Nyheter
Binance and Coinbase Lawyer up for a Long Battle; Will the U.S. Reach Regulatory Clarity?
Markets are slowly recovering from the regulatory crackdown on Binance and Coinbase in the U.S. over the past few weeks. Bitcoin increased by 3%, while Ethereum fell by less than 0.5%. The performing settlement blockchains (Layer 1s) this week were Solana (+5.4%) and Binance Coin (+5%). As for the realm of scaling solutions (Layer 2s), Bitcoin’s scalability solution Stacks soared by almost 12%. In DeFi, MakerDAO, behind the largest decentralized stablecoin, DAI; came in as last week’s biggest winner, with a week-over-week performance of 12.4%. This jump can be attributed to the DAO’s consensus to increase DAI savings rate from 1% to 3.94%, as part of its broader roadmap which includes reshuffling the backing assets of its stablecoin.
Figure 1: 7-Day Price and TVL Developments of Cryptoassets in Major Sectors
Source: 21Shares, CoinGecko, DeFi Llama. Close data as of June 12, 2023.
5 Things to Remember in Markets this Week
• Quick recap on inflation from a macro-heavy week:
o Consumer prices in the U.S. rose by a 4% annual rate in May. The rate came out slightly better than expected, recording the lowest in two years. In return, the Federal Reserve had room to skip a rate hike this month; a stop to ten consecutive hikes since March 2022.
o Inflation in the Euro area rose by a 6.1% annual rate in May, down from 7% in April. The European Central Bank (ECB) raised the interest rates by 25 bps to the highest level in more than 20 years.
o ECB President Christine Lagarde reiterated that the interest hikes won’t pause until the central bank ensures inflation returns to the 2% medium-term target.
• Binance and the Securities Exchange Commission (SEC) reached a mutual agreement in regards to the SEC’s proposed asset freeze, which in essence would ensure that Binance.US assets stay in the US. This decision will stay in effect until a final judgment is made regarding the SEC’s lawsuit. With $2.2 billion of U.S. customer assets at stake, the U.S. arm of Binance was already taking risk-off precautionary measures by firing around 50 of its members since the SEC filed the temporary restraining order. This agreement is considered as a catch of breath for the exchange, which would have otherwise been put out of business in the country. Nonetheless, outflows amounted to $189M over the past week, over $65M of which happened on June 19.
Figure 2: Asset Flow on Binance U.S.
Source: Binance Proof of Reserves by 21shares on Dune Analytics
• The Uniswap Foundation released V4, an upgrade focused on improving the user experience and introducing advanced features reminiscent of trading on centralized exchanges. The core of this upgrade is ’hooks’, a new smart contract enabling developers to customize pools by integrating features like limit orders, dynamic fees, and auto-compounding LP rewards. Hooks is also expected to drive automated market maker (AMM) innovations, allowing execution of buy/sell orders over time to mitigate slippage and front-running risks like Time Weighted Average Price (TWAP). Additionally, V4 will introduce a unified smart contract for hosting all of the exchange’s pools, resulting in improved efficiency and reduced gas costs for users. With its dominance amongst decentralized exchanges, Uniswap’s refined user experience will accelerate the adoption of non-custodial platforms, competing with centralized platforms and providing a user intuitive environment.
Figure 3: Breakdown of the DEX Volume by Marketplace
Source: The Block
• Tether’s USDT, the dominant stablecoin by market capitalization, experienced a 0.3% deviation from its peg due to substantial pressure from short-sellers. Notably, USDT’s liquidity share on Curve, the largest stablecoin exchange in DeFi against USDC and DAI, surged from $79 million on June 13 to $285 million on June 15, representing over 70% a historical indicator of short selling. It became evident that the main driver behind this speculative activity was the revelation of Tether’s quarterly financials for 2021, received by CoinDesk from the New York Attorney General’s office. The newly released documents indicate that nearly 70% of the stablecoin reserves were previously allocated to risky Chinese securities. That said, Tether’s backing quality significantly improved as it shifted its investments to US treasuries over the past 18 months, which can be verified here. Tether’s strategic move led to net profitability, on the back of the high-interest regime, which they announced will utilize 15% of these profits to purchase Bitcoin moving forward.
