Nickel Research Centre

Nickel News Roundup - Week 31

5th August, 2021 

Market Overview:

The digital asset market experienced a strong week—although Bitcoin pulled back slightly from last week’s double-digit growth in the face of possible new legislation, Ether experienced strong performance ahead of its supply-slowing EIP 1559 upgrade.

  • Bitcoin reached highs of $42,500 on Monday, before retracing to weekly lows of $37,700, but current price levels of $38,880 remain in line with last week’s performance
  • Ether built on last week’s strong performance, reaching a high of $2,721 on Wednesday, crossing the $2,700 mark for the first time since early June
  • Current Ether prices of $2,686 represent an 18% increase since last week; the second consecutive week of double-digit growth
  • Both of the leading digital assets have recently experienced record-breaking runs; Bitcoin experienced 10 days of growth in a row for the first time since 2013, whilst Ethereum achieved 12 consecutive days of growth for the first time in the asset’s history
  • Overall market capitalisation of digital assets crossed $1.6tn for the first time in over two months, for a current value of $1.63tn
  • Only 11 of the top 100 digital assets (excluding stablecoins) declined in value this week
  • The DeFi sector had another strong week driven by Ethereum, adding almost $5bn in total locked value for a total of $81.4bn

Digital assets had another strong week—although Bitcoin was unable to make a sustained break above $40,000, Ethereum more than compensated heading into its network upgrade. Proposed legislation in the United States this week sought to increase crypto taxation revenues, whilst Spanish politicians proposed additional utility for digital assets within the economy. In the world of business, State Street made another move to increase their expertise, whilst PayPal and Mastercard reaffirmed their commitment to the asset class. Miners continued to make investments into green mining, and non-fungible tokens demonstrated their appeal with more funding and record transaction volumes.


What happened: United States government seeks to raise $28bn from crypto asset taxation

How is this significant?
  • A bipartisan federal infrastructure bill seeking to raise $1tn in the United States for the first time included a provision for digital asset reporting
  • Politicians seek to raise an estimated $28bn over the next 10 years from more rigorous reporting and taxation of digital assets
  • Amongst the finer details of the bill, senators expect “brokers” to report any digital asset transaction valued above $10,000 to the IRS—but there hasn’t been a clear definition offered on what constitutes a “broker” in the current context of the digital asset landscape
  • Although the politicians say the bill should provide more clarity on taxation of digital assets, industry bodies such as the Chamber of Digital Commerce have argued that it’s “too broad and vague...Further clarifications are needed to ensure the digital asset ecosystem can continue to grow and flourish in the U.S.”
  • If passed into law, the bill won’t come into effect until at least 2022

What happened: State Street announces “digital asset fund administration capabilities” 

How is this significant?
  • State Street further enhanced their digital asset offering this week, partnering with Lukka to “support its private fund clients with collection, standardization, enrichment, reconciliation, processing and reporting related to crypto and other digital assets”
  • This move follows several other ventures they’ve made in the space, such as launching their own digital division, and recently partnering with BNY Mellon and 4 other banks in launching a new digital asset exchange
  • Nadine Chakar, head of State Street Digital, confirmed the company’s long-term digital asset vision was catalysed by clients; “The growth in popularity of digital assets is showing no signs of a slowdown and State Street Digital is committed to continuing to build out the necessary infrastructure to further develop our digital assets servicing models to help meet our clients’ growing demands”

What happened: Google once more allows digital asset advertising

How is this significant?
  • A revision to previous Google advertising restrictions went live this week, meaning that digital asset exchanges are now able to advertise on the world’s largest search engine
  • Google is one of the largest advertising platforms in the world, with $147bn in annual ad revenue
  • This undoes a 3-year long restriction by one of the world’s leading information brokers, after Google had previously banned all advertising related to crypto assets and ICOs (Initial Coin Offerings) back in June 2018
  • Although the restrictions have been relaxed, there are still several caveats in place; only “advertisers offering cryptocurrency exchanges and wallets” may participate, and those wishing to advertise in the United States must be registered with FinCEN or a “federal or state chartered bank entity”

