Nickel Research Centre

Nickel News Roundup - Week 16

20th April, 2023

Market Overview:

Digital assets reached new year-to-date highs this week, before pulling back sharply and cooling off amidst wider concerns of higher-for-longer rate hikes.

  • Bitcoin traded above $30,000 for almost the entire week, before a harsh drop on Wednesday in the face of wider macroeconomic concerns such as continued rate hikes and recession anticipation
  • Bitcoin hit a weekly high of $31,010 on Friday (its highest price since the 8th of June), but was unable to sustain a run above the $31,000 mark
  • Ether significantly outperformed Bitcoin this week, breaking above the $2,000 mark and remaining there for the majority of the week
  • Ether reached a weekly high of $2,132 on Sunday, up from Thursday’s low of $1,904 on Sunday
  • Ether’s weekly performance remained positive despite Wednesday’s harsh pullback; its current price of $1,950 equates to 1.3% growth
  • Network activity increased significantly as locked Ether re-entered circulation following last week’s “Shanghai” upgrade; as a result total Ether supply dynamics became more deflationary with annual net issuance currently at -0.85% yearly
  • Overall market capitalisation declined slightly to $1.21tn, after hitting a high of $1.29tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms dropped to $50.8bn

Bitcoin traded above $30,000 for the majority of the week, and Ether breached its own milestone figure of $2,000. However, wider economic concerns led to a significant retrace that brought Bitcoin prices back in line with their value two weeks ago. Outside of the market, Twitter made a potentially major move for digital asset accessibility by integrating trading, and elsewhere in the US regulation was once again the keyword, as the SEC brought another major enforcement action before SEC chair Gary Gensler faced dissent from commissioners and grilling from legislators in congress regarding perceived over-reach. Other countries and territories (including Hong Kong, France, and Bermuda) continue to benefit from America’s heavy-handed and unclear approach, M&A activity reached record levels, and new digital asset derivatives platforms emerged.

What happened: Twitter integrates digital asset trading via eToro

How is this significant?

  • On Thursday, CNBC broke the news that Twitter will enable its users—via eToro integration—to buy and sell crypto, along with stocks and shares, by searching and clicking on a "cashtag" like $BTC
  • Twitter is one of the largest social media (and news) platforms in the world, with around 450 million monthly active users—over half of whom are monetisable
  • Twitter's largest market (80 million users) is also the world's biggest crypto trading market; the United States. Therefore the partnership with eToro instead a crypto-native exchange makes sense, as the firm is well-established and fully licenced for "virtual assets" in the US
  • eToro offers access to around 80 different crypto assets, paired with a broad range of major fiat currencies
  • Elon Musk recently rebranded Twitter's parent company to X Corp, part of his vision to create "X; the everything app"—akin to Chinese "super app" WeChat, which boasts 1.3 BILLION monthly active users and includes a broad range of financial services from paying bills to hailing cabs
  • In a recent interview with Morgan Stanley MD Michael Grimes, Musk declared his wish for Twitter to become the "Biggest Financial Institution In The World", where users can earn interest and send each other money "effortlessly with one click"
  • This is one of the very few partnerships since Musk's $44bn acquisition, showcasing his continued enthusiasm for digital assets
  • Year-to-date, there have been over 420 million searches for cashtags (an average of over 4.7 million searches a day), meaning Twitter is already an established way for people to track, research, and promote their investments
  • Binance was a key contributor of funding to Elon Musk's Twitter takeover; although they aren't providing the trading engine (possibly due to US regulatory hostility), they still stand to benefit from greater exposure for the asset class and potential introduction of new traders into the sector
  • Crucially, a key catalyst for wider recognition and legitimisation of digital assets in 2020 was its integration by payment giant PayPal—now it's being integrated into a platform with even more monthly active users
  • The eToro partnership is all about broadening access to retail investors, rather than sophisticated institutional investors; eToro charges spreads of up to 3% on prices found on more crypto-native exchanges

What happened: London Stock Exchange to launch Bitcoin futures and options

How is this significant?