Figure 4: USDT liquidity on Curve’s 3Pool
Source: 21shares on Dune
• Bitcoin’s Web3 on build-mode: Ordinals developers introduced a method coined as “recursive inscriptions” that would overcome Bitcoin’s 4 MB per block size limitation that restricts the size of NFTs. By reducing transaction fees and increasing efficiency, developers suggest it could unlock 3D video games inscribed on Bitcoin. Inscriptions on the Bitcoin network will no longer be floating in siloes, unaware of other inscriptions. As of June 10, the new feature allows inscriptions to reference the content of other inscriptions using a special syntax. The crypto gaming industry was valued at $4.83B in 2022. While returns may be sluggish due to the competitive and more established gaming scene on Ethereum, Bitcoin has an inherent first-mover advantage that could flippen its rival if the developers succeed at beating Ethereum’s poor user interface and high gas fees.
Figure 5: Daily Ordinals inscriptions increased over the past week
Source: Bitcoin Key Metrics, 21shares on Dune Analytics.
What You Should Pay Attention To
• BlackRock filed an application for a Bitcoin ETF with the SEC. BlackRock’s iShares Bitcoin Trust will leverage Coinbase Custody for holding the underlying digital assets, while using the Coinbase marketplace data to support the spot pricing. In addition, the asset manager will use Bank of New York Mellon to hold custody of the Trust’s cash holdings.
• Legal clarity pending in the U.S.: As lawsuits play out in the background, talks around regulating crypto continue to raise the issue of regulatory clarity for this emerging asset class. JP Morgan, with a considerable stake in Ethereum, suggested that Congress could either group ETH with BTC in the same commodity classification, or create a special category with requirements less burdensome than those of securities. Another comprehensive bill is scheduled for a House committee vote on July 11. All eyes are on Congress these coming few weeks.
• Eigenlayer, an Ethereum-based protocol focused on ETH re-staking, has successfully deployed the first stage of its mainnet. This new primitive extends the crypto-economic security of staked ETH to external applications, enabling the creation of a decentralized trust marketplace to secure additional protocols. Eigenlayer is expected to support various networks that require consensus agreement, like oracles, bridges, and appchains while offering ETH validators the freedom to selectively engage with protocols based on risk tolerance for higher staking rewards, which is of course aided with higher penalization costs. That said, it’s important to recognize the primitive’s impact as it introduces a new paradigm of benefits and risks for ETH stakers. For context before further exploration, users reached the maximum limit of 3,200 units for each of the supported liquid staking derivatives (stETH, rETH, and cbETH), resulting in a total deposit of $17M during the first 24 hours, as shown below. The protocol is also expected to also fully go live by the end of the year.
Figure 6: EigenLayer Deposits by Token
Source: 21shares on Dune
• Reutilizing the economic security reduces the marginal cost of capital by minimizing expenses associated with launching new networks, and enhances trust guarantees for startup protocols. Restaking may drive more demand for Ethereum instead of other tokens, which expands the addressable market for Ethereum as the oil to supercharge the Web 3 economy. However, restaking introduces additional risks, such as vulnerabilities from external protocols. Insufficient incentives can also lead to staker misbehavior or negligence, posing risks of penalties or fund loss due to the absence of in-protocol incentivization. Further, chain forks and disagreements between protocols can also disrupt ETH’s consensus. Therefore, while restaking can support the growth of embryonic protocols, it must be carefully implemented to avoid overloading the main Ethereum network’s consensus and breaking it in the process.
Next Week’s Calendar
These are the top 3 events we’re monitoring for next week.
• Federal Reserve Governor Jerome Powell testifies: Powell is due to testify twice this week about the Semi-Annual Monetary Policy Report;.clues may be dropped around the Fed’s future plans for the monetary policy.
• Purchasing Managers’ Index (PMI): A leading indicator of economic health, measuring the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. We closely monitor this indicator since it indirectly influences market sentiment for crypto
• Rollux Mainnet Launch: Rollux is an EVM-L2 scaling platform that promises to deliver speed, security, affordability, and scalability; the key components demanded by the blockchain industry for mass adoption. We are monitoring this launch for the promises SysLabs has made earlier this month.
