State of Crypto

Quarterly Report – Q4 2019

This report provides an in-depth overview of the state of crypto in the fourth quarter of 2019, from 1 October to 31 December — offering 21Shares’ own view on the industry, a recap of the most important news items of the quarter, a look at the key data points of the most important crypto assets, and an overview of our current products. In addition, we have included two of our research reports: our investment theses for both BNB and Tezos.

It almost goes without saying that the fourth quarter of this year has been a uniquely eventful one for the industry and we hope this report will help you understand it better.

Hany Rashwan, CEO of 21Shares

Among the dark times and sideways prices of the last quarter of 2019, crypto has seen some very positive beacons of light, including models to understand the industry that have undeniably worked and models that the future of the industry can be based on. This is what our quarterly report is focused on.

One theme or model that the 21Shares team has found especially interesting is that of exchanges. Crypto asset exchanges were considered as fringe players within the wider financial ecosystem but now the largest have consistently created innovative products whilst posting impressive margins. It’s one thing to dismiss exchanges like Coinbase and Binance as minor players, but such a view quickly becomes unconvincing once one takes a look at their growth and how quickly they’ve gone from initial launch to reaping billions of dollars in both revenue and in daily trading volumes. How far away are they from the NYSE? From SIX? From JPX? We’re not looking at random exchanges in San Francisco or Malta: if these exchanges are able to pull off their ambitious plans, we’re looking at the next NYSE.

On the other side, a lot of criticism has (rightfully in our opinion) been made about the impact of Bitcoin’s (and other crypto assets’) use of Proof of Work mining — as a way to ensure the economic security of their ledger — on the environment. The primary question from critics is whether the positive economic and social goods which can come from Proof of Work crypto assets outweigh the potential environmental harm.

This is something that the 21Shares team has discussed internally and in our State of Crypto podcast, and we believe that the use of Proof of Stake as a means to ensure the economic security of a crypto asset’s ledger can provide a viable alternative to Proof of Work, though it is still early days.

Platforms such as Tezos and Cosmos are the testing ground, before the most anticipated Proof of Stake blockchain platform — Ethereum 2.0 — launches in the coming years.

This is an exciting time in crypto, and the growth in exchanges and Proof of Stake crypto assets are two areas of the industry that make us feel particularly bullish. As such, this report contains our investment theses for BNB — the exchange token launched by Binance, the world’s largest exchange — and Tezos (XTZ) — a leading Proof of Stake crypto asset. In the last quarter we have successfully launched two ETPs for the aforementioned crypto assets: the 21Shares Tezos ETP (AXTZ) and the 21Shares Binance BNB ETP (ABNB).

In addition, this report summarizes the largest news stories of this quarter within the crypto asset industry. These three months have been dominated by news of various nation states’ growing interest in the industry — particularly China’s — and also the growth in the availability of crypto asset derivatives markets in both regulated and unregulated frameworks. Our intention is that this quarterly overview will help you better understand the last quarter of 2019 within the crypto asset industry so you can make better decisions as fellow market participants, product developers, and investors.

Best Regards,
Hany Rashwan, CEO of 21Shares

The following charts paint a good picture of the crypto asset market for both the final quarter of 2019, as well as the entire year.

Figure 1 shows that from the start of the year to the summer of 2019, the crypto asset market underwent a large resurgence from the depths of the bear market. The final quarter of the year was marked by noticeable volatility due to macroeconomic factors such as concerns over the influence of China on the industry.

Despite a great deal of volatility throughout the year, as Figure 2 shows, some of the top-performing crypto assets — all of which are included in our ETP suite — drastically outperformed the common market benchmarks such as SPY, TLT, or GLD with the exception of ETH over the last year.

The primary factors for these assets’ movements can be attributed to: renewed faith within the industry following the bear market, the growth in the crypto asset derivatives market, and product announcements from Facebook and the People’s Bank of China which will be key drivers of mainstream adoption, though there remains valid regulatory and ethical concerns over both digital currency projects. The success of both XTZ and BNB can be attributed to fundamental growth in both of their blockchains — through the success of Tezos’ first on-chain governance proposals and the launch of Binance Chain respectively.

