21Shares Research Newsletter – Issue 119
Bitcoin had a robust monthly performance in July, boosting the long tail of cryptoassets and driving billions of dollars in short liquidations. BTC rose by 18.52%, near the $35K mark, and as of July 31st closing towards $40K. While there is a sea of factors contributing to this performance some credit could go to an Amazon rumour that was promptly denied about the e-commerce giant accepting Bitcoin as a payment method. Nevertheless, Amazon is hiring digital currency and blockchain talents, so there’s more to it than just a rumour.
This past month was also a challenging period for Binance due to regulatory crackdowns by various jurisdictions — leading the exchange to phase down its derivatives offering in Europe.
Ethereum and its ecosystem are holding the fort. Over the past 7 days, ETH spiked by ~12% as of writing — clinging to the tails of Bitcoin and also most importantly benefiting from the backing of large institutional clients in H1 this year. Note, ETH and BTC correlation is around 67% since 2016.
At 21Shares, we believe the long-awaited Ethereum upgrade called EIP-1559 happening tomorrow will boost demand for ETH and will feed the narrative of ETH as a scarce commodity asset serving as a fuel for the Defi and NFT ecosystems. The NFT sector is fundamentally the growth catalyst on Ethereum, as DeFi was last summer, with weekly trading volume surpassing $300 million for the first time in history. NFTs this year show that innovation goes beyond art with e-gaming such as Axis Infinity — generating 17x or ~$200M more revenue than DeFi services in the last 30 days.
The network upgrade aims to make it easier for users of Ethereum to calculate the transaction fees they need to pay to interact with decentralized financial services and purchase NFTs with ETH. It does this by assigning a minimum fee that users pay and which is then permanently removed from Ethereum’s supply. This means that there will be deflationary pressure on Ethereum as demand increases, in the same way as many other heavily-coveted commodities such as oil function.
The returns of the top five crypto assets over the last week were as follows — BTC (0.45%), ETH (14.55%), BNB (5.72%), XRP (15.48%), and ADA (3.26%).
The net inflows of our ETPs combining $2.5 million in the past week, were as follows: AADA (+$ 929,231.86), ABCH (+$ 693,088.29), ABTC (-$2,717,530.51), ADOT (+$330,597.46), AETH (+$ 776,159.59), AXRP (+$ 994,820.98), SBTC (+$1,509,896.04).
On July 13th we announced our partnership with ComDirect, bringing our ETPs to their savings accounts. On July 30th, UK-based IBS Intelligence included it in its Top 5 European fin-tech partners for July. Established in 1991, IBS Intelligence is the leading global pure-play Financial Technology research, news analysis, and advisory firm. Listed with partnerships like Credit Suisse and KLARA, Banking Circle, and SIA, 21Shares was the only company included that deals with crypto assets. “In this innovative partnership, 21Shares was retained as the sole provider of physically-backed crypto ETPs to the online broker’s savings plan program,” the article said.
Crypto Industry Facing a Taxation Clampdown to Fund US Infrastructure Bill
What happened?
The Infrastructure Bill proposed by the US Senate — funding about a trillion dollars towards improvements of roads, bridges, and transportation systems, is expected to raise additional revenue via stringent crypto taxation enforcement. The bill, aiming to collect up to $28 billion over a decade through crypto as a pay-for towards fundings, is banking on expanding information reporting requirements on a contentiously sweeping definition of "brokers" applied to miners and non-custodial services. Even though the broker’s focus had been revised to remove the explicit reference of decentralized exchanges and peer-to-peer marketplaces from its exposition, the language still falls short in specifying who’d exactly fall under this scope. The bill still delineates that brokers are anyone “effectuating transfers of digital assets on behalf of another person”.
Why does it matter?
The contentious taxing provision is being met with an aggressive sense of urgency due to its adverse inclusion in a “must-pass proposal”. Accounting for the bill’s gravity being one of president Biden's major economic campaign projects, the rush to enact it has substantial repercussions on the crypto industry within the US. Even though it initiates the sorely needed process of offering regulatory clarity, it will castigate America’s role in embracing innovation and welcoming the swarms of miners migrating from China after its latest crackdown.
For the record, the total revenue of miners around the world accounts for $35M, as of writing. As Chinese miners represented north of 44% of the total market share — the Great Migration could bring a whopping $15M in revenue to the US. This is a drop in the ocean as the US government collected $3.42 trillion in revenue in 2020 but at 21Shares, we believe the upside of embracing crypto is significant beyond Bitcoin, such as Ethereum and its ecosystem trying to renovate the architecture of the Internet.
Failing to protect the exodus of miners and startups relocated to the US will leave an everlasting impact on the industry and surrender the country’s efforts in taming the technology for the nation’s interest. The devastation will also stretch to impair key players in the space such as POS validators, software developers, Lightning node operators as they’re all broadly involved in triggering transactions within crypto systems.
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.
