21Shares Research Newsletter – Issue 96

The most pressing question from investors within the Bitcoin and cryptoasset market over the last 24-hour period has been: what caused the recent downturn in markets? The chart below shows the performance of the five largest cryptoassets by market value and an index of DeFi tokens.

As we can see, the group's best-performing asset over the last 24-hour period, Bitcoin, has still declined more than 15% — with other assets such as BNB declining as much as 21% after its drastic run-up over the last few weeks. The cause behind this downturn and correction was not because of a change in the fundamentals of cryptoassets, but rather an inevitable correction given how overleveraged the market had become and issues with the market microstructure of crypto-native exchanges.

This correction was not driven simply by spot selling but rather due to the downwards pressure of initial sell orders being exacerbated by a cascade of liquidations from overleveraged traders — who often have access to up to 101x leverage on an asset class whose most mature asset, Bitcoin, still averages daily volatility of above 3%.

There was over $5B worth of long liquidations over the last two days as traders were margin called on derivative exchanges due to the crash. As a result of auto-deleveraging technology on crypto exchanges where identity-based recourse measures are complicated, margin calls and the subsequent sales of the traders’ positions can then, in fact, exacerbate market downturns — as was the case over the last two days. This situation had occurred on occasions before over the previous year, most noticeably on March 12, where Bitcoin’s price was nearly halved in response to liquidity and deleveraging issues on the then leading derivatives exchange, BitMEX. These days, however, exchanges such as Binance Futures have overtaken BitMEX as the leading derivatives exchanges in volume and open interest.

Such issues associated with leverage are likely to persist but decrease over time, as more institutional infrastructure enters the market which will lead to a clawback on the amount of leverage users can take and reduce the influence of current unregulated derivatives exchanges in the market — replacing them with institutional products such as 21Shares’ ETP suite and futures exchanges such as the CME. During such events, the limits of prominent exchanges, such as Coinbase and Kraken, which have often gone offline during periods of volatility, is brought to the forefront of the market.

While we know that, as the market continues to develop, issues caused by excessive leverage in the market will decrease. In the meantime, there are two key metrics that investors should keep an eye on to attempt to predict future events such as this: funding rates and open interest. We will be going into further detail about these two metrics and how to use them to judge the market cycle in our upcoming webinar with SwissQuote.

The massive decrease in market-wide open interest over the past two days indicates how much leverage has been flushed out of the system.

In the absence of large institutional spot buying, March will likely be a period of consolidation for Bitcoin as the crash reduces market confidence and its propensity to overleverage itself. Given the amount of spot buying that has occurred up until the $45K mark for Bitcoin, it is unlikely that this phenomenon in-of-itself will lead to a total capitulation.

In fact, the recent news of Bitfinex and Tether’s settlement with the New York Attorney General's (NYAG) office will remove the market’s largest potential black swan risk of legal action against the leading stablecoin and will likely lead to a reversion of some of the recent negative action.

The returns of the top five cryptoassets over the last week were as follows — BTC (9.79%), ETH (-0.53%), BNB (104.78%), DOT (25.11%), and ADA (24.58%).

The performance of our line of ETPs over the last 30 days is as follows: ABTC (39.9%), AETH (5.6%), ABCH (8.8%), AXRP (62%), ABNB (390.2%), AXTZ (5.1%), HODL (38.1%), ABBA (32.1%), KEYS (32.5%), SBTC (-36.7%), and ADOT (52.3%).

Learn more about our products here.

Please save the date, next week, on March 3rd, Swissquote will host an exclusive webinar session with the 21Shares team composed of our CEO, Hany Rashwan and our Research Associates, Eliézer Ndinga and Lanre Ige. Our team will delve into the topic of Bitcoin valuation in both the short and long run. Register here to attend; you don’t want to miss this episode.

Got any questions on crypto trends? Is bitcoin the new gold? Are institutional investors ready to get involved? Watch this insightful interview here from last Wednesday, hosted by ETF Stream, where our Head of Global ETP, Laurent Kssis, attended.

Last Thursday, our Head of Switzerland, Sina Meier, was a moderator on a panel about digital programmable money hosted by Frankfurt School Blockchain Center. Watch the full video here.

