Nickel Research Centre

Nickel News Roundup - Week 43

27th October, 2022

Market Overview:

Digital assets experienced a strong week as some confidence returned to markets despite prevailing macroeconomic challenges.

  • Bitcoin reached its highest levels in a month and a half, experiencing strong growth after the weekend and climbing above the $20,000 mark
  • Bitcoin dipped to a low of $18,780 on Friday, and a high of $20,890 on Wednesday
  • Bitcoin’s current price of $20,730 represents a commendable 8.3% weekly increase 
  • Ether followed Bitcoin’s movements, but significantly outpaced it, rising from a Friday low of $1,261 to a high of $1,584 on Wednesday
  • Ether’s current price of $1,555 equates to a strong 20.6% weekly growth
  • Ether marked three weeks of supply decrease, with current burn rates versus issuance rates forecasting a near equilibrium of -0.06% net issuance per year
  • Overall market capitalisation grew alongside the leading digital assets to once again breach $1tn 
  • According to industry monitoring site Defi llama, total value locked in DeFi this week was worth $55bn
  • NB: Industry monitoring site DeFi Pulse, the source for total value locked in previous newsrounds, has pivoted away from data aggregation; therefore the large divergence from last week’s figures is due to differences in methodology and protocols monitored, rather than a massive over-performance compared to the digital asset market in general

Digital assets returned to growth as markets reacted favourably to changes in UK political leadership. There was a watershed media moment as Bloomberg Businessweek dedicated its entire issue to one writer’s musings on all things crypto, regulatory developments rolled in around the world (and a new survey suggested investors welcome them), and Fidelity moved to increase their digital asset headcount by 25% whilst the crypto winter claimed more C-suite executives in one week than ever before (although all of them lasted longer in their posts than the previous UK prime minister).

What happened: Bloomberg Businessweek devotes entire issue to digital assets

How is this significant?
  • Bloomberg Businessweek subscribers may have been surprised this week to find that, instead of the finance magazine’s usual variety of stories across multiple businesses, industries, and sectors, there was just one article this week; “The Crypto Story”
  • Penned by Bloomberg opinion columnist Matt Levine, The Crypto Story runs cover-to-cover, and weighs in at a novella-sized (but eminently readable) 40,000 words
  • This marked only the second time in the publication’s 93-year history that an entire issue has been penned by one writer; indicating the rising profile (and acceptance) of digital assets within traditional and mainstream financial discourse
  • Levine states that he has no strong feelings either side of the crypto-sceptic vs crypto-evangelist divide, but declared “If you like understanding the structures that people build to organise economic reality… crypto is amazing”
  • As a writer in the financial field (as well as a former lawyer and investment banker), Levine argues that “Crypto has a pretty well-developed financial system, and I'm going to talk about it a fair bit, because it’s pretty well-developed and because I like finance”
  • The article posits that the current bear market makes this a uniquely relevant time to have actual conversations about crypto assets and infrastructure, rather than just the hype and bombast of exponential gains; “'s a good time to be talking about crypto. There's a pause; there's some repose. Whatever is left in crypto is not just speculation and get-rich-quick schemes. We can think about what crypto means—divorced, a little bit, from the lines going up”
  • Levine posits that digital assets have introduced many novel interpretations and executions of existing financial structures; “Crypto built an efficient system to make the customers of a business also its shareholders”
  • He argues that, despite steep sell-offs this year, “crypto still matters” for a variety of reasons; including the foundational importance of databases in our existence—and thus the need to trust data hasn’t been tampered with by third parties, as blockchain ensures
  • The article also argues that, the more of our lives are spent online, the greater the value and utility of digital assets will be
  • It concludes that as time passes and technology progresses, the world of digital assets will likely become more and more relevant; “If you build a financial system whose main appeal is its database, it will be well-suited to a world lived in databases. If the world is increasingly software and advertising and online social networking and, good Lord, the metaverse, then the crypto financial system doesn’t have to build all the way back down to the real world to be valuable. The world can come to crypto”

What happened:New survey suggests increased regulation attracts investors to crypto assets

How is this significant?
  • New research published this week suggests that increased crackdowns from the SEC and other regulators may have a beneficial effect for the digital asset industry—legitimising it in the eyes of more investors
  • Respondents to Bloomberg’s latest MLIV Pulse survey agreed that “greater enforcement against crypto” made them more likely to invest
  • Perhaps surprisingly, this sentiment was more pronounced amongst retail investors than professional investors; 65% of the former said enforcement made them more likely to allocate funds towards crypto assets, compared to 56% of the latter
  • This indicates that the growing profile of digital assets—and a move away from stereotypes of an unregulated, lawless “Wild West” of finance—attracts new investors not just through greater awareness, but greater legitimacy (and therefore easier access)
  • One respondent stated “I'm in the ‘yes’ camp. As a professional investor, you need a regulated investment opportunity and it opens the doors for more professional investors to get involved in crypto, if it's more regulated”
  • Additionally, survey respondents were generally more optimistic than during the previous polling in July; predominantly predicting range-bound trading between $17,600 and $25,000 until the end of the year; a step up from $10,000 end-of-year predictions back during the summer doldrums

