Nickel Research Centre

Nickel News Roundup - Week 15

12th April, 2024

Market Overview:

Digital assets bounced back after a couple of cool weeks, defying wider market movements.
  • Bitcoin showcased consistent growth throughout the week, as several Bitcoin miners depleted their stashes in strategic pre-halving sell-offs
  • The amount of Bitcoin held by miners dropped to its lowest levels in over three years as mining firms liquidated holdings to pay for upgraded hardware in an imminent post-halving environment
  • Bitcoin increased steadily from a Friday low of $66,400 to a Tuesday high of $72,520
  • Ether outperformed Bitcoin, albeit off the back of several significantly weaker performances over the last fortnight
  • The second-largest digital asset grew from a Friday low of $3,225 to a Tuesday peak of $3,718
  • Overall digital asset market capitalisation increased by $100bn to $2.63tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi grew to $96.8bn

Digital assets recovered after cooling off for a couple of weeks, helped by continued strong ETF performance, and depletion of Bitcoin miner reserves ahead of the network’s impending supply issuance halving event. BlackRock and Circle made moves to more easily integrate the asset manager’s new tokenised fund into DeFi, a variety of stablecoins made the news, and Korean politicians courted voters with digital asset promises.

What happened: Circle and BlackRock team up for redemption of tokenised fund

How is this significant?

  • USDC stablecoin issuers Circle announced the development of a new smart contract this week to automate redemptions of asset management giant BlackRock’s new tokenised money market fund, BUIDL
  • BUIDL attracted nearly a quarter of a billion dollars within a week of its debut, as asset tokenisation has proven to be a compelling crypto usecase for a variety of TradFi institutions
  • In a press release announcing the new smart contract functionality, Circle announced that BUIDL holders will be able to transfer their tokens—which maintain a $1 value but feature automated yield, unlike stablecoins—directly to Circle in order to redeem them for an equivalent value of USDC stablecoins
  • This streamlines BUIDL’s functionality within the wider crypto ecosystem, simplifying for example the redirection of a user’s BUIDL funds into an asset integrated into DeFi protocols
  • BlackRock’s decision to launch BUIDL on the public Ethereum blockchain, rather than a private permissioned chain, contributed to the speed of this functionality development
  • Circle CEO Jeremy Allaire commented that “Tokenisation of real-world assets is a rapidly emerging product category… [it’s] but one important dimension of solving investor pain points. USDC enables investors to move out of tokenized assets at speed, lowering costs and removing friction”
  • Allaire added that integration into the wider crypto ecosystem also “deliver[s] the core benefits of blockchain transactions via USDC availability to investors”
  • This echoed statements made by BlackRock’s digital asset head Robert Mitchnick when BUIDL was originally announced, when he remarked that “This is the latest progression of our digital assets strategy. We are focused on developing solutions in the digital assets space that help solve real problems for our clients”
  • The development marks the latest step in a long-running cooperation between BlackRock and Circle; the asset manager invested in a $400m funding round by Circle in April 2022, and manages the backing reserves used to guarantee the value of circulating USDC stablecoins
  • In other tokenisation news this week, Bitfinex Securities launched a $6.25m tokenised debt issuance to pay for the construction of a new hotel at El Salvador International Airport, with a 10% coupon over a five year term
  • Bitfinex Securities CTO Paolo Ardoinio told industry publication TheBlock “For the first time, investors who do not usually have the opportunity to invest in such assets have the opportunity to do so, while issuers in markets which have less access to capital are able to tap into a new asset class to raise finance”

What happened: ETF news

How is this significant?