21Shares’ product suite featured in Flowbank’s market research titled “What are the main crypto asset-based products?”. Read the full article here.

Coindesk featured the unique traction of our Polkadot ETP among institutions such as JP Morgan, Goldman Sachs, and UBS. Read the full article here.

Have you got the chance to read our latest research note on how the looming Coinbase’s direct listing will trigger a repricing of Binance’s utility token, BNB? Read our piece here. You can also find more information on our Binance BNB ETP (ABNB) here.

What Happened?

We are proud to announce that we have reached over $1 billion in assets under management! We dedicate this post to thank every single member of the 21Shares team for their hard work, dedication, and commitment to our mission of simplifying the investing experience in the burgeoning crypto industry. We also want to express our gratitude to our partners and clients for trusting us as the go-to asset manager with the most expansive and innovative product suite in the market.

**Why Does It Matter?**

This important milestone can largely be attributed to two phenomena:

A rapid appreciation and acceptance from institutional investors of the cryptoasset industry. Since its lows of $5,000 in March 2020, Bitcoin has grown to, at its highs, a value of $55,000 in February 2021 — as it has become a trillion-dollar asset last week. To give examples of the increasing institutional interest in Bitcoin, the largest asset manager globally, BlackRock, has started to dabble in Bitcoin. At the same time, Jeffrey Gundlach, a long-time gold bull, admitted that Bitcoin might be a better trade than gold and coined the cryptoasset as the "Stimulus Asset".

Furthermore, Ethereum's network usage has increased from $950 million to over $43 billion over the same time period, with transaction fees representing over 50% of miners’ revenue on the network. The exorbitant growth in the sector with reference to both its fundamentals and its popularity has sparked demand globally from institutional investors in this niche asset class.

Our proven track record listing physically-backed ETPs gives retail and institutional investors safe, convenient, and easy access to cryptocurrencies via a familiar structure. Institutions in Europe and elsewhere prefer the institutional-grade structure of the Swiss ETP over certificates to gain exposure most efficiently and safely to Bitcoin and other cryptocurrencies. The Swiss ETP structure - first utilised by 21Shares AG via the HODL crypto basket ETP - shares many characteristics of traditional ETF structures such as an approved EU prospectus, listing on regulated European exchanges, open-ended using creations/redemptions to prevent premiums and discounts, full segregation and collateralisation of the underlying assets and utilising many ETF market makers for intraday liquidity. Since the UCITs diversification requirements do not constrain the Swiss ETP structure, it is ideal for giving investors safe access to more nascent and desired asset classes.

“We are extremely excited to have reached a critical milestone in such a short period of time. The growth in 21Shares ETP’s business is largely due to the incredible efforts of our team and the loyalty and trust of our investors,” said Ophelia Snyder, co-Founder and President of 21Shares.

Since our inception, we have launched a total of 12 different crypto asset trackers on all regulated exchanges in the D-A-CH region. The company is the only issuer that currently has an Ethereum ETP (AETH) on 2 regulated stock exchanges and 3 regulated exchange segments offering the bitcoin ETP. No other crypto issuer has such a comprehensive offering on regulated markets. As such, we own over 90% of the market share of crypto basket ETPs, and our latest product, the Polkadot ETP, has gathered over $25million in 15 days, demonstrating the immense popularity of the 21Shares suite of crypto ETPs.

We were also the first issuer to list the XRP ETP (AXRP), which is still listed and traded under normal market conditions under its current regulatory scrutiny. We also gained instant recognition for listing the world’s first short bitcoin ETP (SBTC), which is centrally cleared for added compliance support on the Frankfurt Stock exchange. Also, we are the only issuer to have 9 cryptoasset ETPs admitted to trading on the Stuttgart exchange.

“With such institutional demand wanting to gain exposure to crypto via an ISIN, it took us less than two weeks from announcing $500 million in AuM to now exceeding $1 billion. It is rapidly becoming judicious for many wealth managers, private banks, family offices and individuals to allocate to crypto assets. We expect to reach even greater heights in 2021 across both our AuM at 21Shares as well as across the crypto ecosystem.” commented Hany Rashwan, CEO of 21Shares.

Learn more 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.