Cryptocurrency Monthly Report | December

Cryptocurrency Monthly Report: Key Takeaways

• Inflation no longer 'transitory', Fed admits
• Blockchain Brain Gain: Largest VC fund in history, Dorsey quits Twitter
• Regulations advance on multiple fronts

Macro Outlook

Inflation no longer 'transitory'

Jerome Powell wins a second four-year term as US Federal Reserve Chairman. He surprises no-one when he admits to the Senate Banking Committee on 30 November it is “time to retire” the word ‘transitory’ when it comes to describing inflation. Instead, he says “the risk of higher inflation has increased”. [1] Recent CPI prints show US inflation at 6.2%, a 31-year high. [2] Bitcoin rises to a record $69,000 in the wake of the announcement. [3]

Eurozone inflation climbs to a record 4.9% in November, [4] the highest since the Euro single currency was created more than two decades ago. The UK sees five-year inflation forwards – a measure of medium-term inflation expectations -- reach 4.03%; again, the highest since records began. [5]

Provably scarce, deflationary digital assets like Bitcoin and Ethereum remain attractive in such an environment. [6]

Blockchain Brain Gain

$10bn net worth Jack Dorsey, [7] a noted cryptocurrency evangelist, quits as Twitter CEO8 but remains CEO at his second company Square, [8] with the implication that his future focus is on bitcoin. 24 hours later, the digital payments company changes its name to Block to mark a strategic refocus on blockchain. [9] Square Crypto, an internal team, offers grants to support Bitcoin Core developers. [10]

Facebook’s recent name switch to Meta speaks to the same suggestion: that the world’s largest tech innovators are desperate to carve out a slice of crypto and metaverse markets over the next decade.

The largest crypto VC fund in history launches in November. [11] Paradigm, led by Coinbase co-founder Fred Ehrsam and ex-Sequoia Captial partner Matt Huang, put together a $2.5bn fund. This outstrips Andreessen Horowitz’s $2.2bn ‘Crypto Fund III’ which debuted in July. [12]

Beneficiaries are expected to include blockchain startups exploring new markets in play-to-earn gaming, NFTs and DeFi. Notable Paradigm investments include non-bank lender BlockFi, derivatives exchange FTX, $13bn13 DeFi platform Uniswap, and Axie Infinity creator Sky Mavis. [13]

Regulations advance on multiple fronts

The European Council votes to advance two key pieces of crypto-related legislation: DORA (Digital Operational Resilience Act) and MiCA (Regulation in Markets on Crypto Assets). [14]

DORA focuses on ensuring businesses can withstand cybersecurity threats, while MiCA is a package of bloc-wide regulations offering definitions for key terms, including “cryptoassets” and “distributed ledger technology”. Many cryptoassets fall outside the scope of existing financial regulations, including MiFID II and EMD2. MiCA is intended to close these regulatory gaps and bring cryptoassets inside a single framework.

On 22 November the European Central Bank approves PISA, a new oversight framework for electronic payments, which includes merchant acceptance of stablecoins and other cryptoassets within card payment schemes, and the option to send, receive or pay with cryptoassets through digital wallets. [15] The bank says the policy was released with new EU regulations on stablecoins and cryptoassets in mind. [16]

Completing a two-year study, the UK Law Commission says blockchain-based smart contracts are legal and valid, and crucially, can be folded into existing regulations without the need for statutory law reform. [17]

Global anti-money laundering agency the Financial Action Task Force (FATF) releases its 12-month update on cryptoassets, [18] offering guidance that the industry should be brought in line with existing banking regulations. [19] Since 2018 the FATF has published guidance to define “virtual asset service providers” (VASPs) and recommended countries implement the ‘Travel Rule’ for crypto: the requirement that VASPs share customer data for transactions over $1000/ €1000. [20]

More recently, it has attempted to define and offer guidance on fast-growth cryptoasset innovations, including non-custodial wallets, DeFi, NFTs and decentralised autonomous organisations (DAOs).

Crypto Performance (As of 30.11.2021)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/11//2021
Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product.

Learn more about our crypto products:

BTCetc – ETC Group Physical Bitcoin

ETHetc - ETC Group Physical Ethereum

LTCetc - ETC Group Physical Litecoin

BCHetc – ETC Group Physical Bitcoin Cash

ETF Group Digital Assets & Blockchain Equity UCITS ETF (Acc)

Download the PDF