Nickel Research Centre

Nickel News Roundup - Week 12

March 23rd, 2023

Market Overview:

Digital assets had another week of strong performance in contrast to the ongoing banking industry meltdown, before pulling back slightly following the FOMC meeting.

  • Bitcoin experienced double-digit growth for the second week in succession, hitting a high of $28,800 ahead of Wednesday’s FOMC meeting, before pulling back slightly following assurances of future rate hikes
  • This was Bitcoin’s highest price since mid-June 2022, up from a Thursday low of $24,520
  • Bitcoin finally managed a clean break above the $25,000 level, leading to a sustained run above $28,000 from Monday to Wednesday
  • Despite falling sharply following the FOMC meeting in which Jerome Powell indicated no imminent rate cuts, weekly growth remained strong; Bitcoin’s current price of $27,700 is up 12.3% from last week
  • As we approach the end of March, Bitcoin could register its best quarterly performance since Q1 2021
  • New research from Galaxy indicated that the amount of Bitcoin held in profit (last moved on-chain when the spot price was lower than currently) is 75%, the highest level since April 2022
  • While the S&P 500 is down around 1.9% over the last month, and up about 3% year-to-date, Bitcoin is up around 14.8% and 65.4% respectively in the same timeframes
  • At its height this week, Bitcoin’s YTD return exceeded 70%
  • Ether broke $1,800 this week, with a $1,653 low and a $1,839 high
  • Ether’s current price of $1,759 showcases 6% growth
  • Total Ether supply declined slightly, but annual issuance rose to near-equilibrium, at -0.07% yearly
  • Overall market capitalisation hit a weekly high of $1.19tn, and currently sits at $1.16tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms grew to $49.2bn

More chaos in global banking markets once again provided an inadvertent endorsement for digital assets, which avoided many of the issues proven to plague banks. Bitcoin was the main beneficiary, hitting double-digit growth again en route to a 70% year-to-date return. Beyond banking, institutions like BlackRock, Fidelity, and Microsoft showcased a continued commitment to the asset class, Hong Kong once again touted its crypto credentials, and Taiwanese regulators indicated a move towards “self-discipline norms” within their regulatory norms; but on the other side of the coin US regulators appeared to grow increasingly adversarial, with new enforcement actions and Wells Notices issued.

What happened: BlackRock confirms continued interest in digital assets

How is this significant?

  • In his annual investor letter, BlackRock CEO Larry Fink outlined his thoughts on global markets, as well as forecasting future developments
  • He of course touched on the current banking crisis, opining that liquidity mismatches in banking could be the industry’s “third domino to fall”; the first two being rapid rate hikes, and asset-liability mismatches as evidenced by SVB and other banks
  • Speaking about the financial strain on governments—caused by their own monetary policies—he claimed that “After years of global growth being driven by record high government spending and record low rates, the world now needs the private sector to grow economies and elevate the living standards of people around the globe”
  • Regarding digital assets, Fink wrote “beyond the headlines–and the media’s obsession with Bitcoin–very interesting developments are happening in the digital asset space. In many emerging markets–like India, Brazil and parts of Africa–we are witnessing dramatic advances in digital payments, bringing down costs and advancing financial inclusion”
  • Additionally, he confirmed that although he welcomes more regulation, BlackRock remains committed to digital assets; “we believe the operational potential of some of the underlying technologies in the digital assets space could have exciting applications. In particular, the tokenization of asset classes offers the prospect of driving efficiencies in capital markets, shortening value chains, and improving cost and access for investors”

What happened: Digital assets rally further amidst continuing banking crisis

How is this significant?

