21Shares Research Newsletter - Issue 35

Market Outlook

The entire crypto asset market experienced a sudden crash at the start of this week, potentially in response to Chainalysis' report about the PlusToken scam and its effect on the Bitcoin market — BTC (-6.24%), ETH (-10.18%), XRP (-8.31%), BCH (-5.99%), and LTC (-10.04%).

Adjusted transaction volumes had a small week-on-week fall from $1.79B to $1.66B for the weeks' averages, with total daily transaction volumes (for the top 5) hitting numbers below $1B over the weekend — BTC ($1.35B), ETH ($152M), XRP ($66.1M), BCH ($74.2M), and LTC ($14.5M).

Research - Tezos: An Investment Thesis

This research report will present 21Shares’s investment thesis for the Tezos (XTZ) crypto asset. In this analysis, we begin with an overview of the crypto asset before discussing the market opportunity of Tezos.

Next, we delve into the key value proposition of Tezos and outline the crypto asset’s primary value drivers. Finally, we touch on the impact of various allocations of Tezos on an institutional investor’s portfolio and highlight the asset’s main risks.

Click the link below to read the full report.

Podcast - A Thesis for Crypto in Africa

In this episode of the state of crypto brainstorm, the 21Shares team (Hany Rashwan, Hansen Wang, and Lanre Ige) came together to discuss the impact crypto and blockchain technology could have across the continent of Africa. The external guest this week was Yele Bademosi — Director and Ambassador of Africa at Binance Labs. It is important to note that it is impossible to develop a coherent thesis for the whole of Africa — the world's most diverse and multi-faceted continent — so instead this episode will mostly focus on Nigeria, where both Yele and Lanre are from.

In this episode, Yele and the 21Shares team discuss Yele's thesis for crypto in Africa, touch on the various problems that crypto can actually help solve, and analyze what the main impediments to crypto adoption in Africa are. Stayed tuned.

Binance Podcast — Blockchain Continent is Happening in Africa (w. Yele)

United Nations — Africa Could Be the Next Frontier for Cryptocurrency

Africa Digital Asset Framework — An Open-source Map to the Pan-African Blockchain Ecosystem

Cointelegraph — Crypto in Africa: Opportunities and Challenges, Explained

Dether — The State of Crypto in Nigeria

Listen on Megaphone, Spotify, or Apple Podcasts.

News - Chainalysis Report on PlusToken ‘Scammers’ Blamed for Monday’s Crypto Selloff | CoinDesk

What happened?

As bitcoin and ether prices fell below technically significant levels, some traders are citing fear emanating from a report about the alleged PlusToken Ponzi scheme as the reason for the plunge.

With little news to go on, the markets found at least one culprit: Chainalysis’ new report, published nearly four and a half hours earlier in the day, saying 20,000 BTC (now worth $137 million) and 790,000 ETH (now worth $102 million) remain likely controlled by PlusToken “scammers.”

Further, Chainalysis claims $185 million in stolen bitcoin have already been liquidated by individuals related to PlusToken. Six people tied to PlusToken were arrested and extradited to China from Vanuatu, where Beijing claimed the company operated a Ponzi scheme. Chainalysis said it was able to track down $2 billion in cryptocurrencies taken from victims, with a lot of that going to other “investors” – a hallmark of traditional pyramid schemes.

Why does this matter?

In previous weeks we have mentioned Chainalysis and their role as a data analytics and surveillance firm for blockchain data. As mentioned, PlusToken was an infamous scam that advertised itself as a crypto asset wallet which rewarded users with high rates of return if they purchased the wallet’s associated PLUS crypto asset tokens with Bitcoin or Ethereum. The scammers claimed those returns would be generated by “exchange profit, mining income, and referral benefits.”

Chainalysis used graph analysis to aid in their research into the provenance of the funds from the PlusToken scam as the chart below shows.

The Chainalysis analysis attempted to understand whether PlusToken's liquidations of its stolen funds were a driver of Bitcoin's volatility over the last few months. Their hypotheses were that: (1) they expect that any uptick in on-chain volume would be followed by an uptick in trade volume, as OTC traders receive Bitcoin from PlusToken wallets and subsequently exchange it for Tether; and (2) they expect Bitcoin’s price to fall soon after those upticks in on-chain and trade volume, as more Bitcoin is being unloaded onto the market.

By analysing both on-chain volumes from PlusToken-associated wallets to OTC brokers and BTC-USDT traders, as well as their relationships with Bitcoin's price, Chainalysis ascertained that the two variables are correlated to drops in Bitcoin's price — as the two charts show below.

Proving that this correlation is indicative of a causal relationship between PlusToken liquidations and drops in Bitcoin's price is a slightly more difficult task. On this point, the analysis is able to show that there is a slightly statistically significant relationship between PlusToken transfers to OTC brokers and Bitcoin price volatility between September 23 and 28.

The market drop over the last year is likely a response to worries about further liquidations by PlusToken; this seems like an understandable concern as, according to Chainalysis, around 790,000 ETH and 20,000 BTC of the stolen funds have yet to be liquidated.

Learn more here.

News - SEC Charges Shopin for Allegedly Defrauding Investors of $42M in An Unregistered ICO | The Block

What happened?

Cryptocurrency firm Shopin and its CEO Eran Eyal have been charged by the U.S. Securities and Exchange Commission (SEC) for allegedly defrauding hundreds of investors in a $42 million initial coin offering (ICO).

According to the allegation, Eyal and his company sold Shopin Tokens in an unregistered securities offering from August 2017 to April 2018, under the premise that the funds would be used to generate a blockchain-based database for shopper profiles. The problem, SEC’s complaint says, is that the platform was never created and Eyal has misappropriated over $500,000 of the funds for his personal use—rent, shopping, entertainment as well as a dating service. Furthermore, Eyal allegedly lied to investors about supposed partnerships with retailers.

Why does this matter?

This is yet another example of the SEC continuing its efforts to crackdown on the vast backlog of ICOs which could be deemed as unregistered securities offerings. Interestingly, Eyal had previously been charged by the New York Attorney General (NYAG) in August 2018 for defrauding $600,000 from investors through false representation of his previous company, Springleap.

Read more here.

News - Bitmain Rival’s Founder Arrested as War of Crypto Miners Heats up | Bloomberg

What happened?

A Chinese chip designer who helped Bitmain Technologies Ltd. become the world’s largest maker of Bitcoin mining rigs before starting his own company has been arrested, according to three people familiar with the matter.

Yang Zuoxing, a tech mastermind with Bitmain until June 2016, was detained by police in Shenzhen at the end of October in relation to a legal dispute with his former employer, said the people, who asked not to be identified discussing legal matters.

Prosecutors in the city’s Nanshan district said in a Dec. 12 statement that Yang was arrested recently on suspicion of embezzlement and that legal procedures were ongoing. The statement omitted the second of three Chinese characters that make up Yang’s full name, possibly to shield his identity. It didn’t mention Bitmain or MicroBT, the crypto-mining company Yang founded a month after quitting Bitmain.

Why does this matter?

While it may be difficult to find accurate information going forward into the exact details of Yang Zuoxing's arrest, this news does follow in the trend of a crackdown on various aspects of the crypto asset market in China.

The arrest comes as MicroBT has continued to stage an attempt to claw back market share of the mining industry from Bitmain — it is likely that Yang's arrest will greatly impede MicroBT's ability to make key strategic decisions in its competition with Bitmain.

Read more here.