21Shares Research Newsletter – Issue 115
Last Friday, July 2, the Bitcoin network experienced the largest difficulty drop ever, falling by almost 28%. As a reminder, this difficulty adjustment refers to the ease of mining bitcoin expressed in computing power or hash rate. A decline in difficulty means that the mining competition has become arduous for miners to settle transactions in the required 10 minutes. Hence, the algorithm rebalances the difficulty roughly every 2 weeks to make mining a fair competition based upon the aforementioned protocol rule.
The market sentiment remained neutral to this price-in event, with a 7-day return of -0.7% for Bitcoin. The consequences of the crackdown are significant.
First, this tumultuous situation has led small-sized hydropower stations in Sichuan to sell their facilities as demand dried up. This pattern is a testament to the fact that Bitcoin mining in this region was incentivizing the use of renewable energy.
Second, as the Miner Outflow Multiple indicates (see the chart below), the selling pressure from miners has slowed down, and the metric has reached levels not seen since the previous bear market of 2019. Meaning, profitable miners have been hoarding the cryptoasset, since the market crash, presumably hoping for an upward trend in the future — making Bitcoin scarier from a distribution standpoint in the near term. To some extent, this explains the oscillating movements of the price of Bitcoin.
This shouldn’t come out as a surprise due to the incredible run of Bitcoin in the past 12 months, and miner revenue is in part a function of the value of bitcoin. Indeed, the difficulty is back to levels where the price of Bitcoin was ~$9K, and now the digital commodity is up by more than 300%. To put things in perspective, a year ago when Bitcoin traded below the $10K mark, the total miner revenue represented ~ $9M. Conversely, as of July 5, the total miner revenue is three times as much as the total revenue in 2020, accounting for more than $29M.
At 21Shares, we expect speculation on the spot and derivatives markets to stabilize for the foreseeable future, which will transpire into lower price swings except for the more esoteric and untested cryptoassets. Both spot and futures volumes dropped by more than 30% since the May 2021 sell-off.
Nonetheless, we believe Ethereum and its burgeoning ecosystem will be the growth catalyst for the rest of the year. Recently, Ethereum hit a two-week high in anticipation of an upcoming upgrade called EIP 1559 potentially going live on August 4, which will make Ethereum a scarce asset by reducing the circulating supply of Ethereum at every transaction.
The returns of the top six crypto assets over the last week were as follows — BTC (-5.62%), ETH (2.24%), BNB (2.23%), XRP (-6.44%), and ADA (2.93%).
The performance of our line of ETPs over the last 30 days is as follows: ABTC (-13.64%), AETH (-24.37%), ABCH (-32.38%), AXRP (-36.68%), ABNB (-32.48%), AXTZ (-26.40%), HODL (-26.12%), ABBA (-15.28%), KEYS (-17.89%), SBTC (3.39%), ADOT (-44.76%), AXLM (-37.68%), AADA (-26.12%).
Our Head of Southern Europe, Massimo Siano, was featured in La Stampa to discuss the listing of our latest ETP, ASOL, the world’s first Solana ETP. Find the article here. Also, Massimo was interviewed by Fondi & Sicav to give a deep dive into his thesis on bitcoin. Give it a read here.
Crypto Valley Journal (CVJ) featured our monthly review for June. You can read it here in German and here in English.
ETF Stream published a new piece called "Cryptocurrency explainer: Understanding the niche coins now in ETP format" wherein they mentioned some of our ETPs such as Cardano, XRP, and Polkadot. Have a read here.
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