Source: Forex Factory, CoinMarketCal
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
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.
Donald Trump’s return to the White House has forced European leaders to reconsider their defence capabilities. Trump’s administration has stated that it expects European countries to take on a greater role in their own security, as well as giving overt signals that it has less interest in the future of the continent’s security. In a worst-case scenario, there are growing fears about the US’ continued commitment to the NATO alliance. This article will outline the scale of the task ahead for Europe to prepare for a world where it can potentially no longer rely on the US for its security.
Europe alone?
First, it is worth noting that the prospect of a US pullout of NATO remains unlikely. While members of Trump’s cabinet have endorsed a withdrawal, the president himself has not. Key members of Trump’s cabinet such as Secretary of State Marco Rubio appear to remain strong believers in the alliance. Crucially, in 2023, the US Congress passed a law requiring a two-thirds majority vote before any President can withdraw from the alliance. Given the current makeup of Congress, such a vote passing seems unlikely.
However, European leaders are taking the risk seriously. Even if the worst-case scenario of a total US withdrawal from NATO does not come to pass, the prospect can no longer be discounted. At the same time, even if the US continues as a member, there is a growing expectation of Europe to develop its own defence capabilities. There is, therefore, a renewed sense among European leaders that they must develop credible security deterrence in the absence of the US.
What is needed?
A recent analysis by Bruegel and the Kiel Institute for the World Economy provides insights into the measures Europe would need to undertake to deter potential aggression from Russia in the absence of US support. [1]
First, soldiers. Currently, the US has around 100,000 troops stationed on the continent, with NATO military planners assuming an additional 200,000 would be rapidly dispatched to Europe in the event of conflict.
A theoretical absence of US support, therefore, means considering how Europe may replace these 300,000 soldiers. Europe, including the UK, currently has almost 1.5 million active-duty military personnel. In theory, this makes replacing the 300,000 US troops easy enough. However, as analysis by Bruegel notes: “The combat power of 300,000 US troops is substantially greater than the equivalent number of European troops distributed over 29 national armies.”
A crucial weakness of European troops will be fragmentation. A Europe without US support, therefore, is faced with two choices: replace the 300,000 with substantially more soldiers – to offset the fragmented weakness – or rapidly enhance cooperation.
The challenge is also stark when it comes to equipment. The Bruegel analysis claims that preventing a rapid Russian breakthrough in the Baltic states would, at a minimum, require “1,400 tanks, 2,000 infantry fighting vehicles and 700 artillery pieces (155mm howitzers and multiple rocket launchers)”. To put this into perspective, that is more firepower than the French, German, Italian, and British land forces combined. And that is just for providing a credible deterrence in the Baltic states.
European states will also have to invest substantially in developing their own transport, missile, drone, communications, and intelligence capabilities.
Historic underspend
Future-proofing European defence against a potential absence of US support, therefore, is a tremendous task. Achieving anything approaching what is needed to shore up the continent’s defence will cost tremendous sums.
This has been made harder by the underspending on defence among European NATO members over the past few decades. The euphoria of the post-Cold War era saw European governments slash their defence spending. Money that had previously been spent on military security could be reallocated to spending on social security.
With Russia’s first invasion of Ukraine in 2014, NATO took steps to reverse this, principally by setting a defence spending target of 2% of GDP for members. But very few NATO members actually reached this target. As late as 2021, just 6 members of NATO spent 2% or more on defence.
However, as the graph below shows, the number of NATO members hitting the 2% target has rapidly ramped up, with 23 members now hitting the 2% target.
Source: NATO, June 2024. Data excludes the U.S. For illustrative purposes only. Chart displays expected data.
Yet the historic underspending by Europe leaves a hole in European defence capabilities. Figures from Exante Data shows that the cumulative underspend since 2014, relative to the 2% targets, among European NATO members equals €850bn. [2]
The road to 5%
The task for both readying Europe for defence challenges in a world without US support, as well as addressing the historic underfunding of European defence, will require defence spending rising significantly above 2% of GDP.