  • Following last week’s widespread panic in the banking sector, several more major banks fell, requiring billions in bailouts, liquidity injections, or government-forced takeovers
  • Once again, evidence of misconduct and mismanagement within the traditional finance ecosystem appeared to provide a boost to DeFi
  • First Republic—another top-20 US bank—required a $30bn lifeline from banks including JP Morgan, Bank of America, Wells Fargo, and Citi, following a $70bn loan a week prior
  • This followed sustained double-digit daily losses by First Republic, including a 17% fall the day the rescue package was announced
  • However, not even a $30bn liquidity injection was enough to assuage markets; First Republic shares fell a record 47% on Monday, after a weekend Wall Street Journal report indicated they already required a new rescue deal
  • Silicon Valley Bank failed to find any buyers (despite government willingness to share losses), but crypto-friendly Signature soon found buyers—perhaps supporting Signature board member (and Dodd-Frank Act co-author) Barney Frank’s claims that it was hastily shuttered to “make an example of crypto”, rather than due to chronic financial distress
  • The fact that the Signature purchase agreement explicitly excluded their digital asset business also appeared to echo previous Reuters reports that regulators required potential buyers to discard the bank’s digital asset business
  • Signature’s real-time payment business, Signet, will remain under the control of the FDIC
  • The Financial Times published an opinion piece concerning the collapse of banks like SVB, claiming that the current crisis “makes the case for digital currencies”
  • FT European Economics commentator Martin Sandbu wrote “a central bank digital currency would provide precisely what seems to be missing today: a means by which businesses could keep cash completely safe, without any need for banks”
  • The biggest banking news concerned Credit Suisse, the beleaguered Swiss giant who suffered multiple days of major losses following a disclosure that they found “material weaknesses” in their financial reporting
  • The 167-year old bank secured a $54bn lifeline from the Swiss National Bank, before the Swiss government forced through a $3.25bn takeover well below market value
  • The deal was not without controversy; bondholders were wiped out, and a nine billion CHF guarantee on possible losses could hit taxpayers in the pocket
  • A source told Bloomberg that the Federal Home Loans Bank system (set up as a Depression Era backstop) issued $304bn in debt last week; “almost double the $165 billion that liquidity-hungry lenders tapped from the Federal Reserve”
  • Barclay’s strategist Joseph Abate believes that “Total outstanding advances from the FHLBs now likely exceed $1.1 trillion”
  • Additionally, central banks in Britain, Japan, Canada, Switzerland, the EU, and US all pledged to cooperate on expediting international movement of US dollars, directly from the Federal Reserve
  • Despite all the upheaval (and acknowledgement of possible future government intervention), Janet Yellen claimed that “the US banking system remains sound”
  • All of the above combined to provide more positive publicity for digital assets—market behaviour seemed to indicate that uncertainty in traditional finance, exacerbated by opaque practices and reported mismanagement, benefitted a sector characterised by decentralised power distribution and the transparency of blockchain technology
  • Banks have lost trust, whilst the “trustless” nature of DeFi—removing the absolute need to trust intermediaries—has restored some enthusiasm to digital assets
  • As FT editor-at-large Gillian Tett noted in a Bloomberg interview; “The root to the word ‘credit’ comes from the Latin word meaning ‘trust’, and without trust, finance is worth naught. And what’s happening now is that suddenly investors are waking up in a panic and scouring all the banks for things they think might be untrustworthy or problematic”
  • She added “all of these problems have been there for a long time, but the market is suddenly waking up, seeing them, and losing trust—or credit”
  • Ark Investments’ Cathie Wood believed broken banks benefit Bitcoin; “Fully decentralised, fully transparent, auditable, which is addressing all of the banking problems right now… There’s no central point of failure in Bitcoin… The behaviour of the price through this crisis is going to attract more institutions”
  • Wood also noted that “In the beginning of the crisis, it seemed like regulators wanted to blame crypto instead of the significant rise in interest rates and the deposit outflows. Now we’re seeing it as a solution to the problem, but the regulators are still reticent”
  • She went on to claim regulation was threatening US innovation in the blockchain space
  • Bitcoin and Ether meanwhile both hit their highest levels since mid-June, and open interest in Bitcoin options reached a new all-time high when measured in number of contracts
  • The top 10 crypto-related apps grew 15% in downloads since the banking crisis unfolded
  • Kunal Goel of crypto intelligence firm Messari, speaking on Monday, outlined a popular sentiment in the sector, saying “The current turbulence within the US banking sector, potentially leading to a more relaxed Federal Reserve stance, reinforces Bitcoin’s dual role as a hedge against traditional finance and a credible risk asset”
  • Bitcoin’s previous endorsements as a non-security have helped the industry leader outperform several crypto assets with smaller market capitalisations, amidst an aggressive and some would say hostile regulatory crackdown in the USA
  • Industry-adjacent assets also benefited; digital asset exchange Coinbase enjoyed its longest winning run ever on the stock market, with a 7-day rally of nearly 60%, and almost 140% year-to-date growth

What happened: Former Jefferies executives launch crypto exchange backed by Nomura

How is this significant?

