Nickel Research Centre

Nickel News Roundup - Week 1

5th January, 2023

Market Overview:

Digital assets registered modest growth this week, as traders returned to the market following the festive period, alongside reduced interest rate hikes.

  • Bitcoin once again traded in a relatively narrow range this week, bottoming out at $16,420 on Friday and reaching a high of $16,960 on Wednesday
  • Bitcoin’s current price of $16,830 equates to a 1.4% weekly rise
  • Ether exhibited similar trading patterns, ranging between $1,188 and $1,263
  • Ether’s current price of $1,251 showcases 4.6% growth
  • Total Ether supply growth remains flat, with a current annual issuance of 0.1%
  • Overall market capitalisation increased to $820bn
  • According to industry monitoring site Defi llama, total value locked in DeFi this week across all blockchains and platforms grew slightly to $39.6bn

Disgraced former FTX CEO Sam Bankman-Fried pled “not guilty” to charges this week, setting the stage for a trial in October. JP Morgan released demographic profiles of digital asset investors in the United States, Indonesia became the latest nation to boost crypto adoption, BlackRock lent to a Bitcoin miner feeling the crunch, and Bitcoin itself celebrated another anniversary.


What happened: FTX latest—Bankman-Fried pleads not guilty


How is this significant?

  • Despite recent guilty pleas from erstwhile colleagues Caroline Ellison and Gary Wang, former FTX CEO and Alameda Research founder Sam Bankman-Fried pled not guilty to charges on Wednesday
  • As well as pleading not guilty, Bankman-Fried requested that the co-signers of his $250m bond be allowed anonymity, citing fear of harassment if their identities were published
  • Lewis Kaplan, senior judge for the Southern District of New York (the jurisdiction that includes Manhattan), subsequently set a trial date for the 2nd of October
  • US prosecutors indicated they would likely produce all their evidence within the next four weeks
  • Some analysts believe it may not actually come to a trial in October, identifying his plea as a possible move to secure additional leverage before negotiating with prosecutors
  • Manhattan US Attorney Damian Williams disclosed the creation of a new FTX task force, dedicated to tracing and recovering victims’ assets
  • He stated; “We are launching the SDNY FTX Task Force to ensure that this urgent work continues, powered by all of SDNY’s resources and expertise, until justice is done”
  • US Attorney Daniel Sassoon proposed additional bail conditions for Bankman-Fried during the lengthy pre-trial period, including a prohibition “from accessing or transferring any FTX or Alameda Research assets”
  • This comes after federal prosecutors announced an investigation into a series of blockchain transactions made by wallets linked to Bankman-Fried, worth over $1m—a fair amount more than the $100,000 he claimed to his name in a November interview
  • Although “SBF” publicly claimed he didn’t move the funds or have access to the wallets, Sassoon noted “he has made false statements in that fashion before”
  • Per his current bail conditions, Bankman-Fried cannot “enter into financial transactions of more than $1,000 without getting it cleared by the government or court, except to pay for legal costs or fees”, leading to uproar on crypto Twitter when blockchain watchers saw funds moving on associated addresses
  • On Wednesday, it was revealed that the US Department of Justice has seized (or is in the process of seizing) a $460m stake in investment platform Robinhood that SBF purchased with a loan from Alameda
  • Additionally, federal authorities ordered the seizure of $93m from an FTX unit held at Silvergate Bank
  • Previously, Bahamian authorities confirmed on Thursday that they had seized $3.5bn worth of digital assets from FTX soon after its Chapter 11 filing, citing the perceived risk of “imminent dissipation as to the digital assets under the custody or control of [FTX] to the prejudice of its customers and creditors”
  • A few days later, they also released a statement to correct “material misstatements” regarding Bahamian control of the assets from new FTX CEO John Ray III, saying “The US Debtors” continued lack of diligence when making public statement concerning the Commission is disappointing, and reflects a cavalier attitude towards the truth”
  • Japanese subsidiary FTX Japan—which was legally obliged to abide by Japanese regulations—confirmed a three-step process for customers to recover their assets from mid-February onwards
  • Thanks to clear regulatory frameworks and requirements for operations in Japan, local customers were shielded from the effects of mismanagement that FTX International customers suffered


What happened: JP Morgan releases report on US digital asset adoption


How is this significant?