  • On Thursday, the London Stock Exchange Group (LSEG) partnered with GFO-X to announce “Britain's first regulated trading and clearing in bitcoin index futures and options derivatives”
  • LSEG “will introduce a new, segregated clearing service, DigitalAssetClear, for cash-settled dollar-denominated digital assets traded on GFO-X”
  • As this service will be run through LSEG’s Paris-based clearing unit, actual project launch isn’t anticipated before Q4 this year, pending approval from French and EU regulators
  • GFO-X CEO Arnab Sen stated “Recent market events in the trading of digital assets have highlighted the need for a safe, regulated venue where large financial institutions can trade at scale, while keeping their clients’ assets protected”

What happened: Bank of America cites asset tokenisation as key driver of digital asset growth

How is this significant?

  • Bank of America (BofA) released a research report on Thursday, in which they identified the tokenisation of real-world assets as a key catalyst for future digital asset adoption
  • In particular, whilst Bitcoin is often called “Digital Gold” for its store of value properties and scarcity, BofA noted that the value of tokenised gold has now exceeded $1bn
  • Analysts Alkesh Shah and Andrew Moss praised the convenience of tokenised assets; “Tokenized gold provides exposure to physical gold, 24/7 real-time settlement, no management fees and no storage or insurance costs… fractionalization enables the transfer of physical gold ownership and value that was not previously possible”
  • Additionally, they noted that tokenisation of real-world assets like gold improves the liquidity of such assets, and enables investors to rebalance portfolios quickly and easily
  • Blockchain tokenisation also provides other benefits, such as lower costs than ETFs, and international settlement
  • The immutable and transparency of properties of blockchain also mean tha clarity can be provided on the provenance of the specific assets being tokenised—crucial for ESG investors who want to know the specific source of their underlying investment assets

What happened: US regulatory approach stirs conflict among regulators and legislators

How is this significant?

  • Gary Gensler’s tenure as SEC chair has been primarily marked by “regulation through enforcement” as far as digital assets are concerned, with companies across the industry complaining that existing regulatory frameworks lack clarity and relevance for businesses dealing in an entirely new asset class
  • An increasingly-hostile regulatory approach in the US has raised concerns that the American digital asset industry could be driven offshore; now colleagues and politicians alike have accused him of over-reach, with some trying to legislate his job out of existence
  • On Monday, the SEC filed a suit against digital asset exchange Bittrex, which had previously announced plans to exit the US market due to regulatory opacity
  • In their complaint, the SEC claimed six different tokens sold on Bittrex were likely securities; including (as some internet sleuths pointed out) Algorand, a project which Gensler himself had previously praised as “great technology” and a good example of decentralisation during his time teaching blockchain courses at MIT
  • Additionally, the commission took issue with Bittrex performing multiple roles, effectively acting as both exchange and clearing house
  • On Friday, the SEC proposed an amendment to forthcoming securities rules changes in order to bring more decentralised finance (DeFi) firms and decentralised exchanges (DEXes) under their control and requiring them to register with the SEC; despite the protocols being (as the name suggests) decentralised
  • SEC commissioner Hester Peirce, noted for her open-minded attitude towards digital assets, vehemently opposed, citing the need to amend processes as technology evolves, instead of trying to force new technologies into existing processes
  • In her public dissent, she cautioned that the US could damage their competitiveness and the commission’s credibility with the proposed changes
  • Peirce wrote “here we propose to embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology... The release sends a message that we are uninterested in facilitating innovation and competition in the financial markets... A Commission serious about regulating—and not destroying—this market would reflect on this near unblemished record of regulatory failure and do something about it”
  • Many in the digital asset sphere have long advocated for more regulatory clarity, but agree with Peirce that the SEC's policy of shoehorning fundamentally new technology into existing frameworks created long before such tech was conceived are bound to create a mismatch between the technology's potential, and what regulators actually allow it to do
  • Concerns over regulatory opportunism and over-reach followed Gensler into the US Capitol on Tuesday, when during a House Financial Services Committee hearing he was grilled about numerous issues, particularly by congressional Republicans
  • Gensler blamed crypto for Silicon Valley Bank's failure (rather than lack of a chief risk officer, overexposure to inflation-hit government bonds, or insider trading), but was unable—or rather, unwilling—to answer whether or not Ether is a security
  • Being unable to define the second-largest digital asset's status appears curious next to his assertions that regulations are perfectly clear for crypto firms, leading Financial Services Committee chair Patrick McHenry to bemoan "a lack of clarity in the marketplace... your regulatory actions and the CFTC's say that there is a great deal of uncertainty here"
  • Gensler also revealed that despite teaching classes on blockchain and crypto at MIT, he has never actually owned any digital assets (nor have any of his senior staffers responsible for digital asset regulation)
  • Representative Tom Emmer, a noted crypto advocate, was scathing in his assessment of Gensler’s tenure, calling him “an incompetent cop on the beat”, noting WSJ reports that US regulatory hostility presented an opportunity for China to gain influence in crypto
  • Perhaps the greatest censure however came from congressman Warren Davidson who proposed legislation to remove the role of SEC chairman, replaced by an executive director reporting to the board (with former SEC chairs disqualified from serving)