  • Brandon Mulvihill and Anthony Mazzarese, two former leaders within Jefferies’ forex division, launched a new digital asset exchange focused on high-frequency trading
  • Called CrossX, the exchange raised $6.35m in seed funding from entities including quant traders Two Sigma and Nomura’s digital asset arm Laser Digital
  • Two Sigma CTO Jeff Wecker said the firm was “excited to support CrossX… as the digital assets space evolves, diverse and reliable execution venues for institutional trading are critical”
  • The founders said that the exchange launch was delayed due to last year’s inclement market conditions; “every time there’s a market dislocation, companies need to stop and reassess their own risks internally”
  • Based in London, parent company Crossover currently has 9 employees, with plans for “moderate” headcount growth this year

What happened: Hong Kong regulators hail “overwhelming” response to pro-crypto policies

How is this significant?

  • Hong Kong continued their recent pivot towards a pro-crypto regulatory environment in an attempt to position themselves as a key Asian hub for the sector
  • Financial Services and Treasury secretary Christopher Hui said they’ve had an “overwhelming” response to this policy shift, with over 80 institutions enquiring about expanding their business into Hong Kong
  • He told Bloomberg “Hong Kong is one of the pioneers in the world in terms of having a holistic regulatory regime for virtual assets more broadly, rather than crypto per se”
  • Hui cited Hong Kong’s proximity to the mainland as a key “advantage”
  • Nikkei Asia reported that the city may become an outpost for industry businesses from the mainland
  • “Hong Kong's campaign to become a regional cryptocurrency hub has attracted a steady stream of business executives from mainland China looking to explore opportunities in the sector despite Beijing's crackdown on virtual assets”
  • One Chinese Web3 entrepreneur relocating to Hong Kong told Nikkei “It is a grey area in the mainland… There is clarity and a sense of safety in Hong Kong that would allow me to flourish”

What happened: Fidelity opens crypto offering to public

How is this significant?

  • Following a limited beta launch, Fidelity quietly opened up their crypto offering to all retail customers; a potential audience of over 37 million
  • Users with Fidelity brokerage accounts can now trade Bitcoin and Ether commission-free
  • Fidelity will earn revenue on a price spread of no more than 1%
  • This signals continued enthusiasm for the asset class from Fidelity, building on positive statements from their CEO Abigail Johnson and numerous patent filings late last year

What happened: Regulatory news—Asia supports, US antagonises

How is this significant?

  • Alongside Hong Kong, Taiwan also came out with greater regulatory clarity this week
  • Huang Tien-mu, head of the Financial Supervisory Commission confirmed that they will serve as main overseer for the asset class on the island
  • He told parliament that the FSC will initially concentrate on transactions and payments, but that alternative applications like NFTs won’t fall under their purview
  • It appears that they will lean towards a Japan-like model of soft supervision, as “self-discipline norms” will be discussed with “relevant industries”
  • However, in the USA, recent regulatory crackdowns continued as the SEC brought more enforcement actions
  • The White House published a report taking a dim view of digital assets, with some industry observers believing it could signal an openly adversarial position from the current administration
  • A key theme of recent enforcement was marketing; the SEC sued Tron blockchain founder Justin Sun and various celebrities for undisclosed advertising on Wednesday, after industry influencers were sued earlier in the week in a class action lawsuit
  • Late on Wednesday, Coinbase—the only publicly-traded US exchange—announced they had received a Wells Notice from the SEC, warning them of potential securities law violations
  • Coinbase chief legal officer Paul Grewal stated in a blog post “Although we don’t take this development lightly, we are very confident in the way we run our business—the same business we presented to the SEC in order for us to become a public company in 2021”
  • The blog also noted that Coinbase met with the SEC 30 times over a 9 month period, without any progress on proposed registration or regulatory clarity; “the SEC asked us to provide our views on what a registration path for Coinbase could look like—because there is no existing way for a crypto exchange to register. We developed and proposed two different registration models. We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none”
  • Additionally, Coinbase claim the SEC cancelled one day before a January meeting at which they’d promised feedback; “We now understand that there is disagreement within the Commission itself on how to proceed with a registration path. This was just two months ago”
  • Finally, they stated their belief that the US needs more guidance, not more enforcement; “Tell us the rules and we will follow them. Give us an actual path to register, and we will register the parts of our business that need registering. In the meantime, the U.S. cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they’ve always done”
  • Former White House chief of staff Mick Mulvaney stated in a Bloomberg interview that he feared there is a systematic effort to de-bank digital asset firms in the US and squeeze them out of the financial infrastructure needed to run businesses
  • “I don’t want to think the government would actually do that, but then I weight that against the fact that I saw that happening in other industries when I was in the House Financial Services Committee”, referring to “Operation Chokepoint” during the Obama administration
  • Added Mulvaney “We’re starting to hear rumours of the same sort of thing within crypto… it’s getting harder and harder to find someone to give you the old-fashioned banking you need to operate… I hope it’s not true, I feat that it might be”
  • Despite hostility from agencies like the SEC, there remains regulatory support on a state level; Texas legislators filed a bill to protect the rights of local Bitcoin holders and miners
  • Belgian regulators also made headlines for industry hostility this week, following guidance that all crypto-related advertising must carry the disclaimer “The only guarantee in crypto is risk”

What happened: Circle picks France for European headquarters

How is this significant?

