11th December, 2020
Market Overview:
After several months of consistent growth, the market contracted slightly this week, with Bitcoin unable to hold last week’s all time high.
- Bitcoin spent the early part of the week oscillating in the $18,800 to $19,200 range, before sell-offs on Tuesday and Wednesday took the price to a low of $17,925.
- The initial dip below $18,000 was short-lived, with dip buyers pushing the price back past $18,500, but Bitcoin has now fallen to approximately $17,880.
- Ethereum saw a weekly decline mirroring Bitcoin, falling as low as $538 on Wednesday’s dip before recovering over $575. Ether has now fallen back to approximately $545.
- The overall cryptocurrency market cap declined, falling to $529bn.
- DeFi also saw some volatility, driven by the decline in Ethereum’s value over the course of the week. The sector did hit a new ATH in Total Value Locked on Tuesday at $14.9bn, before pulling back in line with the broader market.
Negative performance crept into the market for the first time in months, as the highs of previous weeks couldn’t be sustained. Successive sell-offs led to a market-wide decline, in a long-awaited consolidation.
News:
What happened: China expands digital currency trial
How is this significant?:
- China is the largest economy in the world, according to the IMF’s October 2020 World Economic Outlook. Chinese fiscal practices have the potential to influence economic policies internationally.
- China’s CBDC trial is credited as one of the most advanced so far, with the eCNY designed to replace cash in circulation, with plans to expand into 28 cities beyond the current three of Shenzhen, Chengdu, and Suzhou.
- At the start of November, the trial had already seen more than 4m transactions, with a total value of over 2bn Yuan.
- China’s Digital Currency Research Institute announced on Tuesday the participation of UnionPay (China’s answer to Visa) in the trial, helping accelerate adoption even further.
- Suzhou builds on a previous trial held in Shenzhen earlier this year, with citizens participating in a lottery of 100,000 digital red packets each worth 200 Yuan ($31).
- Metrics of the trial have doubled compared to the previous deployment in Shenzhen; participants have two weeks to spend their money, 20m digital Yuan distributed, and over 10,000 shops participating.
- Lottery winners in Suzhou can also spend their eCNY at JD.com, one of China’s largest online retailers, offering many more opportunities to test the eCNY’s feasibility
- China’s 4 largest state-owned banks have all developed their own mobile and hardware wallets to enable participation in the trial.
What happened: Microstrategy plans up to $400m additional investment in Bitcoin
How is this significant?:
- Microstrategy has been at the forefront of institutional Bitcoin adoption, and the company announced that it plans to raise up to $400m in a convertible senior note offering. Only qualified institutional investors will be able to purchase the notes, which mature in 5 years.
- In a press release, Microstrategy confirmed that its intent in this raise is to “invest the net proceeds from the sale in Bitcoin in accordance with its Treasury Reserve policy”, adding to the 40,000 BTC it has already purchased.
- During a live stream hosted by Binance, Microstrategy CEO Michael Saylor explained that the liquidity crisis caused by COVID-19 had opened his eyes to Bitcoin’s characteristics and merits, identifying March 2020 as a “turning point” for his company.
What happened: G7 puts cryptocurrency regulation on the agenda
How is this significant?
- The G7 nations are economically and collectively influential in matters of the global economy; if they agree on frameworks for the acceptance of cryptocurrency, it opens the doors to institutionalisation and further adoption.
- After US Treasury Secretary Steven Mnuchin chaired a meeting of G7 members on monday, the US Treasury stated: “There is strong support across the G7 on the need to regulate digital currencies. Ministers and Governors reiterated support for the G7 joint statement on digital payments issued in October”.
- Mnuchin tweeted that the call was productive, discussing cryptocurrencies alongside wider global issues such as COVID response and recovery strategies.
What happened: DeFi ecosystem reaches 1 million participants
How is this significant?:
- DeFi protocols have been a popular application of cryptocurrency this year, driving the growth of the overall cryptocurrency market cap (and Ethereum in particular).
- A report from Ethereum analytics firm Dune Analytics revealed that over 1 million Ethereum addresses have now interacted with the Defi ecosystem; more than a tenfold increase since a year ago.
- Although there’s a caveat that individuals can interact with DeFi using more than one wallet address, this nonetheless represents a large increase in adoption, even before Ethereum’s network upgrade allowing a greater volume of transactions.
What happened: Wells Fargo includes cryptocurrency in briefing, announces plans to increase crypto focus in 2021
How is this significant?:
- Wells Fargo is the fourth largest bank in the world by market capitalisation, and fourth largest in the US by total assets. If the bank integrates support for cryptocurrencies, it has the potential to widen to them access considerably.
- On Monday, the Wells Fargo Investment Institute published a seven-page report, including a page dedicated to cryptocurrencies, noting that they will be increasing their focus on crypto going forwards; “Cryptocurrency investing is a bit like living in the early days of the 1850s gold rush… As we roll into 2021, we’ll be discussing the digital-asset space more – its upside and downside”. The bank stopped short of recommending its customers purchase Bitcoin.
- Included in the report was a chart overlaying the index performance of Bitcoin, gold, and the S&P 500, with Bitcoin accelerating into a lead in 2020, after a couple years of closer correlation.
What happened: New research by deVere finds Millennials twice as likely to invest in Bitcoin than in gold
How is this significant?:
- Millennials represent the largest portion of the labour force, and as they progress further in their careers, their investment potential is likely to increase.
- 2/3rds of Millennials prefer Bitcoin to gold, believing it performs better than the precious metal as a safe haven asset.
- According to deVere Group CEO and founder Nigel Green, future conditions should benefit Bitcoin over gold; “As the world continues to shift towards tech and as millennials become a more dominant part of the world economy, we should expect Bitcoin to also take an increasingly influential role in financial markets, especially in regard to being a ‘recession-proof’ asset”.
What happened: Grayscale releases annual Bitcoin survey; findings reveal increasing investor enthusiasm for digital assets
How is this significant?:
- Grayscale has a significant position in the global Bitcoin investment space, holding over 500,000 BTC, and ran a national TV campaign in the United States earlier this year.
- In their annual Bitcoin Investor Study, they found that 62% of US respondents deemed themselves familiar with Bitcoin, up from 52% last year.
- The average investor profile didn’t deviate much from last year’s survey, with most Bitcoin investors holding it as part of a diversified portfolio; an interesting point to note is that the more educated the respondents, the more likely they were to invest in Bitcoin.
- A majority of respondents (6 in 10) now believe that digital assets fit into their investment portfolio.
What happened: Several institutional crypto investment solutions launch in Singapore
How is this significant?:
- Following on from reports in October that DBS is planning to launch a Digital Assets Exchange, moves from Standard Chartered, SBI, and the Monetary Authority of Singapore this week all strengthened Singapore’s position as a blockchain hub.
- A Singaporean source says Standard Chartered are poised to open up crypto purchases for institutional investors, running on Ethereum with settlement via an ERC-20 token.
- On Tuesday, SBI Holdings and Switzerland’s SIX digital exchange announced plans to offer digital assets to institutional investors, pending regulatory approval—although they only plan to launch in 2022.
- Perhaps most significantly, the Monetary Authority of Singapore announced the 5th and final phase of their Project Ubin CBDC project was a success, concluding with a collaboration between JP Morgan, DBS, and Temasek and an initial focus on multi-currency payments, representing a desire to support both central and commercial banks.