Nickel Research Centre

Nickel News Roundup - Week 14

April 6, 2023

Market Overview:

Digital assets performed steadily this week, with Ether outperforming Bitcoin for the first time in in several weeks.

  • Bitcoin predominantly traded between $27,900 and $28,900, with a weekly bottom and top of $27,470 and $29,160
  • Bitcoin’s current price of $28,170 reflects a 1.8% decline after several consecutive weeks of growth
  • Ether broke through $1,900 for the first time since August 2022, hitting a weekly high of $1,938 on Wednesday, following a low of $1,768 on Monday
  • Ether’s current price of $1,909 marks a 5.6% seven day increase
  • Total Ether supply continues to decline with annual net issuance currently at -0.3% yearly
  • Overall market capitalisation grew to $1.2tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms increased once more to $51bn

Bitcoin marked the end of the year’s first quarter with a performance that dwarfed all other asset classes. There was grounds for optimism elsewhere in the digital asset space as well; Hong Kong, Switzerland, and Liechtenstein all saw developments in funding and adoption, nine-figure raises returned to the VC space, and improvements in custody and exchange settlement for institutional investors were announced by Copper and the Nomura-backed Komainu.

What happened: Bitcoin closes Q1 as best-performing major asset

How is this significant?

  • After the harsh conditions of 2022’s crypto winter and ongoing macroeconomic challenges, some may have started 2023 in a pessimistic mood; but after the end of the year’s first quarter, Bitcoin emerged as—by far—the best performing major asset
  • Bitcoin gained 72% from January 1st to March 31st, leaving other asset classes trailing in its wake
  • Tech was the next-best performer, as the Nasdaq grew 20.5%; meaning Bitcoin outperformed it more than 3.5 times
  • The S&P 500 posted a comparatively much more modest 7% growth (less than a tenth of Bitcoin’s improvement), and 20-year treasury bond ETFs displayed similar performance, up 6.8% in Q1
  • This marked Bitcoin’s best quarterly performance since Q1 2021, when its price doubled
  • In the same week as OPEC announced a reduction in output, Oil actually closed the quarter 5.9% down
  • As the SEC and CFTC both classify Bitcoin as a commodity, it’s worth comparing it to the best-performing commodity as well; sugar, which rose 23% in Q1
  • Industry analyst Noelle Atchinson commented “For many crypto market observers, it’s not at all a surprise. All the signs were pointing to a strong price floor starting last November, and it was just a matter of time before either the liquidity narrative changed (which it did in early January) or longer-term investors saw a store-of-value opportunity (which seems to have also happened)”
  • The liquidity narrative in question has indeed seen overall market liquidity decline for several reasons such as distrust towards centralised exchanges following FTX’s collapse in November, and regulatory uncertainty, but has allowed the same buying pressure to create more upside momentum than in deeper liquidity periods
  • As industry analyst Mark Connors said, the brutality of 2022 may have sown some seeds of recovery by driving out the less committed “The tourists are definitely gone. If you’re in this, you have to understand that the volatility is there, you don’t know where it goes day-to-day, but you understand the trajectory, the adoption, etc”
  • Van Eck’s digital asset research chief Matthew Sigel believes banking’s bearish breakdown benefitted Bitcoin; “Bitcoin has remained resilient because of legitimate fundamental improvements and its unique role as a bearer asset in a period of scepticism about bank deposits and more central bank bailouts”
  • Stephanie Ouellette of FRNT Financial agrees, stating “After the SVB failure and subsequent Signature closing, the narrative entering the week was that it would be a difficult period for crypto… In fact, those events fueled the narrative for Bitcoin as an alternative to banking solutions and all of crypto inclusive of BTC had some fantastic positive trading days, which was unexpected for many”
  • Although Bitcoin remains the standard-bearer for crypto in the public imagination, it was by no industry(adjacent) asset to outperform more traditional investment vehicles; Ether rose 52% in Q1, Nvidia (whose graphics chips are also used by crypto miners) was up 90%, and the Valkyrie Bitcoin Miners ETF increased more than 100%

What happened: Copper brings off-exchange settlement to second-largest crypto exchange

How is this significant?

