21Shares Research Newsletter – Issue 117
We are proud to announce our exclusive partnership with ComDirect, the most popular online financial portal in Germany. This synergy will unlock access to the crypto markets to nearly 3 million people, who can purchase our ETPs as part of their retirement plan, an option that was not available for any crypto products until now. This collaboration is undeniably in alignment with our mission of making crypto investing as easy as buying stocks. And most importantly, this is a testament to the growing recognition of cryptoassets in traditional finance.
This past week, the valuation of the entire crypto industry plummeted by 14%, reaching $1.2 trillion in total value, which is back to its levels in early February this year. Concurrently, the Bitcoin market kept its low trading range of $32K and $30K. As recently as yesterday, BTC broke below the $30K mark once again, trading at $29.9K on regulated venues as of writing.
As the crypto industry is relatively nascent, it is a salient attitude to keep a long-term perspective on the markets. Despite the recent price developments mainly due to the ban in China affecting the long tail of cryptoassets, Bitcoin is up 223% in the past 12 months. It’s important to note that the cryptoasset has traded in the negative territory relative to today’s price ($29.9K) for only 197 days combined or for a little over six months out of 12 years since inception. To put things in perspective, this represents only 4% out of more than 4,000 days. As such, this is another reason to remain positive, especially in these unprecedented times for the Chinese market. The ban has potentially evaporated hundreds of billions of dollars in trading volume coming from China. For the record, last year, the total bitcoin trading volume in China was ~198 billion.
Crypto markets, including bitcoin, are not spared from market cycles akin to the equity and commodity markets. There are crypto native metrics serving as a gauge to evaluate investor sentiment and hence market cycles based on traders’ P&L. The most relevant one is the Net Unrealized Profit and Loss (NUPL), which is the difference between unrealized profit and unrealized loss of bitcoin investors based on their initial cost of capital relative to today’s price. We covered this metric here in our report on how to value Bitcoin in the long run. Depending on whether we are in a bull market or a bear market, the NUPL ratio categorizes a market cycle and its most dominant emotions in 5 brackets as you can see at the bottom of this chart: 1) capitulation in red, 2) hope or fear in orange, 3) optimism or anxiety in yellow, 4) belief or denial in green and 5) euphoria or greed in blue.
As of writing, the NUPL ratio currently sits in the yellow zone at 0.37, meaning there’s more unrealized profit in the market than unrealized losses. However, since late May, we are in a market downturn resulting in substantially less speculation. The most representative emotion of this current market cycle is ‘anxiety’ as we could enter the orange or the fear zone, should the price of Bitcoin continue to nosedive going forward. In the near term, we anticipate the price of bitcoin to consolidate above the $30K mark in the absence of black swan events.
The long-term investment case for cryptoassets has not only remained intact but has also improved with world-first crypto integrations into traditional financial infrastructure. Our partnership with Comdirect is a good archetype of such a case. Similarly, Mastercard announced its intention to help crypto companies issue a card option in their offering to simplify the conversion process with fiat currencies anywhere Mastercard is accepted. Undeniably, these developments are steps forward in the adoption lifecycle of cryptoassets to broaden the outreach of crypto services. In the United States alone, Mastercard credit purchase volume was $837 billion at the end of December 2020. Therefore, the share of crypto-related volume in the Mastercard network (and other card issuers) will be a good proxy for B2B crypto adoption. At 21Shares, we anticipate the crypto pie to increase in tandem with the rise of digital payments, which have become dominant services since the wake of this health crisis.
On the institutional front, there is an overall positive sentiment. Investors continue to accumulate cryptoassets at discounted prices through our ETPs, with a total of $1.3 million in net inflows this past week. Outside Europe, the positivity is infectious as well. Today, Fidelity Digital Assets published their new survey composed of +1,000 institutional investors. The results are promising as 70% of surveyed institutional investors plan to allocate to crypto over the next five years. Despite the market downturn, long-term investors are willing to bet on the upside of the crypto industry as a portfolio diversifier. For instance, the investment case for Bitcoin as an emerging store of value is to exceed the market value of gold of ~$11 trillion. Indeed, Bitcoin is fundamentally a better asset than gold: scarcer, easier to store, faster to transfer, access, verify, and audit. Numbers speak for themselves. According to NYDIG, measured using 5-year holding periods, Bitcoin’s worst annualized return has been +28.8% so far, compared with -19.3% for US Equities and -16.1% for gold.
Note, this investment case does not include the incredible innovations atop Bitcoin. The Lightning Network and smart contracts are examples, and these functionalities could expand the potential value of Bitcoin by orders of magnitude. Smart contracts make Bitcoin more programmable akin to Ethereum, and Jack Dorsey, CEO of Twitter, is willing to tap into this opportunity. Last week, the entrepreneur announced the launch of a new startup purposely built as a developer platform for decentralized financial services using bitcoin as the main settlement layer.
The returns of the top six crypto assets over the last week were as follows — BTC (-5.38%), ETH (-6.05%), BNB (-8.61%), XRP (-9.58%), and ADA (-10.84%).
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%).
We started the week with our ComDirect partnership, bringing our ETPs to their savings accounts. Cointelegraph picked up on the story explaining that ComDirect’s nearly 3 million customers will now be able to integrate physically-backed crypto ETPs into their Spar savings accounts. This is the first time investors can gain crypto exposure in their savings accounts.
“Empowering people to choose how they allocate their investments for their retirement has led to such a project to materialise. This is very exciting for any investors who have been thinking about purchasing bitcoin but did not offer the proper investment tools to store them successfully in a savings plan. This partnership now makes it possible - another milestone in democratisation crypto investments.” — Marco Infuso, our Managing Director Business Development of the DACH. You can read the full press release here.
