Nickel Research Centre

Nickel News Roundup - Week 44

3rd November, 2022

Market Overview:

Digital assets traded strongly throughout the weekend, before pulling back as markets moved into caution mode ahead of Wednesday’s FOMC meeting.

  • Markets globally experienced large-scale losses on Wednesday as Jerome Powell raised interest rates by the expected 75bps, but also warned rates would rise higher than previous projections
  • Bitcoin remained above the $20,000 mark throughout the week, momentarily sparking some renewed investor optimism
  • Bitcoin hit a low of $20,100 on Wednesday following Jerome Powell’s speech, after a high of $20,990 on Saturday
  • Bitcoin’s current price of $20,300 represents a 2% drop after last week’s rapid growth 
  • Ether had an earlier weekly low of $1,494 on Friday, rising to a high of $1,643 a day later
  • Ether’s current price of $1,550 represents a modest 0.4% pullback
  • Ether moved back into overall supply increase this week based on burn rates versus issuance rates, but current extrapolation to an annual basis results in just 0.01% net issuance per year
  • Overall market capitalisation dropped remained steady around the $1tn mark, pulling back from weekly highs around $1.03tn over the weekend
  • According to industry monitoring site Defi llama, total value locked in DeFi this week across all blockchains and platforms dropped slightly from last week’s figure, to $54.1bn

Digital assets experienced a week of mixed performance, starting strongly but tapering off in the face of continued interest rate hikes from the US Federal Reserve. Digital asset exchange Binance was confirmed as a significant investor in Elon Musk’s long-awaited Twitter takeover, Hong Kong moved towards a much more pro-crypto stance than mainland China, Fidelity showcased increasing interest from institutional investors, Visa continued their involvement in the digital asset ecosystem, more traditional finance powerhouses moved into digital asset services, and a whole raft of Singaporean banks and institutions engaged with digital assets and DeFi.

What happened: Fidelity survey showcases growth in institutional crypto asset investment

How is this significant?
  • New research from financial services giant Fidelity ($4.5tn AUM) indicates that despite declining market values this year, institutional acceptance of digital assets has increased
  • The latest Fidelity Institutional Investor Digital Assets Study found that around 60% of institutional investors had allocated towards crypto assets in the first half of the year; up 6% from the same survey last year
  • Fidelity’s study also showed that four out of five institutional investors believe that “investment portfolios should include digital assets”
  • General enthusiasm for digital assets was highest in Europe, where 86% of respondents agreed with the above statement
  • Tom Jessop, president of Fidelity Digital Assets indicated that increased institutional presence is a sign of a strengthening digital asset industry; “While the markets have faced headwinds in recent months, we believe that digital assets fundamentals remain strong and that the institutionalisation of the market over the past several years has positioned it to weather recent events”
  • More than 1,000 institutional investors across Asia, Europe, and the USA were surveyed, and despite this being the fourth edition of Fidelity’s Digital Assets Study, they remarked it was the first time that their research took place during a bear market
  • High potential upside and innovative technology were cited as the key appeals of the asset class, but notably—in a year during which most major asset classes have crashed—there was a large decline in perceptions of crypto being “uncorrelated to other assets”
  • Another new report this week showcased growth in Web3 adoption and development to go along with the growth in institutional interest
  • The Alchemy Web3 report revealed significant increases in downloads of Web3 and Ethereum development software (tripling year-on-year), monthly deployment of verified smart contracts, and the release of decentralised apps (DApps)

What happened: Hong Kong relaxes rules on digital asset investment

How is this significant?
  • In a departure from official mainland China policy, Hong Kong moved towards a “friendlier regulatory regime” regarding retail and institutional digital asset trading
  • A statement from the Hong Kong government indicated a consultation process to determine how retail traders “may be given a suitable degree of access” and that regulators will consider “property rights for tokenized assets and the legality of smart contracts”
  • Sources told Bloomberg that from March next year, licenced digital asset platforms will be able to extend trading capabilities to retail investors
  • Those familiar with the matter claimed that regulators are keen to allow the listing of larger-cap digital assets, such as Bitcoin and Ether, but won’t specifically endorse any particular coins or tokens
  • There may be a checklist of criteria that crypto assets must fulfil in order to trade in Hong Kong, such as “market value, liquidity and membership of third-party crypto indexes”
  • Much like Japan’s recent softened regulatory approach to digital assets, this move is perceived by analysts as an attempt to restore economic confidence, encourage the development of a local digital asset industry and halt brain drain
  • Hong Kong’s shift also capitalises on recent developments within regional financial rival Singapore, who recently moved to restrict retail access to digital assets
  • Ravi Menon, MD of the Monetary Authority of Singapore, stated in an interview that the nation aims to remain a hub for digital assets, but doesn’t wish to concentrate on the trading of cryptocurrencies
  • He added “We accept that cryptocurrencies have a place in the larger digital ecosystem because they are the tokens native to the blockchain that powers much of this activity… They need to have an expression in the formal financial sector… We need to tilt the business model more towards use-cases, where the revenue stream comes from those use-cases”