  • Crypto custodians Copper secured a deal to bring their Clearloop off-exchange solution to OKX this week—the second-largest global exchange by volume
  • Off-exchange settlement has become an increasingly relevant topic within the institutional investment space since the collapse of FTX last year
  • By using off-exchange settlement mechanisms, institutions can ensure that their funds are safe in the case of exchange exploits or outright mismanagement, eliminating many dangers around counterparty
  • Allesandro Balata of institutional investment firm Fasanara Capital commented “We’re now able to access greater amounts of liquidity across a growing number of exchanges that are joining Copper’s ClearLoop network… ClearLoop has become a critical component in helping institutional investors mitigate exchange counterparty risk”
  • Copper CEO Dmitry Tokarev declared that the partnership “demonstrates the industry’s drive to meet high standards for asset security and trading” in a post-FTX world marked by greater caution

What happened: Hong Kong fund kicks off $100m raise for digital asset startups

How is this significant?

  • Hong Kong’s recent supportive regulatory positions have attracted international digital asset firms to the city, as well as catalysing local development
  • Since their shift in policy stance, over 80 international digital asset firms have lodged expressions of interest in establishing Hong Kong offices
  • Now, a new Hong Kong-based fund called ProDigital Future is raising $100m to invest in Web3 ventures
  • Led by SAIF venture partner Brian Ng and tech investor Curt Shi, ProDigital has already secured $30m in funding commitments, including contributions from local capital markets firm Sunwah Kingsway Capital Holdings
  • ProDigital Future will concentrate on early-stage investments, particularly for China-linked tech firms transitioning to Web3
  • Shi said the fund has thus far attracted interest from both Hong Kong and Chinese family offices
  • He added that their main area of focus would be local, but didn’t rule out a more international footprint; “I believe that Hong Kong will continue to have a certain degree of openness and flexibility. While our portfolio and fund will embrace Hong Kong and its policies, we will continue to have a presence in Australia, Singapore, as well as in Europe and the US”

What happened: Nomura-backed startup releases collateralised custody product

How is this significant?

  • Komainu, a crypto custodian backed by Japanese bank Nomura and hardware wallet manufacturer Ledger, released a new product for institutional clients this week, featuring regulated and segregated collateral management
  • Known as Komainu Connect, the product allows users to deploy assets in collateralisation scenarios, “while they remain in segregated custody, verifiable on-chain”
  • Komainu’s head of strategy Sebastian Widmann stated “Our new collateral management service allows clients to have specific wallets within Komainu with visibility to third-party liquidity providers and exchanges for trading on venue, with Komainu really doing the settlement”
  • Additionally, the company has enhanced its staking-as-a-service offering in anticipation of the Ethereum network’s forthcoming “Shanghai” upgrade, which will allow validators (users staking 32 ETH in a node) to stake their validators nodes without restrictions regarding timeframes
  • Last September, Komainu appointed Borsa Italiana veteran Nicolas Bertrand as CEO, at which point he commented (in the depths of crypto winter) “Institutional clients are getting more interested in digital assets. They will need to hold those assets, and we will be there to provide that service”
  • With more freedom to access and withdraw funds from validator nodes, the “Shanghai” network upgrade could thus entice more institutional presence into the staking space, where their Ether could earn rewards by securing the network whilst not being actively traded

What happened: Top European banks collaborate on blockchain-based bond trading platform

How is this significant?

  • This week, French bank Crédit Agricole and Swedish bank SEB announced the launch of so|bond; “a ‘sustainable and open’ platform for digital bonds built on blockchain technology”
  • This platform includes a unique validation protocol dubbed “Proof of Climate awaReness" which incentivises clean energy use by remunerating participating nodes for “efforts according to a formula linked to [their] climate impact”
  • Users will be able to manage securities and raise capital through smart contracts in an “open, transparent and secure model [that] also fosters trust between market participants and allows further innovations such as using a future CBDC”
  • SEB stated “Blockchain technology has the potential to modernise and digitalise the banking and financial services sectors through decentralised and efficient infrastructure”
  • An SEB representative commented that so|bond “will allow us to gain insights into what the innovative space of digital assets mean for the financial services industry”, whilst an Agricole rep added “Crédit Agricole CIB is proud to contribute to the emerging market of digital assets”

What happened: Regulatory news—US hostility presents off-shore opportunities

How is this significant?