In other news, our Research Lead, Eliézer Ndinga, was featured on Börse München, talking about the “roller coaster of feelings” in the crypto market and how it’s now dominated by optimism. In this article (in German), Eliézer lists down the events creating a boom in the crypto economy, to mention a few: Tesla buying $1.5 billion worth of bitcoin, and JP Morgan launching an actively managed BTC product for their clients. These are also mentioned in our last newsletter. You can access it here.
Our Research Analyst, Karim Abdel Mawla, was also featured on Börse München. His analysis on the Binance crackdown was also published in German the other day, 19th of July, to explain how the moves undertook by the crypto exchange demonstrate its determination towards consolidating its compliance efforts and adapting to the changing regulatory landscape.
As Canadian ETF flows hit a new record in June, Geneva-based Sphere had a question for Sina Meier, our Head of Switzerland: What's next for ETPs like 21Shares’?
“What many may not know: In Europe it is NOT possible to set up a Bitcoin ETF for crypto assets, as a single asset fund is not allowed under the UCITS regulatory framework of the European Commission. In our opinion, institutional investors in Europe prefer the institutional structures that we can offer here in Switzerland.” — Sina Meier, 21Shares’ Managing Director and Head of Switzerland.
Since the Swiss ETP structure is not subject to the restrictions imposed by the diversification requirements for UCITS, it is ideally suited to provide investors with secure access to newly emerging and coveted asset classes. Meier further explained that the Swiss ETP structure that we use at 21Shares has many characteristics in common with a traditional ETF structure. It is 100% physically backed, segregated - that means extensive protection of the counterparty risk, approved EU sales prospectus and use of several ETF market makers for constant liquidity.
"We intend to offer our customers faster, more efficient and cheaper products and services thanks to modern technologies. Investing in cryptocurrencies should become as easy as buying stocks,” added Hany Rashwan, 21Share’s co-founder and CEO in the same interview conducted by Sphere, here’s a link for our French and German readers.
Make yourselves available on the 21st of July, at 4 PM (EET), Sina will be moderating a 1-hour panel discussion comparing the development of stablecoins between the US and Europe. The online panel is hosted by Frankfurt School Blockchain Center in partnership with DLT Talents (Women in Blockchain) and Mastercard. Speakers on the panel include Holly Jones, Director, Blockchain & Digital Currencies, Mastercard, Anca Bogdana Rusu, Partnerships, Policy and Advocacy, Celo, Jaye Harrill, Ecosystem builder, Quantstamp, Inc., and last but not least Dr. Nina-Luisa Siedler Partner, DWF. You can register through this link.
Bank of America Might Have Greenlit Bitcoin Futures Trading\
What happened?
Two anonymous sources revealed on July 16th that Bank of America, the second-largest bank in the U.S, has approved the trading of BTC futures for some clients. Trading futures requires a huge amount of margin, thus it is safe to deduce that the clientele referred to is composed of high net worth individuals and private wealth clients.
Acting on Wall Street’s latest push to capitalize on investors’ thirst for digital assets, Bloomberg reported that BofA built a full-fledged team dedicated to researching cryptocurrencies earlier this month. Ex-Morgan Stanley and Lehman Brothers Holdings Inc, Alkesh Shah will lead the team, which will also cover technologies tied to digital currencies. Shah will report to Michael Maras, who leads fixed-income, currencies, and commodities research globally.
Shah joined Bank of America in 2013 and had previously led BofA’s global technology specialist team. Mamta Jain and Andrew Moss will also join the lender’s research arm, reporting to Shah.
Why does it matter?
If true, this could be a big leap for Bitcoin and crypto in general, considering BofA’s conservative approach with cryptocurrencies in the past years. In March, one of its analysts noted that Bitcoin "has not been particularly compelling as an inflation hedge."
However, in just a few months, this tone slanted towards a more liberal note when Candace Browning, head of global research at BofA, said in a memo sent to Bloomberg that cryptocurrencies and digital assets constitute one of the fastest-growing emerging technology ecosystems. “We are uniquely positioned to provide thought leadership due to our strong industry research analysis, market-leading global payments platform and our blockchain expertise,” said Browning.
Although wary, this change of heart had spurred some confidence in cryptoassets, and especially Bitcoin which had sprung to almost touching the $32K mark when the news broke about BofA’s BTC futures trading. However, traders like Michaël van de Poppe saw the $29K coming and expected the coin to dip down even further to as little as $24K.
But this isn’t enough to drive investors away from crypto. In a new survey by personal finance comparison platform Finder.com, half of the respondents believe Bitcoin will surpass fiat money, or central bank-issued currencies, by 2040. A third of the crypto experts surveyed expect Bitcoin to become the most common form of money in developing countries within the next 10 years. Another 21% believe that we will see adoption in 10 years or more.
Nevertheless, this confirms our analysis in last week’s newsletter, when we credited the crypto boom to the increased institutional adoption of Bitcoin. In March, Morgan Stanley began offering Bitcoin funds to its clients. And Goldman Sachs quickly followed suit, adding to the potential pressure on BofA.
So far, BofA is still neither denying nor confirming the news on the BTC futures trading. If there’s anything confirmed about this news it’s the impact traditional financial institutions still have on crypto confidence. At 21Shares, we believe that while financial institutions hold a significant role in the maturity of the crypto-asset market, yet the fast-paced nature of this market is able to outrun any financial dinosaur.
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.
