21Shares Research Newsletter - Issue 27

Market Outlook

The top five crypto assets have had a middling week following an extended period of noticeable volatility over the last month — BTC (0.26%), ETH (-3.58%), XRP (5.59%), BCH (0.91%), and LTC (-3.98%).

On-chain (adjusted) transaction volumes last week were down across the board from the week prior, with the exception of XRP whose transaction volumes were up by 24% — BTC ($1.51B), ETH ($213M), XRP ($111M), BCH ($82.5M), and LTC ($21.3M).

Research - BNB – An Investment Thesis

This research report will present 21Shares’s investment thesis for the BNB crypto asset. In this analysis, we begin with an overview of the crypto asset and its parent exchange before discussing the market opportunity of BNB. Next, we delve into the key value proposition of BNB and outline the crypto asset’s primary value drivers. Finally, we touch on the impact of various allocations of BNB on an institutional investor’s portfolio and highlight the asset’s main risks. Read the full report below on our research page.

Read the report here.

News - Circle to Spin Out Poloniex Less Than 2 Years After $400 Million Takeover | CoinDesk

What happened?

Crypto exchange Poloniex is spinning out from its parent firm Circle, the companies announced on Friday. According to a pair of blog posts, Poloniex will now become Polo Digital Assets, Ltd., an “independent international company” backed by an unnamed Asian investment firm. The trading platform will not serve U.S. customers after this year. U.S. residents have until Dec. 15, 2019 to withdraw their assets, with all trades being suspended on Nov. 1, 2019, the blog post said.

Poloniex said the company has “a multiyear plan to spend more than $100 [million] to develop and expand” its platform. As part of its offers, it will reduce trading fees to zero percent between Oct. 21 and Dec. 31, 2019. Circle co-founders Jeremy Allaire and Sean Neville wrote in their own announcement that the company plans to “double down” on its “efforts to build a more open, global and accessible financial system,” by growing its stablecoin market and building up SeedInvest, the crowdfunding platform it previously acquired.

Why does this matter?

In the last few months, there have been several stories of restructuring at Circle and the spinning out of Poloniex is perhaps the most consequential event thus far. Other noticeable moves in the last few months have included the closing of Circle's mobile app, Circle Pay, and the shuttering of Circle's research offering. It remains to be seen whether these restructuring moves will do much to help improve Circle's ostensible financial and operational issues.

It had been rumoured that Tron CEO Justin Sun was leading the consortium which had acquired Poloniex as reported by The Block. Sun, however, has recently denied the reports of his involvement in the Poloniex acquisition. Poloniex has drastically fallen from the height of its success during 2017 and has struggled as of late due to regulatory uncertainty around some of the crypto assets it had listed and competition from fast-moving exchanges like Binance. The chart below shows the total volume on Poloniex since 2014 according to data from Cryptocompare:

Learn more here.

News - CFTC Chairman: A Commodity Can Become a Security and Vice Versa | The Block

What happened?

The Commodity Futures Trading Commission (CFTC) chairman Heath Tarbert confirmed that a security can turn into a commodity and vice versa. Tarbert made this remark on Monday October 10 at DC Fintech Week, when asked about a comment he made earlier this month that Ether is not a commodity. At the conference, Tarbert emphasized that the Securities and Exchange Commission (SEC) is the entity that determines when something is a security, while the definition of commodities, which fall under the CFTC's jurisdiction, is broader.

Why does this matter?

We discussed in our newsletter three weeks ago that one implication of Block.one's settlement with the U.S. Securities and Exchange Commission (SEC) was that a token could potentially be considered as a security upon launch but then, over time, transform into a non-security such as a commodity. SEC Director William Hinman made a similar claim with regards to Ether in July 2018. It is important to place CFTC chairman Heath Tarbert's comments within the context of the possible launch of Ether futures in the not-to-distant future given that if Ether is considered a commodity it would be under the CFTC's purview.

The question remains how exactly a token and token sale contract, which previously may have been considered a security, can transform into a commodity. Crypto asset lawyer, Preston Byrne, wrote an excellent blog post on this topic, arguing that if Ether were launched through a token sale today it would be considered a security — his argument presents the possibility that the lenient regulatory approach taken by the SEC for Ether may act as a significant moat for the crypto asset.

Learn more here.

News - Fidelity Digital Assets’ Testing Opens to More Qualified Investors | CoinDesk

What happened?

Fidelity Digital Asset Services (FDAS) is “now engaged in a full rollout” of its custody and trading services, expanding from the limited trial users in the platform’s final test stage, according to a Financial Times interview. A spokesperson said Monday that FDAS’ license application with New York State is still pending while more clients are being added to test the platform. The business had initially been expected to be open in the first quarter of 2019. In an interview published on Friday with Fidelity Investments CEO Abigail Johnson, the FT said: “Fidelity started adding clients in the first quarter and is now engaged in a full rollout of its custody and trading services for digital assets — a boon to what is a fragmented and complicated industry", Ms. Johnson told the FT in a rare interview.

Why does it matter?

There have been constant rumblings of Fidelity's custodial offering over the last year in the industry and it is undoubtedly positive news that FDAS will now be carrying out the "full rollout" of their product. Alongside the launch of the Bakkt warehouse and growing popularity of other longstanding crypto asset custodial solutions, this is a sign of the increasing institutionalization of the industry.

Learn more here.