What happened: $45bn asset manager adds Bitcoin to balance sheet

How is this significant?
  • According to a report on finance site TheStreet, GoldenTree ($45bn AUM) has become the latest Wall Street firm to invest in Bitcoin with an eye to the future
  • Sources told TheStreet that GoldenTree aimed to use Bitcoin as a diversifier, in contrast to their more traditional credit interests
  • The firm may increase their interest in the sector imminently, with the report claiming that they are currently recruiting for digital asset expertise

What happened: SEC chair Gary Gensler elaborates stance on digital assets

How is this significant?
  • Recently-appointed SEC chair Gary Gensler provided some further insight this week into his opinions and perceptions regarding digital assets, which could provide clues to future regulatory efforts
  • As expected, Gensler appears to advocate for more “investor protection”, stating that “I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight”
  • However, he did also praise the potential of digital assets, saying the technology has a strong role to play in the future; “[Satoshi] Nakamoto’s innovation is real… I really do think there’s something real about the distributed ledger technology, moving value on the internet”
  • Gensler also noted that he’s “intrigued” by the technology, and “neutral” towards it, in contrast to more conservative predecessors in prior administrations

What happened: New survey finds majority of UK citizens are open to crypto-backed loans

How is this significant?
  • According to a survey of 2000 adult Britons released by Coinbase this week, the majority of UK citizens find the concept of crypto-backed loans compelling, indicating an increased acceptance as a legitimate asset class
  • 41% said that they invested with a long-term horizon, and the goal of accruing significant returns on their capital
  • Just over half of respondents said they would be “very interested” in using digital asset holdings as a guarantee when taking out a loan, in place of traditional fiat currency or real estate
  • Marcus Hughes, Coinbase’s European MD commented "We can see that the attitudes of British consumers towards cryptocurrency have transformed significantly in the last few years, with many now considering adopting cryptocurrency as an alternative method to execute traditional banking functions including transactions and loans...The future of cryptocurrencies is directly linked to their utility, and we are therefore hugely encouraged by these findings”

What happened: Spanish bill proposes legalising digital assets for property and mortgages

How is this significant?
  • A new draft bill proposed in Spanish parliament this week seeks to legally recognise digital assets as legal tender for the purpose of payments related to mortgages and real estate, as well as insurance
  • Aiming to incentivise the growth of digital asset and blockchain businesses within Spain, the bill also proposes tax breaks and patent fee reductions for companies in the crypto asset space
  • The bill was submitted soon after parliament approved a law requiring more detailed disclosures of digital asset holdings, with the new bill also proposing the creation of a National Crypto Asset Council to oversee the integration of the asset class into Spain’s existing economic infrastructure

What happened: Ethereum experiences significant increase in DeFi participation

How is this significant?
  • A new report by Ethereum analysis and incubation body Consensys found that the world’s leading blockchain saw a 65% increase in network participation for Q2 2021, due to the growing value of DeFi
  • Whilst the total number of addresses on the Ethereum blockchain grew by 10% in Q2, the amount of addresses actively participating in DeFi increased by 65% in the same timeframe
  • In their report, Consensys noted that "As community driven education, simple user interfaces, appealing yields, and general awareness around DeFi best practices increased throughout the quarter, so too did the number of new addresses"
  • In total, over 2.9m addresses were engaged in DeFi activities by the beginning of July

What happened: Bank of America discusses benefits of El Salvador Bitcoin adoption

How is this significant?
  • In a report this week, Bank of America (BoA) appeared to support El Salvador’s recent adoption of Bitcoin as legal tender, despite some institutions like the IMF expressing reservations on the matter
  • BoA outlined 4 broad benefits that the legislative move provides to the nation, focusing on digitisation of finances, improvements to remittances, increased consumer choice, and increased appeal as a destination for American digital asset companies and miners
  • With 24% of El Salvador’s GDP coming in the form of remittance payments, a large proportion of which are lost to fees, BoA noted “Using Bitcoin for remittances could potentially reduce transaction costs compared to traditional remittance channels… The idea is that Bitcoin could be used as an intermediary for the cross-border transfer so that dollars are converted to Bitcoin by the sender and then converted back to dollars domestically by the receiver”
  • Furthermore, the report noted that approximately 70% of Salvadorans don’t have a formal bank account, allowing the country to realise a greater degree of financial inclusion through the recognition of digital assets