Currently, European (and Canada) NATO members spend, on average, around 2% of GDP on defence. If NATO ex-USA members were to increase defence spending to 5% of GDP, what would this look like? If certain assumptions are made, we can map out the bullish and bearish scenarios for NATO defence spending.
In our bull case scenario, we assume NATO ex-US defence budgets to increase to 5% of GDP by 2029, while assuming equipment spending as % of total NATO budget growing by 1% per year. It also includes assumptions of GDP growth per year standing at 2%.
In this scenario, equipment expenditure would increase by $350billion, over half the total revenue generated by defence companies in 2023.
Meanwhile, in our bear case scenario, equipment expenditure still grows by almost $100billion over the period. This bear case scenario assumes NATO ex-US defence budgets grow to 3.5% by 2029, with equipment expenditure remaining steady as a percentage of defence spending (31.6%) and GDP growth of 1% per year. This would see additional equipment expenditure increase by $92billion.
Source: NATO, HANetf analysis. Charts display projected data. For illustrative purposes only. Additional sources available upon request.
The Future of Defence
While the complete withdrawal of the US from NATO is a hypothetical scenario, these estimates underscore the significant investments and structural changes Europe would need to implement to maintain a credible defence posture independently.
Future of Defence UCITS ETF (ASWC) seeks to provide exposure to the companies generating revenue from NATO and NATO+ ally defence and cyber defence spending. The “NATO screen” seeks to align with the values of investors who may have concerns about defence investing, but cannot ignore the current political climate, and therefore seek a smarter and more considered approach.
NATO is a defensive alliance and itself states that “deterrence and defence is one of its core tasks” – focusing on companies operating in NATO allied countries limits the possibility of constituents of the ETF being companies operating in countries that could one day be adversaries to the alliance.
Key Risks
• Thematic ETFs are exposed to a limited number of sectors and thus the investment will be concentrated and may experience high volatility.
• Investors’ capital is fully at risk and may not get back the amount originally invested.
• Exchange rates can have a positive or negative effect on returns.
• For a complete overview of all the risks, please refer to the “Risk Factors” in the Prospectus.
Handla ASWC ETF
HANetf Future of Defence UCITS ETF (ASWC ETF) är en europeisk börshandlad fond. Denna fond handlas på flera olika börser, till exempel Deutsche Boerse Xetra och London Stock Exchange. Av den anledningen förekommer olika kortnamn på samma börshandlade fond.
Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRO, Nordnet, SAVR och Avanza.
Krypto-ETN från 21Shares ger tillgång till både Bitcoin och Ethereum
WGRU ETF köper kvalitativa utdelningsaktier
A hypothetical U.S. withdrawal from NATO
FTGA ETF satsar på den globala flygindustrin och försvarssektorn
Virtune XRP ETP når1,1 miljarder kronor i förvaltat kapital
MONTDIV ETF är Sveriges första månadsutdelande ETF
Varför investera i indexfonder?
100 gånger pengarna, aktier som gör 10 000 kronor till 1 miljon
Montrose lanserar Sveriges första månadsutdelande ETF
BlackRock lanserar aktivt förvaltad Fixed Income UCITS ETF
-
Nyheter3 veckor sedanMONTDIV ETF är Sveriges första månadsutdelande ETF
-
Nyheter4 veckor sedanVarför investera i indexfonder?
-
Nyheter2 veckor sedan100 gånger pengarna, aktier som gör 10 000 kronor till 1 miljon
-
Nyheter3 veckor sedanMontrose lanserar Sveriges första månadsutdelande ETF
-
Nyheter3 veckor sedanBlackRock lanserar aktivt förvaltad Fixed Income UCITS ETF
-
Nyheter2 veckor sedanInvesterarnas intresse kraftigt förändrat under februari 2025
-
Nyheter4 veckor sedanSprotts Steve Schoffstall om kärnenergitrender, uranmarknaden och politiska effekter
-
Nyheter3 veckor sedanNATO-anpassade Future of Defense ETF når en miljard USD i AUM
