest rates to boost the economy from the debris of COVID-19.

Given the fact that inflation is not transitory as mentioned by the Fed Chairman, risk-on assets such as cryptoassets are undoubtedly the outliers from a portfolio optimization perspective. However it’s important to note that, indices including companies in energy (.SPNY) and consumer discretionary (.SPLRCD) sectors are amongst the best performing sectors benefiting from another rise in oil prices to multi-year highs on tight supply.

The silver lining is that Bitcoin and the long-tail of cryptoassets have outperformed the S&P500 in the decade and will continue to do so as their performance decouples in the long run from traditional asset classes. Since January 1st 2021, Bitcoin is up 113.52%, Ethereum is up 462.93%, and the S&P 500 index is up 23.96%.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (-1.95%%), ETH (8.75%), BNB (-0.29%), XRP (0.32%), and ADA (1.64%).

Net Inflows per 21Shares ETP

The net inflows of our ETPs combining $59.25 million in the past week, were as follows: AADA (+$ 6,383,839.56), ABBA (+$ 268,457.66), ABCH (+$ 274,551.87), ABNB (+$ 1,835,474.07), ABTC(+$ 51,332,111.51), ADOT (+$ 1,043,505.66), AETH (-$ 7,373,982.88), ASOL (+$ 3,587,587.30), AXRP (+$ 329,023.03), HODL (+$ 4,548,931.08), KEYS (-$1,522,774.88), MOON (-$2,723,405.03), SBTC (+$1,273,785.96).

Media Coverage

As Bitcoin ETF issuers in the US race for SEC approvals, Bloomberg had a conversation with Ophelia Snyder, co-founder and president of 21Shares to talk about what this means for the industry.

“There’s a philosophical element to this, which is getting that accessibility out there and showing how well-established the space now actually is — and a cohort of well-structured, well-built products from established and respected managers is exactly what this space needs,” says Ophelia.

Our Q3 report that went out last week also got some attention by some of the leading media publications in Europe. Il Sole 24 Ore, a leading Italian financial newspaper, dedicated nearly a full page to feature our insights and analyses for the crypto market in the past three months. The Swiss Crypto Valley Journal also featured our Q3 report as well as the Austrian Trending Topics.

In other news, our Polkadot ETP just joined our four other ETPs to have reached the key milestone of $100 million in assets under management. You can read more about Polkadot in our primer here.

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News - Kazakhstan’s Crypto Miners Limited to 100 Megawatts Following Major Outages

What happened?

After three major coal-fired power stations suffered shutdowns on October 14, the Kazakh government decided to limit power supply to some consumers including Kazakhstan's crypto miners which account for 18% of global Bitcoin hashrate. Now, the country’s crypto mining industry is confined to a total of 100 megawatts in addition to a 1 MW limit on all newly authorized plants over two years, according to a draft that was signed at the beginning of this month.

Why does it matter?

Typically a mining rig with 3 GPUs needs at least 0.001 MW to work effectively, which - while limiting - isn’t so bad for independent Bitcoin miners. As it stands, the new limit imposed by Kazakhstan however might not be good news for mining facility operators like Enegix, which was ambitious last year to launch a 180 MW Bitcoin mining facility to host 50,000 rigs by September 2021.

Almaty, Kazakhstan’s largest city often fell into blackout due to frequent outages claimed to be due to the country’s thriving Bitcoin mining activity, placing it in the second rank after China’s crackdown in the past few months. With this new restriction there are two tracks of thought that comes to mind: the first thought goes to miners moving their rigs off-shore like we saw in China, and the second goes to renewable energy.

Kazakhstan’s crackdown is a big promotion for renewable assets and sustainable consumption of energy to secure the Bitcoin network and verify the financial activity. Kazakhstan is a very affluent country in terms of renewable energy, especially wind and small hydropower plants. With wind energy alone, Kazakhstan can generate 10 times the energy it needs. The Kazakh government has been exploring ways to tap into the country’s rich geothermal resources and has already launched 21 renewable energy facilities in 2019, however renewable energy accounts for just 0.6 percent of all power installations. In the coming months, as we may see mining rigs flocking from Kazakhstan to crypto-friendlier infrastructures, we might also see institutional efforts - be it governmental or private - to hack into renewable energy like we’re currently witnessing in El Salvador as covered in previous newsletters.