Nickel Research Centre

Nickel News Roundup - Week 4

27th January, 2022 

Market Overview:

Digital assets experienced large losses this week, echoing wider macroeconomic declines and uncertainty affecting global markets and on-risk assets.

  • Investor concerns over major global issues including US-Russia tensions over Ukraine, and the outcome of Jerome Powell’s Wednesday media briefing on economic policy (and especially interest rates) after the FOMC meeting
  • Bitcoin experienced a steep decline from Thursday onwards, falling from a weekly high of $43,410, to $33,180 on Monday—its lowest price in 7 months
  • This price point represented more than a 50% fall from November’s record high around $69,000
  • Bitcoin did show some signs of recovery after Monday, rising more than $5,000 to $38,430 on Wednesday, before retracing slightly after Jerome Powell’s speech
  • Bitcoin is currently valued at $36,180, representing a 13.8% weekly decline
  • Ether again matched Bitcoin’s trend, but with additional declines; dropping from a weekly high of $3,253 to a low of $2,183—its worst performance since late July 2021
  • Ether recovered to $2,654 on Wednesday, and its current price of $2,407 is a 23% weekly decline on last week
  • Total market capitalisation fell sharply as the majority of altcoins suffered greater percentage losses than Bitcoin and Ethereum. Overall value dropped below $1.5tn on Monday before recovering some losses to $1.71tn on Wednesday, pulling back to a current level of $1.63tn
  • Total value locked in DeFi dropped to $92.4bn, according to industry analytics platform DeFi Pulse

Digital asset markets faced large sell-offs this week, with many analysts citing the same macroeconomic concerns and tensions that led to similar momentum in traditional markets. However, a sea of red didn’t stop many significant institutions from continuing to chart a course to the brave new world of crypto assets; BlackRock filed for an ETF based on blockchain exposure, Jane Street Capital spoke about rising institutional interest, VC funding continued to grow, and tech giants including Twitter, Meta, and YouTube all expressed enthusiasm for crypto assets and their wider integration.


What happened: BlackRock files to launch blockchain ETF

How is this significant?
  • Despite negative price action across the market this week, the world’s largest asset manager still seems optimistic about the potential for digital assets, submitting an SEC filing for a blockchain and tech ETF
  • Companies featured within the iShares Blockchain and Tech ETF would be those involved in the “development, innovation, and utilization of blockchain and crypto technologies”
  • The move follows indications from Salim Ramji, BlackRock’s global head of ETFs, late last year that a crypto asset themed ETF was in the works
  • Perhaps with an eye to the SEC’s recent rejections of spot-based ETFs, the planned fund will not directly purchase digital assets; instead 80% of the fund’s value will be allocated towards stocks of companies with the appropriate digital asset exposure, with the remaining 20% in “futures, options, swap contracts, cash and cash equivalents”
  • In other ETF news, Valkyrie filed this week to launch a Bitcoin mining ETF, which will invest 80% of its assets into securities of firms that derive at least 50% of their profits from Bitcoin mining

What happened: Microsoft CEO Satya Nadella calls metaverse the “next wave of the internet”

How is this significant?
  • In an earnings call on Tuesday, Satya Nadella spoke at length about the company’s belief in the economic potential of the metaverse—a belief backing their recent $69bn acquisition of gaming studio Activision Blizzard
  • Nadella believes that metaverse presences can however have a variety of applications beyond gaming; “as the digital and physical worlds come together, we are seeing real enterprise metaverse usage, from smart factories to smart buildings to smart cities”
  • He identifies the metaverse—and the platform-level infrastructure underpinning it—as key to the future development of our digital lives, telling a caller that it “is essentially the next wave of the Internet, right? Just like the first wave of the Internet allowed everybody to build a website, I think the next wave of the Internet will be a more open world where people can build their own metaverse world”

What happened: Biden administration to release government digital asset strategy

How is this significant?
  • According to reports this week, the Biden administration may release a government-wide digital asset strategy as soon as next month
  • The move would put the White House front and centre of legislative attempts to define and divide up responsibilities for dealing with the new asset class, potentially reducing the lack of clarity that has hampered adoption in the United States
  • Sources told Bloomberg that “Senior administration officials have held multiple meetings on the plan, which is being drafted as an executive order”
  • The directive is believed to be concerned with the challenges posed by digital assets, carving out specific roles for government agencies, and ensuring that the US remains competitive as digital asset adoption continues to grow globally
  • In other news from Capitol Hill, this week also featured a House Hearing on the energy use of Bitcoin mining, which was characterised by analysts as “constructive”, and featured acknowledgements of decreased carbon emissions in the industry, and its role as a catalyst in renewable energy adoption, due to its potential to make energy usage and integration directly profitable

What happened: Jane Street identifies digital asset trading as “clear growth area”

How is this significant?
  • Jane Street Capital, one of the world’s largest trading firms and market makers, has become the latest Wall Street firm to embrace the rise of digital assets, through the provision of market-making services to traditional trading platforms like RobinHood, as well as DeFi teams
  • Mina Nguyen, the firm’s head of institutional strategy, told Bloomberg this week that the recent market slide hasn’t deterred interest from institutional investors, especially if increased US regulatory clarity allows them to extend their positions; “In terms of demand, we’re seeing inquiries from a breadth of institutions. Asset managers, endowments, and private wealth institutions do not want to be caught off guard”
  • Additionally, the idea of direct exposure is increasingly appealing to a variety of institutions; she told Bloomberg “Sovereign wealth funds are asking questions” on the matter
  • Turner Batty, creator of the company’s crypto trading desk notes that it has been a “clear growth area” for the past 16 months, and that the company now employs more people for digital asset trading than ever before