What happened: Contagion latest—Cascading resignations

How is this significant?
  • C-suite resignations continued to rain down, as numerous high-level executives stepped aside this week under the pressure of market conditions, looming regulation, or just an appetite for “new challenges”
  • Michael Patchen resigned as Chief Risk Officer at digital asset broker Genesis after just three months—the latest high-profile departure at the company since a 20% headcount reduction in August that included a CEO departure
  • Although not threatened by the spectre of bankruptcy, the Digital Currency Group-owned firm have had to cut costs considerably, as the largest creditor in the contagion-fuelled collapse of hedge fund 3 Arrows Capital (3AC)
  • Gavin Wood, co-founder of smart contract blockchains Ethereum and Polkadot, stepped down as CEO of Parity, a technology infrastructure provider dedicated to the Polkadot ecosystem
  • Wood remains the firm’s majority shareholder and chief architect, telling Bloomberg “The role of CEO has never been one which I have coveted (and this dates back long before Parity)... I can act at being a CEO well enough for a short while, but it’s not where I’m going to find eternal happiness”
  • CEO Alexander Hoeptner left Bitmex this week after almost two years leading the prominent leverage-trading platform
  • He originally became CEO as a consequence of one of the largest digital asset enforcement actions ever in early 2021; exchange co-founder Arthur Hayes and other executives resigned following a $100m fine from the CFTC for allowing American citizens access to the trading platform
  • Nick Bougalis, chief engineer of XRP developers Ripple Labs was the longest-tenured leader to step aside, tweeting “My decade-long journey at Ripple has been a fantastic (if exhausting and all-consuming) one. I got to work on a project that I love, towards a goal I believe in. But that journey will be coming to an end in a few weeks”
  • The latest developments in the hunt for Do Kwon—the errant developer of the collapsed Terra Luna blockchain ecosystem—indicate that South Korean authorities believe he left Singapore and transited via Dubai to “destinations unknown”
  • Although he refuses to disclose his current location, Do Kwon insists his innocence of any wrongdoing in breaches of capital markets law, and believes the arrest warrant against him to be “politically-motivated
  • Do Kwon’s claims of innocence were in fact supported by a Korean judge, who ruled it “debatable” whether the various Terra Luna tokens can be regulated as securities or violate the country’s Capital Markets Act
  • A US bankruptcy judge ruled that Celsius stockholders won’t be able to form a committee of official equity holders during the lender’s ongoing bankruptcy process
  • As a result, they can neither have their legal fees paid by Celsius, nor are they prioritised over creditors (mainly Celsius customers) in the matter of value generated by Celsius’ operational mining business or loan book
  • In other bankruptcy proceeding news, court filings showed that customers of beleagured lender Voyager could receive 72% of their digital asset value back if a current takeover bid from FTX.US is finalised
  • Digital asset billionaire and FTX CEO Sam Bankman-Fried this week suggested a maximum bounty payment of $5m for any hackers exploiting exchanges and protocols to drain funds
  • He specifically advocates for the industry-wide implementation of a “5-5 standard” when dealing with exploits; meaning that hackers be allowed to keep either 5% or $5m of exploited funds, whichever is smaller
  • The current ad hoc system of security bounties allows hackers to carry out major exploits, safe in the knowledge that they can negotiate a partial return of funds to the affected exchanges in order to secure legal indemnity under the guise of exposing security vulnerabilities; most recently a hacker openly outed himself and confessed to his role in a $114m exploit, keeping nearly $50m of the funds after negotiations

What happened: Fidelity hikes up hiring push for digital asset unit

How is this significant?
  • During uncertain economic times when many businesses around the world are reducing their headcount and payroll, Fidelity are signalling enough faith in their digital asset division to significantly increase hiring efforts
  • The new hiring round is expected to add 100 people to the division, bringing the total employee count of Fidelity Digital Assets up to around 500
  • Recruitment will be distributed across several major hubs, including current bases in New York, Boston, London, and Dublin
  • A company representative said that new hires will work across a variety of roles as they bolster expertise throughout all offerings; “client services, operations, technology, business development, marketing, and compliance”
  • Fidelity has been one of the most visible traditional finance giants to support the digital asset sector, launching ETFs tracking metaverse and crypto industry exposure, as well as allowing for Bitcoin allocation in US 401(k) retirement funds