  • To round off 2022, JP Morgan published a new research piece profiling the US digital asset landscape
  • Entitled “The Dynamics and Demographics of U.S. Household Crypto-Asset Use”, the report featured numerous insights into the rising adoption of the asset class
  • One key was that interaction with digital assets quadrupled over two years; “The share of the population that have ever transferred funds into a crypto-related account tripled during the COVID-19 pandemic, rising from a cumulative 3 percent prior to 2020 to 13 percent as of June 2022”
  • They also found that investors were enticed into the market by rising prices, stating “We view the rise and fall of crypto use since the onset of COVID as consistent with the joint relationship between retail flows and market prices”—but noted that such “FOMO” isn’t exclusive to crypto; “Investors using traditional investment accounts exhibit similar dynamics—inflows are stronger just after significant increases in U.S. stock prices”
  • Demographically, they revealed that there is still a distinct generation gap; “crypto usage is more prominent among younger individuals—20% for millennials, 11% for Generation X, and 4% for baby boomers. Across the full sample, men are about twice as likely to have transferred money into or out of crypto accounts”
  • Increased appeal amongst Millennials can be rationalised with greater technological familiarity and the fact that they are the first generation to earn less than their parents, creating a generational wealth gap of “historic proportions”
  • Most retail investors have kept their exposure modest; “Crypto holdings for most individuals are relatively small—as median flows equal less than one week’s worth of take-home pay—but almost 15 percent of users have net transfers of over one month’s worth of pay to crypto accounts”


What happened: Contagion latest—Celsius awarded ownership of deposited assets


How is this significant?

  • Digital asset lender Celsius won a reprieve in its ongoing bankruptcy proceedings this week—although it was a victory their customers may not celebrate
  • A bankruptcy judge ruled that $4.2bn of deposits in interest bearing accounts are the property of Celsius, to use as they see fit, rather than belonging to the customers who deposited them
  • This move classifies the company’s customers as unsecured creditors, and could act as a precedent for other bankruptcy cases within the industry
  • According to the Wall Street Journal, “The immediate impact of the decision is to allow the company to sell $18 million in stablecoins to fund the expenses for a longer stay in chapter 11”
  • A new bankruptcy court filing this week revealed a limited objection from the SEC towards Binance.US’s proposed takeover of bankrupt lender Voyager Digital
  • SEC lawyers requested more details on the operations of Binance.US if the deal closes, alongside more evidence on their ability to close the $1.02bn transaction
  • Binance.US representatives stated “A diligent review of the deal is to be expected and welcomed. We will work with the relevant parties to provide any requested information. We look forward to completing the transaction and bringing Voyager customers to Binance.US”
  • Gemini co-founder Cameron Winklevoss publicly accused Digital Currency Group CEO Barry Silbert of “bad faith stall tactics” over the ongoing withdrawals freeze of institutional lender (and DCG subsidiary) Genesis, which led to the Winklevoss brothers having to freeze their exchange’s own Earn program due to Genesis exposure
  • In an open letter, Winkelvoss told Silbert “this mess is entirely of your own making”, claiming that a $1.675bn loan from Genesis to DCG (“to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades”) left the entities “beyond commingled”, issuing a January 8th deadline for a resolution
  • Silbert responded, refuting claims of a borrowed $1.675bn, but also noted “DCG has never missed an interest payment to Genesis and is current on all loans outstanding; next loan maturity is May 2023”
  • Interim Genesis CEO Derar Islim said that they were working on a solution, but needed more time; “ While we are committed to moving as quickly as possible, this is a very complex process that will take some additional time. We believe we can arrive at a solution… to preserve client assets and move the business forward”
  • Genesis’ derivatives and spot trading services remain in operation whilst its lending division remains frozen; “As we start 2023, we continue to offer clients the white glove service that we always have in our trading business and appreciate our lending clients’ patience as we make progress toward an equitable solution”
  • US regulators issued a joint statement to the banking industry, urging them to exercise caution and responsible behaviour in relation to digital asset exposure


What happened: Bitcoin celebrates its 14th birthday

How is this significant?