  • Bitcoin ETFs continued their strong trading performance this week, extending impressive runs
  • In particular, BlackRock’s IBIT and Fidelity’s FBTC ETFs maintained their sequence of consecutive inflow days since launch, which now stands at 62 days and counting
  • This puts both funds comfortably within the top 20 consecutive inflow days in (US) ETF history, and “in league of own when it comes to active streaks or streaks for newborns”
  • BlackRock began running advertising for IBIT directly on Bloomberg’s homepage as part of a wider marketing push
  • The asset management giant also added several significant institutional names to its list of authorised participants (APs) in a new SEC filing; these new APs include Goldman Sachs, Citigroup, UBS, Citadel Securities and ABN AMRO, joining existing APs like JP Morgan and Jane Street
  • In a FOX Business interview, BlackRock’s head of active ETFs noted that “a lot of investors for the first time can now consider Bitcoin; it just wasn’t available to a lot of investors who could only buy things traded on [TradFi] exchanges, like ETFs”
  • IBIT remains on pace to overtake Grayscale’s GBTC as the largest spot Bitcoin ETF, despite GBTC beginning as a converted with existing assets
  • Bloomberg ETF analyst Eric Balchunas outlined just how impressive IBIT’s performance has been even in the context of a massive company like BlackRock; “$IBIT is up over 50% and has taken in $15b in new cash in three months, both of those numbers are double any other BlackRock ETF and they have 421 of them”
  • His colleague James Seyffart meanwhile noted that the SEC delayed a decision on whether to allow options on spot Bitcoin ETFs
  • Defiance ETFs filed for a 2x leveraged Ether Futures ETF, whilst ProShares filed for 2x and -2x spot Ether ETFs, illustrating the gradual expansion of the digital asset ETF complex
  • Additionally, Bloomberg analysts maintained a pessimistic outlook on odds for spot Ether ETF approvals in May, noting a lack of SEC comments on current filings and postulating that “silence is violence” in this case
  • One of the greatest negatives since ETF launch—the high scale of outflows from Grayscale’s converted, high-fee GBTC fund—was also somewhat mitigated this week, as bankrupt lender Genesis confirmed it had completed the sale of its entire GBTC allocation
  • As a possible corollary of this, Grayscale saw a record low of outflows on Wednesday, dwindling to $17.5m after several days of nine-figure outflows
  • Speaking to Reuters, Grayscale CEO Michael Sonnenschein opined that the fund was now finding “equilibrium” after significant capital flight triggered by asset liquidation from several crypto contagion bankruptcy proceedings
  • Hong Kong appears to be strengthening its position as a key Asian crypto hub in the wake of US Bitcoin ETF success; Reuters wrote on Wednesday revealed that local regulators have sped up the approvals process, with potential for trading to begin within April
  • Reuters reported four applicants for such products in Hong Kong, including “Hong Kong units of China Asset Management, Harvest Fund Management and Bosera Asset Management”
  • Industry publication TheBlock identified Southern Fund Management as the fourth applicant, based on reports from Chinese state newspaper Securities Times
  • The “Hong Kong units” of mainland firms has led some to believe the city may act as a Trojan horse for Bitcoin ETF approval within China, where crypto trading remains officially banned
  • Bloomberg sources suggest that the local units of China Asset Management and Harvest Fund Management in particular “could be imminent”

What happened: Stablecoin news

How is this significant?
  • Cantor Fitzgerald CEO Howard Lutnick spoke at a Chainalysis event this week in which he outlined that—rather than regulator concerns of them undermining the US Dollar—stablecoins could prove beneficial to the greenback
  • He said "Dollar hegemony is fundamental to the United State of America. It matters to us, to our economy. That’s why I’m a fan of properly backed stablecoins. I’m a fan of Tether. I’m a fan of Circle”
  • Lutnick added that stablecoins help drive demand for US Treasuries as a backing asset; “It’s just an evolution. It’s better and it’s everywhere. And thank goodness. I think when proper blockchains, I mean blockchains that are fast and cheap, are available, I think you will see over the next 10 years, fundamental tokenisation of financial asset”
  • Hong Kong stablecoin firm First Digital Limited announced the expansion of its $3bn FDUSD stablecoin to a third blockchain, Sui
  • This follows previous deployments on Ethereum and Binance Chain
  • Sui was launched by engineers formerly on Facebook/Meta’s abandoned Diem stablecoin project
  • Bernstein Research published a new report this week, outlining the growth of stablecoins as a cross-border payment mechanism
  • Analysts Gautam Chhugani and Mahika Sapra wrote that “Stablecoin value settled on the blockchain indicates strong adoption of digital dollar with the crypto trading ecosystem as well as a cross-border payments currency… Q1 2024 annualized value transferred stands at $6.8 trillion, equivalent to 2022 high of ~$7 trillion”
  • They also noted “signs of stablecoin adoption by payments firms such as Paypal (PYPL) and Visa (V) and consumer fintech platforms such as Grab (GRAB) in Singapore and Mercado Libre (MELI) in Latin America”
  • Circle’s global policy head Daniel Disparte outlined frustration over “congressional inaction” in the US during a Bloomberg interview, saying that “the worst actors in the space” should be identified, as “crypto itself doesn’t have an illicit finance problem; bad actors do”

What happened: Regulation news

How is this significant?

