Nickel Research Centre

Nickel News Roundup - Week 9

March 2nd, 2023

Market Overview:

Digital assets traded steadily, dropping over the weekend after inflation figures exceeded expectations, before remaining within comparatively tighter ranges than most of 2023 thus far.

  • Bitcoin experienced its weekly high of $24,470 on Thursday, before dropping sharply on Friday, thereafter trading rangebound between $23,000 and $23,640, with a Saturday low of $22,910
  • Bitcoin’s current price of $23,410 works out to a 3.5% weekly decline
  • Ether’s performed slightly better, recovering more of its losses after the Friday drop, with a $1,569 low and a $1,669 high
  • Ether’s current price of $1,643 represents a 1.4% drop
  • Total Ether supply declined further, but annual Ether issuance rates rose slightly (though remaining deflationary), to -0.47% yearly
  • Overall market capitalisation dropped slightly to $1.07tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms increased marginally to $50bn

Digital assets experienced relatively lacklustre trading as February ended, especially compared to a strong January. Regulators globally railed for more control over the asset class, whose appeal also remains global; from Goldman Sachs activity in Hong Kong, to Germany’s second-largest bank securing custodial solutions, to Japan’s leading exchange planning an IPO, to the Tel Aviv Stock Exchange fostering increased local crypto trading activity.

What happened: Goldman Sachs seeks to increase digital asset division headcount

How is this significant?

  • Goldman Sachs continues to publicly promote the potential of digital assets and blockchain, and seeks to bolster their internal expertise on the sector, despite the ongoing crypto winter
  • In an interview, their global digital asset head Mathew McDermott confirmed that Goldman remains “hugely supportive” of digital assets and blockchain technology, and that his division will “hire as appropriate”, rather than cutting back on staff
  • One application of blockchain supported by Goldman Sachs is asset tokenisation; McDermott was speaking in Hong Kong after the city issued digital green bonds created via the bank’s GS DAP tokenisation platform
  • Hong Kong used Goldman’s private blockchain solution to sell over $100m of green bonds, cutting settlement time down from five days to just one
  • Other assets McDermott identified as suitable candidates for blockchain tokenisation included “alternatives, fund units, derivatives and private equity”
  • According to McDermott; “The blockchain platform allows investors to see more data, have more transparency, [and] more accurate pricing on an asset, which will then encourage more liquidity and hopefully bring in more investors in the secondary market”

What happened: Germany’s second-largest bank secures digital asset custody partnership

How is this significant?

  • DZ Bank became the latest in a string of major financial institutions to ink a deal with Swiss crypto custodian Metaco this week, signalling an intent to expand their institutional digital asset management capabilities
  • As a central institution in the Volksbanken Raiffeisenbanken group, DZ Bank had €297bn in assets under custody at the end of last year
  • Alongside more “traditional” crypto assets like Bitcoin and Ether, Metaco’s platform will also allow for the safe storage of crypto securities covered under Germany’s eWpG regulations; such as the €60m digital bond issued by Siemens last month
  • In a press release, Nils Christopeit, Lead Solution Design Digital Custody at DZ BANK, said that their use of Metaco’s Harmonize platform would provide “an attractive solution for our clients that can also meet the requirements of digital currencies and decentralised financial instruments”
  • DZ Bank’s partnership follows in the footsteps of other big banks working with Metaco, including Citibank, SocGen, and recently German rival Dekabank

What happened: Japanese crypto exchange plans to go public

How is this significant?

  • Bitflyer, the largest digital asset exchange in Japan, is moving towards an initial public offering, as co-founder Yuzo Kano announced plans to return as CEO
  • Kano initially stepped down from the role in 2019 citing regulatory hostility, but Japanese lawmakers have adopted a more supportive stance under the government of prime minister Fumio Kishida, identifying Web3 as a key economic growth driver
  • Bitflyer currently claims three million customer accounts in Japan, and grew net income from 427m Yen in 2020 to 12.5bn Yen in 2021, before crypto winter struck and reduced transactions by 72% last year
  • Kano says that going public makes sense despite the market downturn over the last year, due to greater regulatory clarity; “There are very strict regulations in place now to protect customers, which can be a model for the rest of the world”
  • As 40% shareholder, he rejected a deal last year to sell Bitflyer to a Singapore-based investment fund, and now seeks to leverage his shareholding into a return as CEO—whereafter he aims to take the company public, becoming the first exchange in Japan to list on the stock exchange

What happened: Coinbase debuts its own blockchain

How is this significant?