What happened: Chinese banks and businesses gain crypto custom due to US hostility

How is this significant?

  • The Wall Street Journal this week reported that crypto tensions in the US could benefit Chinese businesses, including its banking industry
  • The WSJ noted Hong Kong’s recent strategic shift towards becoming a global digital asset hub, and said that local banks (including Chinese state-owned banks) are “looking to seize an opportunity created by the recent failures of crypto-friendly American banks and the toughening U.S. regulatory environment for the crypto sector”
  • This includes the Hong Kong unit of China’s state-owned Bank of Communications, which sources told the Journal is “working with multiple cryptocurrency companies licenced in the city, and is in talks with other regulated firms about opening accounts for them”
  • Asian digital asset service provider HashKey announced the launch of a new licenced Hong Kong exchange called HashKey Pro, providing access to Bitcoin, Ether, and Tether
  • Additionally, they also revealed a wealth management arm for family offices and institutional investors, after securing portfolio management approval from Hong Kong’s Securities and Futures Commission
  • Shixing Mao, CEO of a Hong Kong-based crypto custody provider, said that “it may be that China-funded banks are the ones moving faster [than Western banks]” in regards to the crypto industry
  • In Bloomberg Markets’ Wealth Issue, an examination of Chinese Millennials found that they favour alternative investments, including crypto, over their parents’ real estate portfolios
  • An investment advisor opined that the Chinese stock market is more volatile than crypto, and Bloomberg wrote that despite the official ban, “investors find ways around the ban, such as buying directly from friends or using an overseas driver’s licence to open an offshore account”

What happened: Coinbase acknowledges possibility of leaving US

How is this significant?

  • Speaking at a fintech conference in London this week, Coinbase CEO Brian Armstrong declared that current US regulatory approaches could lead the country’s only publicly-listed digital asset exchange to seek greener pastures elsewhere
  • “Anything is on the table… Including, you know, relocating or whatever is necessary” he said when asked by former Chancellor George Osborne whether he might consider moving the company to Britain
  • Coinbase have been served a Well’s Notice by the SEC, but as evidenced by Gary Gensler’s testimony in Congress this week, the commission’s leadership can’t even confidently declare the status of the second-largest digital asset by market cap
  • Armstrong added “The US has the potential to be an important market in crypto, but right now, we are not seeing that regulatory clarity needed. I think if a number of years go by where we don’t see regulatory clarity emerge in the US, we may have to consider investing more in other regions of the world”
  • In a first sign of looking offshore, Coinbase received a licence from the Bermuda Monetary Authority to open a derivatives exchange, as part of the company’s plans to “go broad and deep” in international expansion
  • In other international news, it was reported that France is becoming the favoured European destination for digital asset firms, with Coinbase VP Tom Duff Gordon describing it as “an attractive choice” thanks to President Macron’s supportive crypto policies
  • Macron previously described Web3 as “an opportunity not to be missed”, and major industry players like Binance and stablecoin issuers Circle have made their European headquarters in Paris

What happened: Singaporean fund purchases Texan Bitcoin mining facilities

How is this significant?