What happened: Cash App triples Bitcoin revenues

How is this significant?
  • Jack Dorsey’s Square is a leading payment processor in the United States, and their Cash App is one of the country’s leading financial apps
  • According to a shareholder letter published on Sunday, their Q2 Bitcoin revenues and profits were both up well over 200% year-on-year; “Bitcoin revenue and gross profit benefited from year-over-year increases in the price of Bitcoin and Bitcoin activities, and growth in customer demand”
  • Bitcoin services accrued over $2.7bn in revenue for the app, with $55m profit (since the company aims to sell Bitcoin at market price, rather than profiting through large trading fees)
  • According to Bitcoin Treasuries, Square is currently the 5th-largest corporate holder of Bitcoin in the world, holding over 8,000 Bitcoin with a total value above $316m

What happened: Non-fungible token market sets new records

How is this significant?
  • The NFT space continues to gain momentum, with several significant funding raises and sales statistics emerging this week
  • NFT marketplace MakersPlace (who have minted digital artworks previously auctioned by Christie’s) secured $30m in Series A funding this week, from backers including Sony Music Entertainment, Pantera Capital, and Coinbase Ventures
  • Data collected by industry publication TheBlock revealed that weekly trade volumes of NFTs exceeded $300m for the first time this week, for a total of $339m
  • Although NFTs are primarily associated with digital art, these trading volumes came from a variety of technological applications; the top 3 projects by volume were from art, gaming, and collectible categories
  • Leading NFT marketplace Opensea (recent recipients of a $100m investment on a $1.5bn valuation) meanwhile disclosed that they have exceeded $1bn in gross volume, and that their current daily trading volume exceeds their entire annual volume for 2020)

What happened: PayPal recruits to bolster digital asset expertise

How is this significant?
  • Reports in the Irish Independent newspaper this week suggested that PayPal is following the lead of several other major financial companies, and hiring large amounts of new staff specialised in digital assets
  • PayPal has offices in both Dublin and Dundalk, and according to the paper “has begun hiring for cryptocurrency-related positions in roles such as compliance and anti-money laundering checks. This includes roles in PayPal’s blockchain, crypto and digital currencies (BCDC) business unit”
  • In a recent Q2 earnings call, PayPal CEO Dan Schulman indicated that they would be expanding the company’s crypto trading capabilities from the United States to the UK in the near future, as well as investing in upgrades allowing for faster processing of digital asset payments

What happened: German legislation allowing institutional crypto investment comes into effect

How is this significant?
  • On Monday, recent changes to German law came into effect that allow institutional funds to hold up to 20% of their portfolio value in digital assets
  • These Spezialfonds currently manage over $2tn in assets, are generally only available to institutional investors like insurers and pension funds
  • Despite the potential for new exposure in Europe’s largest economy, industry experts like Tim Kreutzmann of investment fund association BVI have urged (initial) caution, noting that conservative German investors will likely be slow to adopt; “On the one hand, institutional investors such as insurers have strict regulatory requirements for their investment strategies. And on the other hand, they must also want to invest in crypto”

What happened: Mastercard CEO declares “We have to be in this space”

How is this significant?
  • In an earnings call on Thursday, Mastercard outlined their digital asset strategy, making it clear that they’re committed to the asset class as a company
  • CEO Michael Miebach believes they’re uniquely positioned as a payment provider to act as an introductory touchpoint for both customers and merchants when it comes to crypto assets; “What we believe we do is bring a perspective to the market as a multi-rail payment provider. We have to be in this space because people are looking for answers”
  • Mastercard recently integrated the USDC stablecoin as a means to streamline crypto payments, and Miebach indicated they’re keen to work with CBDCs as well; “All of these countries have to make a trade-off between existing delivery of financial products and what a CBDC is solving for, whether it's financial inclusion or cross-border payments. We have experience with all of that”
  • Alongside Visa and PayPal, Mastercard are amongst the world’s top payment processors leveraging the increased appeal of digital assets, and they aim to strengthen their proprietary expertise through the launch of the Mastercard Start Path incubator, which accepted its first 6 digital asset firms last week
  • Speaking about the incubator, Jess Turner, EVP, new digital infrastructure and fintech said “Part of our role is to forge the future of cryptocurrency, and we’re doing that by bridging mainstream financial principles with digital assets innovations”