  • After its original whitepaper was published on October 31st 2008, the Bitcoin blockchain first went live on January 3rd, 2009
  • In that time, it has demonstrated commendable staying power, surviving no fewer than 427 obituaries proclaiming its death and/or irrelevance
  • Although 2022 was not a banner year for Bitcoin (amidst a wider rout in most markets), it still remains one of the best-performing investment assets since its inception, with a Bloomberg video acknowledging its anniversary citing a 1,690,706,971% (!) return since launch
  • Of course, that figure is somewhat skewed by measuring from the very first Bitcoin transaction, but measuring along a more reasonable 5-year timeframe—when the broader concept of digital assets was established—it has still grown more than 16-fold from its price of $1,021 on January 3rd 2017
  • Using an established basis for comparison, Bitcoin has outperformed leading tech stock Meta (formerly Facebook) by about 4.5 to 1 since 2019 
  • According to analytics site Coinmetrics, $8.2tn was transferred on the Bitcoin blockchain in 2022, an average of $260,000 a second


What happened: Zodia hires Starling Bank co-founder as new CEO


How is this significant?

  • Zodia—the digital asset joint venture of Standard Chartered and Northern Trust—appointed Starling Bank co-founder Julian Sawyer as CEO this week, in a move aimed at boosting expansion efforts in 2023
  • He previously served as CEO at digital asset exchange Bitstamp during a major growth phase, and has experience in traditional finance from his time as co-founder and COO of UK challenger bank Starling
  • Speaking to finance newspaper City AM, he said “I am excited to begin working with Zodia Custody. I look forward to taking the business to the next level and scaling Zodia Custody to become the default choice for institutions”


What happened: Indonesia launches national digital asset exchange


How is this significant?

  • Indonesia is following several other nations (including Japan, Hong Kong, and Brazil) recently in increasing access to digital assets; but is doing so perhaps more directly than any of them
  • On Wednesday, it was reported that Indonesia will set up its own crypto asset exchange, before moving regulatory powers over the asset class from a commodities agency to the Financial Services Authority
  • The nation’s central bank is one of many to have outlined plans for a CBDC, and recently passed a law recognising digital assets as regulated financial securities
  • In the first 11 months of 2022, Indonesia had 16 million crypto asset investors, accounting for just under 6% of the population


What happened: BlackRock lends to Bitcoin miner Core Scientific


How is this significant?

  • The world’s largest asset manager, BlackRock, committed $17m to Bitcoin mining firm Core Scientific this week, allowing Core to continue operations whilst they undergo bankruptcy proceedings
  • BlackRock-managed fund “held $37.9 million in secured convertible notes of Core Scientific as of Dec 28”
  • Core also secured $37.5m from a large group of creditors currently holding $550m of convertible notes 
  • Core is one of the largest Bitcoin mining firms in operation, but like many has felt the pinch of extreme increases in energy costs coupled with declines in Bitcoin prices
  • On Wednesday, it was reported that Core will shut down 37,000 Bitcoin mining rigs tied to Celsius, which the latter hasn’t fully paid due to their own bankruptcy processes


What happened: Coinbase reaches $100m settlement with New York regulators


How is this significant?

  • Publicly traded digital asset exchange Coinbase agreed a $100m settlement with the New York State Department of Financial Services this week
  • The New York regulators alleged that Coinbase didn’t conduct sufficient due diligence during background checks on new customers opening accounts at the exchange
  • Coinbase was a victim of its own success in this case; New York superintendent of financial services Adrianne Harris stated “Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth”
  • The $100m settlement will be split evenly between a fine, and $50m spent on improved compliance services over the next two years
  • Markets responded positively to this resolution, with Coinbase shares traded around 11% higher following news of the settlement
News Roundups