What happened: Bank of America calls Digital Dollar “inevitable” in three to seven years

How is this significant?
  • Bank of America released a report on Monday predicting the United States following in the steps of other nations to develop and release a Digital Dollar CBDC by 2025-2030
  • An American CBDC was identified as “an inevitable evolution of today’s electronic currencies”, and BofA predicted continued growth of digital currencies issued by private entities in the meantime
  • Strategists Alkesh Shah and Andrew Moss wrote “We expect stablecoin adoption and use for payments to increase significantly over the next several years as financial institutions explore digital asset custody and trading solutions and as payments companies incorporate blockchain technology into their platforms”
  • The BofA report follows one from the Federal Reserve itself earlier this week, in a move the Fed described as important to ensuring continued US Dollar dominance
  • This report marks the Federal Reserve’s biggest step yet into the field of digital assets, one which they characterise as “a highly significant innovation in American money”
  • The Federal Reserve has now kicked off a four month public consultation period, seeking input from a variety of economic stakeholders

What happened: FTX.US reaches $8bn valuation on $400m Series A

How is this significant?
  • The US subsidiary of popular digital asset exchange FTX (operating as a separate entity due to US regulatory requirements on asset listings and trading mechanisms) achieved a valuation of $8bn after their first funding round concluded this week
  • Participants in the $400m Series A raise included contributions from various heavy hitters, including Paradigm, Temasek, the Ontario Teachers' Pension Plan Board, SoftBank Vision Fund 2, and Lightspeed Venture Partners
  • The funding will be used “to further grow its user base, bolster its derivatives efforts, and launch new business lines”, alongside “strategic investments and acquisitions in key verticals and expand its network of partnerships”

What happened: NFT News: Beatles, Twitter, YouTube, and record volumes

How is this significant?

What happened: Dragonfly Capital Partners files for new $500m digital asset VC fund

How is this significant?
  • Venture Capital firm Dragonfly became the latest in the field to earmark large amounts of funding for digital assets, with a filing for its Dragonfly Ventures III Feeder fund revealing a target raise of $500m
  • This follows in the wake of other large VC digital asset funds, such as Paradigm’s $2.5bn fund, FTX Ventures’ $2bn launch fund, multiple funds by a16z, and heavy investment from the likes of Sequoia
  • Dragonfly Capital have been involved in digital asset funding for several years, growing from $100m AUM at launch in 2018, to over $2bn AUM now

What happened: Cathie Woods’ ARK Invest makes bold $1m Bitcoin by 2030 prediction

How is this significant?
  • According to ARK Invest’s new Big Ideas Outlook report, released on Tuesday, the firm headed by investment guru Cathie Wood believes Bitcoin could reach a price of $1 million per coin within the decade
  • Numerous factors were cited as possible catalysts for such growth, including the potential adoption as legal tender by more countries, and technological improvements like the recent Taproot upgrade and Lightning Network as means to improve the asset’s scalability and transaction speeds
  • Analysts noted that “bitcoin’s cumulative transfer volume increased by 463% in 2021”, and the network’s annual settlement volume “surpassed Visa’s annual payments volume” with more than $13tn in value settled last year
  • ARK analyst Yassine Elmandjra also said that environmental concerns around Bitcoin are overblown, and its decentralised nature provides a compelling value proposition; “Our research suggests that Bitcoin has the potential to transform monetary history by providing financial freedom and empowerment in a fair, global, and distributed way”
  • This hypothesis is an almost linear extension of one by Woods last year, when she predicted that one Bitcoin could hit $500,000 by 2026

What happened: Grayscale identifies 25 digital assets for potential addition to funds

How is this significant?
  • Leading Bitcoin fund provider Grayscale revealed in a tweet this week that they are investigating and reviewing 25 new digital assets for addition to future investment products
  • Grayscale identifies the move as part of their mission to “introduce investors to the diversity in this space”, showcasing the continued growth and evolution of the digital asset sector
  • Some notable trends being explored by Grayscale according to new assets under consideration are: 
  • Third-generation blockchains (generally-characterised by Ethereum-compatible smart contract at lower transaction costs and higher transaction speed than Ethereum itself) such as Fantom, Elrond, Holo, and Oasis
  • NFT, blockchain gaming, and/or metaverse projects, such as Enjin, Gala, Axie, and The Sandbox
  • Decentralised Finance (DeFi) protocols, such as Bancor, Convex, and Stacks

What happened: MicroStrategy confirms “buy and hold” Bitcoin approach

How is this significant?
  • MicroStrategy, the world’s largest corporate Bitcoin holder, appears unfazed by the leading digital asset’s recent slide in value, according to CFO Phong Le
  • Speaking to the Wall Street Journal this week, he said the company will likely expand rather than reduce their position with the asset; “Our strategy with Bitcoin has been to buy and hold, so to the extent we have excess cash flows or we find other ways to raise money, we continue to put it into Bitcoin”
  • He confirmed the company will continue to buy Bitcoin, although he didn’t disclose whether they plan to buy more than they did last year
  • Despite the recent fall in value, Brent Thill, senior analyst at Jefferies LLC calculates that the company has still gained around $750m on their overall Bitcoin investments at current price points

News Roundups