  • Despite Bitcoin’s year-to-date recovery, many Bitcoin miners still find themselves struggling after allocating lots of capital towards facility expansion in the 2021 bull market, before being hit by rising energy costs and declining Bitcoin prices in 2022
  • Singapore’s Mainnet Capital this week agreed an $8.5m deal—in cash and stablecoins—to acquire a Texan facility from mining firm Mawson
  • Mawson CEO James Manning said they would concentrate on their facilities in Pennsylvania as they streamline the business; “The proceeds of the sale will be used to ensure Mawson continues to reduce debt and start to expand our operations in 2023. We look forward to seeing our increased mining and power capacity online in Q2, 2023”
  • Meanwhile, Mainnet Capital CEO Ray Li commented “This acquisition highlights our dedication to the rapidly expanding Bitcoin mining industry in the United States and reinforces our commitment to drive value for our investors and stakeholders… With abundant energy resources and a supportive regulatory environment, Texas is poised to continue leading the country in this emerging space”

What happened: Digital asset M&A dealmaking reaches record levels in Q1

How is this significant?

  • A new report released this week found that although VC funding has declined, another form of dealmaking—mergers and acquisitions—grew substantially in the first quarter
  • The report by M&A advisory firm Architect Partners registered 54 separate M&A transactions, up 10% year-on-year
  • It just shaded the previous record of 53 deals struck in Q4 2021, when overall market conditions were decidedly more bullish
  • Michael Ashe of investment firm Galaxy Digital noted that crypto winter benefitted the more prudent firms in the market, providing opportunities via distressed peers; “Well-funded crypto firms are using this environment to tactically acquire quality assets that scale and bolster their businesses… Companies that would have been able to raise capital in a bull market are finding it difficult now and are turning to M&A as an exit”
  • Architect classified around two-thirds of the deals as intra-crypto deals, involving one crypto-native firm acquiring another
  • They also noted positive stock market performance for crypto (adjacent) firms in Q1, with companies above $100m market capitalisation increasing an average 115% (though this was heavily skewed by the recovery of Bitcoin mining firms alongside Bitcoin’s price)

What happened: Contagion latest—Crypto not to blame for Signature downfall

How is this significant?

  • On Wednesday, Gary Gensler attempted to apportion blame for SVB’s collapse on digital assets, but Signature Bank—noted for its friendliness to the asset class—disagrees
  • Speaking to the Financial Services Committee that same day, New York Financial Services Department regulator Adrienne Harris stated “It is a misnomer that the failure of Signature Bank was related to crypto… The outflow of crypto deposits were in exact proportion to the representation in the depositor base overall [about 20% of customer withdrawals]”
  • A Singaporean court granted an additional three months’ creditor protection to distressed crypto lender Babel, extending their restructuring period to July 31st
  • On Friday a US judge granted the SEC permission to seek Singaporean records regarding Terra Luna blockchain founder Do Kwon, and the network’s development firm, Terraform Labs
  • Both the US and Kwon’s native South Korea are seeking his extradition from Montenegro, where he was captured last week after months on the run
  • South Korean authorities confirmed an investigation regarding a transfer of funds from Kwon to a leading Korean law firm prior to the Terra Luna blockchain’s collapse

What happened: Former FTX.US head launches crypto futures platform

How is this significant?

  • Brett Harrison—who resigned from his leadership of FTX.US last year following “protracted disagreements” with Sam Bankman-Fried—revealed his latest venture this week as he seeks to distance himself from the shadow of his former boss
  • His software startup Architect Technologies “is pushing into futures and crypto markets for institutional investors”
  • Additionally, the company plans to “offer clearing services for futures trades through StoneX Group Inc. and Wedbush Financial Services LLC”
  • Harrison told Bloomberg “The lines of traditional assets and digital assets will be blurred over time. Technology that is successful in one will require being successful in the other”
News Roundups