  • USDC stablecoin issuers Circle announced that France will play host to their European headquarters, citing a supportive regulatory environment under Macron’s policies
  • CEO Jeremy Allaire said “Both for commercial and policy reasons, we believe that France is the right centre for us as we look to scale this business in Europe”
  • One motivator for the move is their recent development of EUROC—a new Euro-pegged stablecoin backed 1:1 with fiat Euros
  • Binance and have also recently picked Paris as a European hub, where about 65 industry players have already registered
  • In other Circle news, USDC continues to face record levels of redemption after it briefly de-pegged following exposure to Silicon Valley Bank
  • Redemption currently outpaces issuance, with about $12.2bn burned (i.e. redeemed for fiat backing) since the beginning of March, versus about half as much issued in that same timeframe

What happened: Contagion latest—More clarity on FTX finances

How is this significant?

  • As part of ongoing bankruptcy proceedings, greater details on FTX’s financial state were revealed in court this week, following exhaustive investigations by advisors
  • In total, it was determined that “Assets across Sam Bankman-Fried’s crypto conglomerate totaled about $4.8 billion against debts of roughly $11.6 billion when FTX and affiliates crashed into Chapter 11 protection”
  • This equates to a $6.8bn gap, compared to previous $8bn estimates
  • One key aspect of the findings was that FTX.US had an $87m shortfall, despite Sam Bankman-Fried’s repeated assertions that it was always fully solvent
  • On Wednesday, it was announced that FTX Group would recover $404m of cash previously invested in hedge fund Modulo Capital
  • State Street ended their collaboration with crypto custodians Copper, after the latter ended their enterprise division amidst headcount reductions due to crypto winter
  • A State Street spokesperson said that “the regulatory environment has continued to evolve”, but confirmed they “will continue to build on [our] digital strategies within [our] own respective product development approaches”, including “a multi-faceted solution for both tokenized securities as well as native tokens”

What happened: VC news

How is this significant?

  • This week saw numerous 8-figure (and above) raises announced in the digital asset space
  • CCP Games secured $40m investment for a new title set within the intellectual property of popular and long-running game franchise Eve Online
  • This title will be Web3-enabled, “to deliver incredible player experiences at the intersection of best-in-class game design and blockchain technology”
  • A group of professional investor launched a $100m raise for the Bitcoin Opportunity Fund, aimed at High Net Worth Individuals diversifying their holdings
  • Partner Cory Klippsten stated “The banking crisis just highlights the need for Bitcoin… Everyone needs some money they own and control”
  • DAO-focused accelerator Seed Club revealed a $25m fund
  • According to TechCrunch, “The capital will be deployed over the next couple of years into projects at pre-seed and seed stages building infrastructure, applications and tooling for DAOs and open communities with checks ranging from $100,000 to $1 million”
  • Web3 AI platform OP3N concluded a $28m Series A valuing the firm at $100m
  • This follows a $10m seed round in 2021
  • DAO-governed Tomi raised $40m to build a new content network
  • Ark Invest raised $16.3m for two crypto-focused funds, split across the US and Cayman Islands
  • The US-based fund raised $7.3m across six investors, whilst the entire $9m of the Cayman fund came from one investor

What happened: Microsoft tests native crypto wallet in web browser

How is this significant?

  • Technology giant Microsoft appear to be building and integrating its own digital asset wallet into their Edge web browser (formerly Internet Explorer)
  • Microsoft partnered with Ethereum development team Consensys to build the non-custodial wallet, with a built-in swap functionality featuring Ether and numerous stablecoins
  • Other browsers like Opera and Brave also feature native crypto wallets, but as the third-largest browser by market share globally, Edge could streamline the DeFi experience significantly
  • When asked about the feature, discovered by an independent beta tester, Microsoft commented “At Microsoft, we regularly test new features to explore new experiences for our customers. We look forward to learning and collecting feedback from customers but have nothing further to share at this time”
News Roundups