  • Publicly traded US exchange Coinbase announced a major digital asset development this week—the creation of their own proprietary blockchain, named Base
  • Base will function as an Ethereum-compatible layer-2 blockchain; essentially allowing it to confirm transactions quicker and cheaper than Ethereum (sacrificing an element of decentralisation for greater speed), whilst simultaneously committing batches of transactions (rather than singular transactions separately) to the underlying layer-1 chain
  • This boost in scalability is a strategic component of the Base blockchain’s target audience; DeFi developers and NFT projects
  • Coinbase’s head of protocols Jesse Pollack told TechCrunch “Our goal is to bring about phase 4 of Coinbase’s master plan: to bring a billion users into the crypto economy… if we make it easier for developers to build, that will then make thousands of [decentralised applications] emerge that provide real utility for users”
  • Markets responded positively to the news, as Coinbase shares rose over 10% after the announcement
  • In other Coinbase news, CEO Brian Armstrong said they wish to “work collaboratively with regulators”, but asserted that their “staking product is not a security”, a position they “are prepared to defend in court if we need to”

What happened: Visa, Mastercard reaffirm digital asset commitment following media reports

How is this significant?

  • Reuters reported this week that Visa and Mastercard were “pausing their crypto push” following last year’s market collapse; however a Visa spokesperson told industry publication Coindesk that this isn’t the case
  • Whilst Reuters claimed that the firms were “slamming the brakes on plans to forge new partnerships with crypto firms after a string of high-profile collapses shook faith in the industry”, Visa said their strategic focus remained unshaken
  • “The recent failures do not change our crypto strategy and focus to serve as a bridge, helping connect both platforms and technologies emerging in the crypto ecosystem. That is where we have been investing and plan to continue to invest”
  • Visa’s head of crypto Cuy Sheffield reiterated this belief, tweeting “Despite the challenges and uncertainty in the crypto ecosystem, our view has not changed that fiat-backed digital currencies running on public blockchains have the potential to play an important role in the payments ecosystem”
  • A Mastercard spokesperson also told Coindesk that “Our efforts continue to be focused on the underlying blockchain technology and how that can be applied to help address current pain points and build more efficient systems for consumers and businesses”

What happened: Bitcoin sees record rise in open interest

How is this significant?

  • According to Bloomberg Intelligence and Glassnode data, Bitcoin’s strong start to 2023 has led to several open interest records being broken
  • Bitcoin options open interest rose to $9bn in February; the last time the overall value reached such levels, Bitcoin was trading around $45,000
  • Bloomberg Intelligence’s Jamie Coutts said this was a remarkable data point for two reasons; “It’s the largest 14-day rate of change in its history, and is a record high when measured as a percentage of market cap”
  • Looking at the composition, “most of the open interest is made up of calls with a $30,000 strike price”, indicating trader confidence Bitcoin could return to such prices
  • However, according to crypto analyst Noelle Acheson “implied volatility is much lower than the last time O.I. was at this level, which suggests weaker trader interest”

What happened: VC news

How is this significant?

  • Numerous digital asset companies managed significant raises in the eight-figure range this week, despite a massive decline in venture funding across most industries
  • Jump Crypto, the digital asset arm of Jump Trading Group, backed a $50m Web3 incubation program helmed by sports-based blockchain project Chiliz
  • The incubator, called Chiliz Labs, aims to announce eight to ten projects building on Chiliz’ proprietary blockchain shortly
  • Conflux, a project that recently secured a partnership to develop blockchain-based SIM cards for China Telecom, received a $10m investment from market maker DWF Labs
  • DWF also invested $25m in privacy-focused project Beldex, which includes a suite of projects including a messaging service, VPN, and Web3 browser
  • Andreessen Horowitz (a16z) led a $25m funding round for Web3 group chat protocol Towns
  • Here Not There, the developers of Towns, feature a roster of high profile tech alumni, including former Skype engineering manager Brian Meek

What happened: Tel Aviv stock exchange proposes crypto trading activities

How is this significant?

  • Non-banking financial institutions will be able to act as intermediaries for customers buying and selling crypto assets, according to a new proposal by the Tel Aviv Stock Exchange (TASE)
  • TASE operates the only public equity trading platform in Israel, and under the proposal would expand authorised activities to include customers of non-banking members (NBMs) to trade digital assets
  • However, rather than customers directly trading, the proposed structure would be slightly more exhaustive; “proposed structure will enable the customer to deposit money (Fiat money) that are designated for investment in crypto currency and withdraw monies originating from those currencies in the following manner: the NBM will contact two functions - the first, a licensed provider of Cryptocurrency trading services, and the second, a licensed provider of custodial services for those currencies”
  • A press release announcing the proposal noted that by enabling investment through local institutions “This move will facilitate the development and advancement of the Israeli capital market and encourage innovation and competition”
News Roundups