  • The SEC this week sent a Wells Notice to decentralised exchange (DEX) Uniswap, warning that it would likely be the subject of an imminent enforcement action
  • Uniswap is the leading DEX in the industry, and passed $2tn in lifetime trading volume last week
  • This is part of the SEC’s continued enforcement assault against the industry (as Bloomberg opinion columnist Matt Levine succinctly says “the SEC hates crypto and does not do anything to make registration easy or even possible”
  • SEC chair Gary Gensler opines that decentralised exchanges aren’t really decentralised as development is carried out by specific teams or individuals, whilst Uniswap COO Mary-Catherine Lader stated “The SEC is trying to kill innovation that we think is inevitable. We are looking forward to winning”
  • John Aughenbaugh, professor at Virginia Commonwealth University, pointed out that “the executive branch is struggling to regulate an industry that does not easily fit within the SEC’s current regulatory authority… until or unless Congress clearly passes legislation on the matter, it is a crapshoot as to whether the SEC has the authority to regulate any cryptocurrency market (like that operated by Uniswap Labs) and whether the federal courts will legally bless the SEC's efforts in this regard”
  • One party frustrated with the SEC’s approach resides within the SEC itself; commissioner Hester Peirce has long supported the digital asset industry’s right to exist
  • In a recent interview with industry publication Coindesk, she bemoaned the American political system’s antagonism and continued lack of clarity on crypto; “I've been here for six years, and it's very discouraging to see that we have not taken a productive path at all. To me, it's inevitable that we'll have to take a productive path at some point—so why not start now? What are we waiting for?”
  • Meanwhile, the US Treasury requested more powers to sanction digital asset exchanges in a congressional hearing this week
  • Deputy secretary Adewale Adeyemo argued “A new secondary sanctions tool would help Treasury to evolve its targeting capabilities and would account for the technological changes that have rendered highly effective tools in traditional payments contexts less effective against virtual currencies”
  • Blockchain forensics firm Chainalysis announced the hire of former IRS criminal investigations head Jim Lee on Monday, with a remit to advise government agencies “on ways to build their capacity to fight crypto crime using Chainalysis’ data and tools”
  • Lee commented “Crypto is the future of finance… by equipping law enforcement agencies with the best-in-class tools and data to fight this activity, we can… realise its many benefits without fear of being targeted by criminals”

What happened: Korean political party promising Bitcoin ETF access wins landslide victory

How is this significant?

  • In recent South Korean parliamentary elections, both major parties “underlined the nation’s status as one of the world’s largest crypto markets” with policies around digital assets
  • Courting voters with such campaign pledges makes sense; according to official figures, 10% of Koreans traded on regulated local exchanges last year
  • The ruling party vowed to delay introduction of a crypto asset tax, whilst the opposition Democratic Party promised access to foreign ETFs, including spot Bitcoin products
  • Easy access to ETFs appears to have been compelling, as the opposition won a landslide victory
  • Crypto-linked investments such as MicroStrategy shares and leveraged Bitcoin futures ETFs are immensely popular amongst South Korean traders, accounting for nearly $350m of local trading volume in March
  • Furthermore, around 7% of candidates in the 300-seat parliamentary race disclosed that they currently hold digital assets
  • South Korean authorities reportedly began discussing spot Bitcoin ETF access at the beginning of the month, but the strong 180 opposition win may strengthen and speed that process now

What happened: VC news

How is this significant?

  • There was one major VC raise this week, as blockchain developers Monad Labs raised $225m in a round led by Paradigm
  • Monad are currently constructing a more scalable Layer-1 smart contract blockchain based on Ethereum, using parallel execution to increase throughput up to 10,000 transactions per second on testnet
  • TechCrunch reported a 25% quarter-on-quarter increase in VC activity within the digital asset space
  • According to Dragonfly Capital partner Tom Schmidt, “If the 2023 crypto venture landscape was an ice-cold pot of water, the first quarter of 2024 is the part where the bubbles start to form right before water boils”
  • VCs cited legal victories against the SEC and approval of spot Bitcoin ETFs as driving factors behind renewed enthusiasm for exposure
  • Bloomberg meanwhile logged a 32% quarterly increase according to Pitchbook data
  • Pitchbook crypto analyst Robert Le commented “investors are spending money again. Over the last two years, 18 months, they’d been holding onto the capital that they’ve raised”
News Roundups