  • Recent US regulatory enforcements have increasingly led to concerns that digital assets are becoming an increasingly politicised issue within the United States—concerns seemingly confirmed when prominent Senator Elizabeth Warren recently boasted she was building an “Anti-Crypto Army” as part of her re-election platform
  • Silicon Valley and digital asset billionaire Mike Novogratz, speaking at the FII Institute Priority Summit, said he believed that “We’re seeing overseas lots of activities and domestic, a government that’s really trying to smash the industry. Despite all that, prices are going higher”
  • He also referenced “Operation Chokepoint 2.0”; the belief that rather than banning digital assets outright, the government will make the fundamentals of running a business—such as banking—prohibitively and deliberately difficult for industry firms to access
  • Despite their apparent regulatory distaste for the asset class, the US government have recently experienced direct tangible benefits from it; a court filing revealed that the government sold 9,861.17 Bitcoin for almost $216 million on March 14th
  • Those Bitcoin were part of a haul from a 50,000 Bitcoin seizure last year, with plans to liquidate the remainder in four tranches over the rest of the year; potentially netting the US government over a billion dollars from Bitcoin sales
  • The SEC recently litigated against Beaxy; a lesser-known exchange, charged with operating “an unregistered exchange, brokerage and clearing business”... complaints which some observers believe the SEC is testing the viability of before bringing them against larger exchanges that perform a broad range of services, like Coinbase
  • State-level regulators in Texas, Montana, and Alabama in the first-ever case censuring a trading firm claiming to use A.I. machine learning to run digital asset trades
  • Bittrex, founded in 2014 and once the leading digital asset exchange in the world, announced its intention to withdraw from the US market this week, citing regulatory challenges
  • Former CFTC chair Christopher J. Giancarlo spoke to industry publication Coindesk about frustrations regarding continued uncertainty about regulatory purview between the SEC and CFTC, as well as the fact that they don’t even agree which assets constitute securities or commodities
  • Giancarlo believes “it’s not correct that all crypto is a security. … Crypto is architecture. Crypto is algorithms…Certainly, we very much need Congress now to step in”
  • The National Futures Association, a self-regulatory body, issued guidance to its members regarding compliance related to Bitcoin and Ether
  • Meanwhile, US restrictions could drive crypto businesses offshore, and Bermuda would happily benefit; premier and finance minister David A. Bart told Bloomberg “The future of finance is digital”, leading to a supportive regulatory environment that currently sees 17 international crypto businesses licenced in the small island nation
  • Some analysts believe that by being overly-hostile to centralised exchanges, regulators could drive more people into decentralised exchanges (DEXes) and DeFi; on-chain data for instance showed that users withdrew $400m into self-custodied wallets shortly after the CFTC’s suit against Binance and CEO Changpeng “CZ” Zhao
  • However, increased DEX trading could also be beneficial to regulators, as all activity is publicly visible on-chain; Berk Ozdogan of Dexalot noted “the effort to prepare formal inquiries, the time needed to conclude the discussions and the trust that needs to be placed on the investigated CEX would no longer be needed since the activity would be readily available for review”
  • DEX aggregation router 1inch this week crossed $300bn in cumulative trading volume, showcasing the appeal of decentralised trading solutions

What happened: Contagion latest—FTX recovers more funds

How is this significant?

  • There was a positive development in the ongoing FTX bankruptcy saga, as digital asset exchange OKX declared they had identified $157m in crypto assets linked to FTX, and was turning them over to the bankruptcy estate
  • On the other side of the spectrum, bankrupt lender Babel had a creditor protection extension request put on hold by a Singaporean court, which requested more details on proposed restructuring plans
  • Following Bitcoin’s strong Q1, MicroStrategy’s holdings have moved towards breakeven after a long period in the red after 2022’s market downturn, and on Wednesday the company confirmed the purchase of an additional 1,045 Bitcoins to bring their total to 140,000
  • Their bet on Bitcoin has paid off despite the recent crypto winter; since the company moved towards a Bitcoin acquisition strategy in August 2020, share prices have more than doubled; significantly outperforming the S&P500’s 16% gain in the same timeframe

What happened: VC News-Return of the nine-figure raise

How is this significant?