What happened: $60bn ProFunds files to provide Bitcoin exposure through mutual funds

How is this significant?
  • Although digital asset ETFs have been the main financial vehicle attracting traditional investor attention, with over a dozen currently under review by the SEC, there are several other means of providing exposure to the new asset class through familiar platforms
  • ProFunds, an asset manager with $60bn AUM, have registered a mutual fund with the SEC, which could provide a new means for retail investors to enter the space without directly purchasing crypto assets, albeit in a less tax-efficient way than an ETF
  • The Bitcoin Strategy ProFund aims to invest in CME Bitcoin futures contracts, with a long-term investment horizon; “The Fund does not take temporary defensive positions. The Fund will generally hold its bitcoin-related investments during periods in which the value of bitcoin is flat or declining as well as during periods in which the value of bitcoin is rising. For example, if the Fund’s bitcoin-related investments are declining in value, the Fund generally will not exit its positions except as needed to meet redemption requests”
  • Meanwhile, Victory Capital became the latest firm to join the race for a digital asset ETF, tracking the Nasdaq Crypto Index
What happened: Hedge fund billionaire Alan Howard discloses stake in crypto asset firm

How is this significant?
  • Industry publication Coindesk revealed this week that Brevan Howard hedge fund founder Alan Howard has made another significant investment in the digital asset space, soon after his participation in the $900m Series B round for FTX exchange
  • Now, he has invested in Germany, taking a 5.8% stake in crypto asset managers Iconic Holding, according to disclosures in the German Handelsregister
  • Although a spokesman for Howard told industry publication Coindesk that he sees his investment as “negligible”, it is nonetheless one in a long series of investments in the space, with the FT citing at least 6 other investments prior to the FTX raise 

What happened: Rothschild-funded firm lead digital asset funding round

How is this significant?
  • RIT Capital Partners, an investment firm founded by Lord Jacob Rothschild, led an early-stage funding round this week for institutional digital asset investment platform Aspen Digital
  • Based in Hong Kong, the company aims to collate multiple exchange order books into one simplified platform for institutional investors
  • This isn’t the first digital asset investment for the firm formerly known as the Rothschild Investment Trust; back in April they published an investor note that they had acquired an interest in leading American crypto asset exchange Kraken

What happened: Mining developments continue

How is this significant?
  • Bitcoin miners continue to invest big in both mining hardware, and green energy capabilities, seeking to benefit from China’s reduced position in the global mining mix
  • Vancouver-based HIVE confirmed an order of 4,000 mining devices from Beijing-based Canaan, for delivery in August and September
  • A press release declared publicly-listed HIVE “the first cryptocurrency mining company with a green energy and ESG strategy”, with a major order from a Chinese manufacturer directly moving hashpower from China into more sustainable energy production
  • Meanwhile in the United States, clean mining company Stronghold Digital Mining—who recently raised $100m with a view to an IPO—confirmed the purchase of a second power plant to double their mining capacity, with $40m in lease capital secured from WhiteHawk Capital Partners
  • According to industry publication Coindesk, Stronghold are currently in negotiations for a third facility as well, to be powered by waste coal which they remove from the environment

What happened: Digital asset exchange completes $84m acquisition of crypto payments firm

How is this significant?
  • Voyager, a Canadian-listed digital assets exchange, confirmed an agreement this week to purchase crypto payments provider Coinify for $84m
  • Coinify investors will be provided Voyager shares in the value of $69m, as well as $15m in cash under the terms of the deal
  • Stephen Ehrlich, Voyager CEO, was keen to stress the additional utility the acquisition would provide to customers: “As the adoption of cryptocurrency payments gains momentum, the acquisition of Coinify brings a global payment infrastructure to Voyager's digital asset ecosystem and will give our rapidly growing customer base of over 1.75 million users a fast, easy, and secure way to make payments from their Voyager accounts”
  • Interestingly, as per the agreement, about 60% of the shares received by Coinify investors will be locked for 12 months or until Voyager lists on the Nasdaq, whichever is earlier—indicating possible plans by the exchange to list stateside
News Roundups