Figure 3 and Figure 4 show two data points which are great examples of totally new growth areas within the industry that we expect to continue to be key drivers of growth in the coming year. Despite the vast amount of controversy surrounding Tether (USDT), Tether still remained the most popular stablecoin by both market capitalization and trading volume. However, the unexpected change was that the amount of USDT issued on Ethereum (USDT_ETH) became greater than that on the Omni Protocol (USDT) — signifying Ethereum’s increasing popularity as a platform for financial settlement. In addition, as Fig. 4 shows, the size of its Decentralized Finance (DeFi) ecosystem doubled over the last year. Whilst DeFi’s assets under management (AUM) are still dominated by the Maker/Dai credit facility, there was also noticeable growth in decentralized lending protocols like Compound. One trend we can expect to see in 2020 is a further explosion in DeFi AUM given the launch of multi-collateral Dai and the likelihood of a wider range of decentralized financial instruments entering the market.

Quarterly Updates

In an unexpected turn Mercado Pago, Visa, eBay, Stripe, PayPal, Booking Holdings, and Mastercard have all dropped out of the Facebook-related Libra Association. Despite this, the remaining 21 members of the Libra Association signed the inaugural charter. The initial board members are Calibra co-founder David Marcus, Andreessen Horowitz general partner Katie Haun, Xapo CEO Wences Cesares, PayU general counsel Patrick Ellis, and Kiva chief strategy officer Matthew Davie.

Bakkt, the subsidiary of the Intercontinental Exchange (ICE), went live in December 2019 with three new products — a custody product, Bitcoin options and Bitcoin cash-settled futures contracts (on ICE Futures Singapore). These product launches form part of a wider effort from Bakkt to expand the types of products they offer. Over the next year the firm is expected to expand their custodial offering and launch their consumer payments application in collaboration with Starbucks. On a sidenote, Bakkt’s CEO Kelly Loeffler also announced that she would be stepping down from her position in order to join the United States Senate on January 1st.

In November, the market was buoyed by news out of China about the Chinese government’s stance on Bitcoin, crypto asset exchanges, and blockchain technology. As part of the 18th collective study of the Political Bureau of the Central Committee for China’s Communist Party, President Xi Jinping was quoted as saying that the country needs to “seize the opportunity” afforded by blockchain technology.

Conversely, news also broke within the same month about an official notice signed by the Shanghai Internet Finance Rectification Agency and the Shanghai Bureau of the People’s Bank of China which ordered that regulators in each district in Shanghai must search and inspect local crypto-exchange related businesses.

There were several other significant developments. The Chinese financial news source Caijing reported in early December that the People’s Bank of China (PBOC) is expected to soon launch the tests of its digital yuan in Shenzhen and Suzhou. This represents the next step in the rollout of China’s digital currency project which we expect to make significant progress throughout 2020.

Crypto asset exchange Poloniex announced that it was spinning out of its parent company Circle into a brand new company, with the aim of spending $100 million to the develop its new exchange platform.

South Korean exchange Upbit was hacked for 342,000 ETH (worth around $50 million at the time). Following the hack, the exchange froze all deposits and withdrawals from its wallet but have said that it will cover all losses associated with the incident.

Finally, Switzerland’s central bank, the Swiss National Bank (SNB), and the Bank of International Settlements (BIS) are reportedly exploring a blockchain-based digital currency.


21Shares and Binance announced a partnership to launch the 21Shares BNB ETP (ABNB) on the regulated segment of the SIX Swiss Exchange.

21Shares and Bitcoin Suisse announced a partnership to launch the 21Shares Bitcoin Suisse BTC/ETH ETP (ABBA), the world’s first CHF-denominated crypto ETP.


21Shares launched the 21Shares Tezos ETP (AXTZ) on the regulated segment of the SIX Swiss Exchange. As a Proof-of-Stake-based crypto asset, AXTZ will offer staking rewards in partnership with Coinbase Custody.

21Shares announced that it had received an admission to trade seven crypto ETPs in Germany on Börse Stuttgart. In addition, 21Shares had received an admission to list six crypto ETPs on the BX Swiss Exchange.


21Shares and Sygnum, a leading digital asset bank, announced that they had launched the 21Shares Sygnum Platform Winners Index ETP (MOON). The ETP is a useful vehicle for gaining exposure to foundational blockchain protocols.

21Shares announced that Finansinspektionen, the Swedish Financial Supervisory Authority (SFSA), has approved our Base Prospectus. This approval clears the way for 21Shares to expand its current set of product offerings of digital asset ETP into the European Union.

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Key Quotes
Xi Jinping, President of the People’s Republic of China

"We must take the blockchain as an important breakthrough for independent innovation of core technologies."