  • Cross-blockchain messaging protocol LayerZero completed a Series B raise this week, for one of the larger amounts in recent memory; $120m
  • This puts the company’s valuation at $3bn; up from $1bn during their last raise in 2022
  • According to TechCrunch, the Series B saw participation from 33 investors, “including a16z crypto, Circle Ventures, Sequoia Capital, OpenSea, Samsung Next, Christie’s and BOND”
  • Another company to manage a nine-figure raise was hardware wallet manufacturer Ledger, who closed a $109m funding round at the same valuation (€1.3bn) as their last round in June 2021
  • CEO Pascal Gaulthier said recent risk events benefited their business; “ [After FTX] Suddenly people were like ‘wow, to leave crypto on an exchange is actually dangerous’… And 2023 is even better for us because now you can’t even leave money at a Swiss bank”
  • Gaulthier said the funds would go towards boosting distribution, production, and product development
  • Cambridge-based blockchain startup reaped the rewards of recent interest in artificial intelligence, securing $40m of investment towards tooling for “autonomous agents, network infrastructure, and decentralised machine learning”

What happened: Stuttgart stock exchange granted licence for crypto custody

How is this significant?

  • Boerse Stuttgart, Germany’s second-largest stock exchange received a licence for crypto custody from Germany financial regulators BaFin this week, allowing them “to provide institutional investors with services for trading crypto as well as fiduciary custody”
  • CEO Matthias Voelkel said this makes Boerse Stuttgart (specifically its digital unit, Blocknox) a “one-stop shop that's fully regulated in Germany for brokerage, trading and custody of digital assets”
  • This is the latest in a long line of digital asset activities for the exchange; in 2018 they released a crypto trading app called Bison which reported $2.4bn of trading volume in 2021

What happened: DeFi platform announces treasury-backed tokens

How is this significant?

  • Former leadership from top centralised exchange Gemini revealed a DeFi innovation this week, “rolling out a token backed by US Treasury Bills with around 5% yield”
  • Jeremy and Eugene Ng left Gemini to start up decentralised finance platform OpenEden, which offers the new TBILL tokens in exchange for stablecoins, which themselves will be invested in short-term US treasuries
  • The move seeks to take advantage of rapid rises in US interest rates as a result of the Federal Reserve’s attempts to contain inflation
  • Jeremy Ng stated that TBILL tokens will be issued by a fund regulated in British Virgin Islands and OpenEden (a Singapore-registered fund management company) will manage the token smart contract vault

What happened: Swiss government-owned bank moves into crypto services
How is this significant?

  • PostFinance, Switzerland’s fifth-largest (and fully-government-owned) financial services provider, partnered with Swiss bank Sygnum this week to bring digital asset investment services to their 2.5 million customers
  • Crypto capabilities will begin with allowing customers to buy, sell, and store Bitcoin and Ether, with more digital assets to be added later on
  • PostFinance CIO Philipp Merkt stated “Digital assets have become an integral part of the financial world, and our customers want access to this market at PostFinance, their trusted principal bank. A reputable and established partner like Sygnum Bank with an excellent service offering is more important than ever”
  • Sygnum B2B chief Fritz Jost added that the decision was driven by rigorous business analysis “PostFinance became aware of a considerable number in the hundreds of millions each year of outflows to crypto exchanges and the like. So they saw that this is not only as an opportunity to add a new revenue stream, but also realised that this has a lot to do with client retention”
  • Meanwhile, in Switzerland’s alpine neighbour Liechtenstein, Swiss firm Metaco secured another banking client for their Harmonize digital asset platform
  • Private bank VPBN (over 46bn CHF under management) followed Citi, SocGen, DZ, and Dekabank in adopting Harmonize, improving their crypto custody and asset tokenisation capabilities
  • A VPBN press release stated that “By consolidating its digital asset technology landscape to a single, mission-critical custody and tokenization platform to secure and govern its operations end-to-end, VP Bank is able to take its commercial offerings to the next level and scale to millions of custody accounts”
News Roundups