21Shares Research Newsletter - Issue 33

Market Outlook

Following two difficult weeks for the crypto asset market's general performance, the last week was drastically more positive with the majority of the top crypto assets rebounding from their recent lows — BTC (2.51%), ETH (1.70%), XRP (0.13%), BCH (2.45%), and LTC (-0.28%).

Given the recently reduced market volatility, adjusted transaction volumes in total were down over the last week from the week prior ($2.59B to $2.30B) — BTC ($1.83B), ETH ($247M), XRP ($111M), BCH ($97.4M), and LTC ($21.3M).

Podcast - Passive vs. Active Investing

In this episode of 21Shares' State of Crypto podcast, the 21Shares team (Hany Rashwan, Ophelia Snyder, Laurent Kssis and Hansen Wang) got together to reinvigorate the age-old dilemma between active and passive investing - but instead of looking at traditional markets, we applied the same principles to the crypto markets. As crypto markets are open 24/7, 365 days a year, but yet lack the same quality of infrastructure as traditional financial markets, investing in crypto is much different than investing in stocks, bonds or commodities. Historically speaking, actively managed funds have had a hard time beating Bitcoin, the industry benchmark. But what are the reasons for this?

Tune in to find out.

Reading materials: Yossi Hasson — The passive investor's guide to crypto investing; Toroso Investments — The “ETF Rule,” Like Crypto, Blockchain and Active Management, Signals More Industry Innovation; Rayne Steinberg (Arca Investments) — Standing on the Shoulders of Giant – Active Management and Crypto; Howard Marks (Oaktree Capital) — Investing Without People (Passive Investing and ETFs).

This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: blockworksgroup.io.

You can listen to the episode on Spotify, Apple Podcasts, or Megaphone.

News - Crypto Exchange Upbit Confirms Theft of $49M in Ether | CoinDesk

What happened?

Upbit’s CEO said in a blog post at 9:00 UTC on Wednesday that an abnormal transaction from its wallets had resulted in the outflow of 342,000 ether (ETH) earlier today. The exchange said the loss will be covered by its own assets. Meanwhile, withdrawals and deposits have already been suspended as a precaution.

The firm estimated that it will take “at least two weeks" for services to be back to normal. According to transaction tracking site Whale Alert, the lost ether – worth $49 million at press time – was sent from Upbit’s wallet to an unknown Ethereum address starting with 0xa09871 about 04:00 UTC on Wednesday.

Why does this matter?

The Upbit hack is a reminder that crypto asset security is not necessarily a solved problem and, especially on less reputable exchanges, there will always remain significant counterparty risk for those who leave their assets with an exchange. Interestingly, this $49M hack is the seventh and largest major incident of its kind in 2019. The graph shows the largest crypto-related hacks of this year (Source: CoinDesk).

Learn more here.

News - U.S. Authorities Arrest Ethereum Research Scientist Virgil Griffith for Allegedly Assisting North Korea in Evading Sanctions | The Block

What happened?

The office of the U.S. Attorney for the Southern District of New York and the FBI announced today that it has arrested and charged Virgil Griffith for violating U.S. sanctions laws and traveling to North Korea to "deliver a presentation and technical advice on using cryptocurrency and blockchain technology to evade sanctions."

“As alleged, Virgil Griffith provided highly technical information to North Korea, knowing that this information could be used to help North Korea launder money and evade sanctions," U.S. Attorney Geoffrey S. Berman said in a statement. "In allegedly doing so, Griffith jeopardized the sanctions that both Congress and the president have enacted to place maximum pressure on North Korea’s dangerous regime."

Why does this matter?

This story highlights the point that it is likely that nation states will begin to use crypto assets — namely Bitcoin — to subvert and avoid sanctions; there have already been some rumours that Russia's Federal Security Service (FSB) holds a sum of crypto assets, for example.

As expected, the U.S. government is unlikely to show any leniency to a citizen who allegedly provided North Korea with information which could allow them to subvert U.S. sanctions; as Preston Byrne, a prominent crypto lawyer noted, "Griffith apparently posted about his visa application process and intent to travel to North Korea publicly on his Twitter account. Other members of the Ethereum community failed to challenge and, in some cases, encouraged Griffith to make the trip."

The case will be an important one to watch, especially given Griffith's close ties to the Ethereum Foundation. The news website Decrypt detailed some of the content covered during the conference that Griffith attended.

Learn more here.

News - Bakkt CEO Will Be Asked to Fill Georgia Senate Seat in 2020 | CoinDesk

What happened?

Crypto custodian Bakkt’s chief executive Kelly Loeffler has reportedly been picked by Governor Brian Kemp to serve in the U.S. Senate until the special election in November 2020. Loeffler will likely be asked this week to serve as the replacement of U.S. Senator Johnny Isakson, who has announced plans to vacate his senate seat on December 31, according to a report by The Atlanta Journal-Constitution, citing "several senior GOP officials."

Last re-elected in 2016, Isakson is set to leave office before the expiration of his term in 2022. Kemp has the authority to pick a replacement to fill in until the special election in November 2020.

Why does it matter?

This news is undoubtedly an unexpected turn given how key a role the Bakkt's CEO Kelly Loeffler has played in the firm's launch of their seminal physically-settled futures contract. While it could be argued that Loeffler would act as a key advocate for the crypto asset industry within the U.S. Senate until at least the special election, it is likely that such a move by Loeffler could present an operational roadblock for Bakkt — as they look for a replacement CEO in the run-up to several significant product launches.

Despite the news, Bakkt's volume for their futures contracts has continued to grow as we show in the graph below — Bakkt recently hit a new daily volume record of $37M on November 27 (Source: Skew).

Learn more here.