Xi JinpingPresident of the People’s Republic of China

"When David Marcus [Facebook’s head of Libra] came to talk to us about Libra initially, he framed it in ways that were appealing to us about financial inclusion [...] As we learned more about [Libra] and saw the amount of things that were still left to do and the amount of things we still had to do on our own roadmap outside of Libra."

Daniel SchulmanPresident and CEO of PayPal

"For us, cryptocurrency is already a significant issue and we can project out pretty easily that it’s going to become a bigger and bigger one. Whether or not that is the subject of some kind of regulation as the response is harder for me to speak to."

Christopher WrayDirector of the Federal Bureau of Investigation

"Facebook already filters content — some people say with bias, some people say it’s great, they’re protecting my safe space [...] So do we want filtered speech or free speech? Do we want filtered transactions or freedom?"

Warren DavidsonUnited States Congressman

"There is no common infrastructure to move money around the world at a low cost that is available to everyone [...] If there was a stable low-volatility, scalable version of Bitcoin that we could use today, my life would be so much simpler."

David MarcusCo-founder of Libra, Facebook
Crypto Jargon

A Blockchain is an append-only, decentralized ledger that can be used to store data (such as transaction history) in a censorship-resistant way.

Crypto assets are digital assets whose global transaction history is stored on a blockchain. They include cryptocommodities (representation of digital resources), cryptocurrencies (alternatives to fiat), and cryptotokens (exchanged for digital goods and services).

A Crypto Exchange is a platform that enables the exchange of crypto assets for other crypto assets or fiat currencies.

A Digital Wallet is software that interacts with blockchains to facilitate the storage of crypto assets.

A Halving Event is when the number of new coins rewarded to miners per block is cut in half.

The Hash Rate is the combined number of computations (hashes) performed by all miners within a network per second.

A Token Sale, also known as an initial coin offering (ICO), is a fundraising mechanism for blockchain projects where tokens are generated and sold to investors.

Mining is a mechanism where individuals within a network solve computationally difficult proofs of work in order to confirm transactions and add new blocks to a blockchain.

On-chain refers to information and transactions that are executed and stored explicitly on a blockchain.

Proof of Stake (PoS) is a mechanism that selects block creators based on a participant’s stake, such as the number of tokens they hold or how long they have participated on the network.

A Proof of Work (PoW) is a piece of data which is difficult to produce but easy for others to verify and which satisfies certain requirements. They are often used in the consensus mechanisms of crypto asset networks.

A Smart Contract is digital code typically programmed onto a blockchain that enforces a previously-agreed-upon transaction based on preset conditions.

Stablecoins are crypto assets which aim to have similar volatility to widely-used fiat currencies like the US dollar.

Zero-Knowledge Proofs (ZKPs) enable an individual to provide proof to a verifier that a certain asset or information exists without revealing details about the asset or information itself.

Binance Coin (BNB) is a crypto asset issued by the crypto exchange Binance and is used to pay service fees on the exchange.

Bitcoin (BTC) was created in 2009 and is the first and most popular crypto asset.

Bitcoin Cash (BCH) is a fork of Bitcoin and aims to be a medium for payments.

Ether (ETH) is the native crypto asset of the Ethereum blockchain and is used to pay for transaction and smart contracts fees on the network.

EOS (EOS) is the EOS.IO network token used to build and run decentralized applications on the network.

Litecoin (LTC) is a fork of Bitcoin with a focus on offering faster and cheaper transactions.

Ripple (XRP) is a token issued on the Ripple network that focuses on facilitating the transfer of fiat currencies via the network.

Tether (USDT) is a stablecoin pegged to the US dollar created by iFinex Ltd.

Tezos (XTZ) is a token issued by the Tezos network and is used to vote on Tezos governance decisions and pay for transaction and smart contract fees.

Zcash (ZEC) is fork of Bitcoin with an increased focus on privacy through the use of zero-knowledge proofs.


The material contained on this website is for informational purposes only and 21Shares AG, and its affiliates, is not soliciting any action based upon such material. The material is not to be construed as an offer or a recommendation to buy or sell a security nor is it to be construed as investment advice. Additionally, the material accessible through this website does not constitute a representation that the investments described herein are suitable or appropriate for any person. Past performance is not an indication of any future performance. For the complete terms and condition, as well as the privacy policy, please see English version. In case of discrepancy, the English version shall prevail.


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