21Shares Research Newsletter - Issue 83

Market Outlook

It’s been a busy week at 21Shares. Over the last week our assets under management increased by 13% to pass the $170 million mark. At the same time, the equity market rallied after the Trump administration announced it would cooperate with President-elect Joe Biden’s transition team while Bitcoin has today hit above the $19,000 level, surpassing the market value of Mastercard and nearing one step closer to its previous all-time-high price of around $20,000 reached in December 2017. However, there are key differences between the last Bitcoin bull market and this one. This market has been driven by a rise in institutional adoption to the extent that legendary hedge fund manager Ray Dalio, historically a Bitcoin skeptic, has begun to wonder whether he’s missing something. In addition, last Friday Rick Rieder, the CIO of BlackRock, the world’s largest asset manager, publicly advocated for Bitcoin during a CNBC appearance.

We can use the Holder vs. Speculative index to help show that Bitcoin has established itself as a long-term investment since the wake of the global health crisis, as the graph below shows. The numbers of holders of Bitcoin has consistently been on an upwards trend since the lows of 2019, with the consequence that the asset has transformed into a long-term store of value. However, we believe that the formation of Bitcoin as a global store of value will also have a large impact on the success of the long tail of cryptoassets as capital inflows bid up the price of other assets, such as Ethereum, which fulfils other niches within the new decentralized finance paradigm.

Favourable market conditions, the growth in institutional interest in Bitcoin, as well as technological breakthroughs in the roadmap of Ethereum (including the maturation of its decentralized finance sector and the realization of the first stage of the Ethereum 2.0 roadmap) have been the key drivers behind the beginnings of new retail interest in the crypto asset market. The crucial difference this time being that the market is much more developed along all of its axes. For the first time, we have a range of suitable institutional vehicles, including ETPs and futures. In addition, the market has a number of real use cases encapsulated by Bitcoin’s role as a store of value and decentralized finance. These are strong reasons to believe that this new bull market will be larger than the last and more sustained.

Weekly Returns

The performance of the top five cryptoassets has been as follows this week — BTC (3.90%), ETH (25.80%), XRP (101.30%), BCH (25.84%), and LINK (15.14%).

Monthly ETP Returns

The performance of the 21Shares ETPs has been as follows this month — ABTC (35.6%), AETH (51.9%), ABCH (18.3%), AXRP (129.6%), ABNB (6.5%), AXTZ (34.8%), HODL (50.9%), ABBA (37.0%), KEYS (42.1%), SBTC (-29.9%).

Learn more about our products here.

Media Coverage

Last week, Yahoo News featured a major milestone we achieved at 21Shares by reaching $150 million in assets under management. As of today, our AUM has already surpassed the $170 million mark. Read the full article here.

Our CEO, Hany Rashwan appeared on the Swiss Road to Crypto podcast discussing crypto adoption around the world. Have a listen here.

The outstanding unit growth of the 21Shares Bitcoin ETP (ABTC) was featured in ByteTree’s newsletter. Their research predicted that increased inflows in institutional-grade products like our ETPs were driven by the fact that they represent safe and regulated structures to have exposure to cryptoassets. This is the case for the German market for 21Shares' ETPs, as mentioned in the recent article produced by Frankfurt School of Finance Professor, Philipp Sandner titled “Can Institutional Investors Purchase Bitcoin in Germany? And how?”.

Read the full article here.

Our Managing Director, Laurent Kssis, featured in Financial News where he gave his outlook on the recent surge in Bitcoin’s price and why the market is different this time from the bull market of 2017. Read the full article here.

“And this time round, the institutional investors are buying exchange-traded products as well as the underlying cryptocurrency. A bitcoin ETP managed by Swiss issuer 21Shares is receiving creations — the equivalent of inflows — of as much as $3 million a day. In November last year, it took all month to attract the same amount of new money. Investors in bitcoin ETPs are overwhelmingly institutions, rather than individuals. “This is purely us targeting institutional investors,” Laurent Kssis, managing director at 21Shares, told Financial News. “Our business is focused solely on institutional investors’ mandate to add crypto to their portfolio strategies and we have not really touched the retail market yet.”

News - Ethereum 2.0 Deposit Contract Secures Enough Funds to Launch | CoinDesk

What Happened? Ethereum, the second largest cryptoasset by market capitalization at over $68 billion, reached an important milestone today. By locking in funds, north of $392 million in Ether (ETH), into the required smart contract the transition to the next generation of Ethereum, dubbed ETH 2.0, can finally begin.

Why Does It Matter? Ether reached its highest value since late May 2018 of over $600 (+365% YTD) in anticipation of the soft launch of ETH 2.0 — Ethereum’s most ambitious upgrade. The move from Ethereum 1.0 to Ethereum 2.0 will be released in multiple phases, starting with Phase 0 rolling out next week on December 1st, as announced by the Ethereum Foundation.

Each phase will attempt to improve the performance, scalability, and the economic and environmental sustainability of the Ethereum network. Ethereum 2.0 is different from the current Ethereum network in two ways: Proof of Stake and Sharding.

• Proof of Stake: Ethereum runs on a consensus mechanism called Proof of Work (PoW) which uses computing power and electricity for miners to build and approve blocks on the blockchain. In contrast, Proof of Stake (PoS) is an upgrade which will improve scalability and sustainability. Instead of using physical mining which expends electricity, PoS users are stakers that deposit 32 Ether and then are chosen to process transactions and validate blocks in proportion to the size of their deposits. This can lead to scalability improvements and requires much less electricity. Phase 0 essentially runs a parallel blockchain, called Beacon chain for proof-of-stake mining efforts alongside the current proof-of-work-enabled Ethereum blockchain.
• Sharding: Sharding is a scalability effort that seeks to improve the ability of the Ethereum blockchain to handle a greater number of transactions. Sharding is a process through which the Ethereum blockchain is “split” into many different sub-nodes or sub-blockchains. This makes it easier for different blocks of transactions to be processed at the same time rather than sequentially. Ethereum 2.0 Sharding can be understood as a multilane approach for a blockchain as opposed to a single lane approach, as for Ethereum 1.0, Bitcoin, and others.

At 21Shares, we believe that Ethereum will continue to present one of the most lucrative investment opportunities over the next decade as it continues to act as a settlement and issuance layer for vast swathes of existing capital markets infrastructure.

Learn more here.