What happened: Nations move towards regulatory recognition of digital assets

How is this significant?
  • Several events with potentially significant outcomes for the regulatory status and adoption of digital assets occurred in several nations this week, indicating a continued interest in the subject at government levels
  • In the UK, MP Andrew Griffith added amendments to the Financial Services and Markets Bill, recognising and regulating digital assets (including stablecoins) on a par with existing financial instruments
  • Specifically, it reads “This new clause amends the Financial Services and Markets Act 2000 to clarify that the powers relating to financial promotion and regulated activities can be relied on to regulate crypto assets and activities relating to crypto assets. Cryptoasset is also defined, with a power to amend the definition”
  • If the draft bill passes its third reading and finds approval in the House of Lords, it will be passed into law (pending the formality of acceptance by King Charles III)
  • Also in the UK, Rishi Sunak was confirmed as the new Prime Minister, following the resignation of Liz Truss—making him the first leader of a major economy to have promoted digital assets
  • During his stint as chancellor of the exchequer, Sunak set out plans to make the UK “a global crypto asset hub”, declaring “It’s my ambition to make the UK a global hub for cryptoasset technology… We want to see the businesses of tomorrow—and the jobs they create—here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term”
  • In South Africa, the Financial Sector Conduct Authority declared digital assets to be financial products, bringing the industry within the nation’s legal framework
  • Digital asset exchanges, lenders, and brokers must obtain a trading licence by 30th November 2023 in order to remain legally compliant
  • In neighbouring Eswatini (formerly known as Swaziland), the central bank announced a consultation process on the viability of a CBDC, led by German technology group Giesecke+Devrient (G+D)
  • G+D previously helped Ghana pilot a retail CBDC, making them the second African nation after Nigeria to trial a national digital currency
  • Pan-African digital asset exchange Yellow Card became the first such business to be licenced within Botswana, widening access to payment partners and thus helping to serve the unbanked community within the country
  • In another move to position Dubai at the forefront of the digital asset field, the Central Bank of the UAE completed “the world’s largest pilot of CBDC transactions”, including participation from other regulators including the People’s Bank of China
  • The trial was part of Project mBridge, a cross-border payment development hub, and “saw commercial banks in four jurisdictions use mBridge for 160 payment and foreign exchange transactions totalling more than 80 million dirhams ($21.78 million)”
  • According to the Atlantic Council, “Roughly 100 countries, representing 95% of the world’s GDP, are using or looking into CBDCs”

What happened: VC news—Stealth raises for DeFi

How is this significant?
  • According to SEC filings, a DeFi-focused digital asset hedge fund called Edge Capital Management, has raised nearly $67m across two new investment funds
  • Despite a limited online presence, they’ve secured significant backing, raising the cumulative total from just 14 investors, promoting a macro approach to investing
  • Crypto investment firm Parataxis Capital announced plans to nearly triple their current $35.6m of assets under management in its digital yield fund by the end of the year, and outlined an even more ambitious target of $500m for the end of 2023, according to CEO Edward Chin
  • The Digital Yield Fund gained some exposure earlier this year, when a $6.8bn Virginia pension fund approved plans to invest $35m into it as part of a crypto exposure strategy
  • Binance launched a $10m fund to help projects building on its BNB chain drive user acquisition and growth 
  • SEC Filings revealed that ARK’s Fintech Innovation Fund added Coinbase stock for the first time since June, bringing their total COIN holdings to $60.5m
  • ARK appears to remain bullish on digital assets; speaking on a podcast this week, CEO Cathie Wood revealed that she purchased $100,000 of Bitcoin when it was trading around the $250 mark, after reading Satoshi Nakamoto’s original white paper—and she claims not to have sold any since
  • Stone Ridge asset management launched a Bitcoin-focused startup accelerator called In Wolf’s Clothing, taking in four cohorts of eight to twelve teams a year to focus on developing for the Bitcoin Lightning Network
  • All participating teams will be awarded $250,000 for the eight-week program, with the winning team awarded an additional $500,000

What happened: Banking industry news—from neo-banks to private banks

How is this significant?
  • Bank of America (BofA) strategists wrote this week that changing correlation levels with other assets might indicate a return to “safe haven” status for Bitcoin
  • The analysts noted “A decelerating positive correlation with SPX/QQQ and a rapidly rising correlation with XAU indicate that investors may view Bitcoin as a relative safe haven as macro uncertainty continues and a market bottom remains to be seen”
  • Swiss bank SEBA became the first regulated financial institution in the world to offer their clients an NFT custody service, indicating both the economic and emotional value that such assets can achieve
  • German neobank N26—which claims over 8 million customers—rolled out functionality allowing customers to trade over 100 different digital assets, in partnership with Austrian digital asset exchange BitPanda
  • The functionality will be enabled in Austria first, scaling up to 200 digital assets within a month, and rolling out to other markets within 6 months
  • Zodia Custody, a digital asset storage service developed in collaboration between Standard Chartered and Northern Trust, released an identity toolset to help institutions prove ownership of digital assets held in custodial wallets
  • This “proof of ownership” system allows institutions to easily prove their right to digital assets in the event of disputes or custodian issues (as recently proven by Celsius)
News Roundups