What happened: Binance confirmed as $500m equity investor in Twitter acquisition

How is this significant?
  • Following the conclusion of Elon Musk’s long-running Twitter takeover saga, digital asset exchange Binance were confirmed as a key backer, contributing $500m in equity investment
  • Binance CEO Changpeng “CZ” Zhao indicated that they would push for broader integration of digital assets across Twitter, stating “We aim to play a role in bringing social media and Web3 together in order to broaden the use and adoption of crypto and blockchain technology”
  • In a public Q&A session on Tuesday, Zhao anticipated the implementation of a wide range of digital assets on Twitter, not just Musk’s favoured memecoin DOGE, or Binance’s proprietary BNB Coin
  • Speaking of BNB, the news of Binance’s involvement had a discernable effect on the the asset’s value, driving it to an all-time high ratio against Bitcoin, despite BNB’s dollar value being far below its May 2021 peak
  • Other digital asset-adjacent investors contributing funding to Musk’s takeover included VC giants Sequoia and Andreessen Horowitz (a16z), both of which have invested heavily in the blockchain and Web3 sphere over the last few years
  • If Musk’s reported ambitions of turning Twitter into a “super app”—akin to China’s WeChat platform—are true, then digital assets could be included for a broad range of functions, including tipping tweeters and peer-to-peer payments

What happened: Contagion latest—Bankruptcy developments

How is this significant?
  • ASEAN-focused digital asset exchange Zipmex announced this week that they are “on track to sign a majority buyout” agreement
  • The beleaguered exchange didn’t name a buyer, but sources told Bloomberg that they’ve been in talks with venture capital fund V Ventures, a subsidiary of Thoresen Thai Agencies Pcl
  • Since being granted protection from creditors in August, Zipmex have been busy restructuring, and this buyout could signal a conclusion to their bankruptcy saga
  • Digital asset exchange BitMex announced a workforce reduction (speculated at around 30%), one week after CEO Alexander Hoeptner left his role
  • Along with the cutbacks in headcount, BitMex are cutting back on functionality as well—returning to an emphasis on derivatives trading which was their hallmark before Hoeptner attempted to widen their service offering
  • Bitmex representatives told industry publication Coindesk “We are going to refocus on liquidity, latencies and a vibrant derivatives community including BMEX Token trading. As an undesirable consequence, we had to make changes to our workforce”
  • Bitcoin miners have also been hit hard by the ongoing crypto winter and increased global energy prices; mining giant Core Scientific recently warned of cashflow problems, and is now “working with restructuring lawyers at Paul Hastings as the company weighs a potential bankruptcy”, according to sources
  • Meanwhile, mining company Bitdeer filed to push back an SPAC merger that would take it public by up to a year
What happened: India launches Digital Rupee pilot

How is this significant?
  • Following on from China’s extensive e-Yuan trials, India became the second country with a billion-plus population to officially launch pilot programs for a CBDC
  • Under the initial stages of the Reserve Bank of India’s (RBI) trials, selected banks will be able to use the e-Rupee “for settling secondary-market transactions in government securities”
  • Data from the Clearing Corp. of India showed that nine participating banks “traded 2.75 billion rupees ($33.3 million) of bonds” with maturities ranging from 2027 to 2032
  • On Monday, RBI also announced that retail applications for the e-Rupee would be trialled within a month across various locations
  • One day prior, the Monetary Authority of Singapore also revealed the results of their preliminary research on a CBDC—codenamed Project Orchid—and released a report regarding further trials of “Purpose Bound Money” (PBM)
  • PBM is akin to programmable money; it “enables senders to specify conditions, such as validity period and types of shops, when making transfers in digital dollars”, and Singaporean authorities plan to trial it over a range of government applications
  • Participants in Project Orchid encompass a range of local banks and payment operators, including DBS, Network for Electronic Transfers (NETS), OCBC, and UOB

What happened: Traditional finance firm Marex launches institutional crypto offering

How is this significant?
  • London-based financial services firm Marex became the latest “TradFi” institution to seek exposure to digital assets and the emerging world of DeFi this week
  • They launched their digital asset proposition by hiring finance veterans Ilan Solot (ex-IMF) and Mark Arasaratnam (e-commerce) as co-heads of digital assets
  • In a statement on Tuesday, Marex declared “Our main thesis is that crypto is graduating into the mainstream. The problem is that it remains a complex space for institutions to interact with, especially given the intricacies around self-custody and security risks"
  • The firm said their focus would lie in assisting "crypto exchanges and family offices in building HNWIs-focused bespoke structured products”, alongside market-making services
  • This development comes just a week after their derivatives division, Marex Solutions, partnered with Coinbase Prime “to broaden institutional digital hedging and crypto investment capabilities for both organisations” 

What happened: Apollo Global moves into digital asset custody services

How is this significant?
  • $513bn AUM private equity firm Apollo Global partnered with federally-chartered “crypto bank” Anchorage Digital this week, to hold “a significant portion” of Apollo’s digital asset portfolio in a client custody offering
  • This follows in the footsteps of other major institutions like BNY Mellon, who confirmed Bitcoin custody services last month
  • Apollo signalled a broader commitment to the digital asset class earlier this year, recruiting former JP Morgan executive Christine Moy as head of digital assets strategy
  • Adam Eling, COO of digital assets at Apollo, said in a press release “As we explore creative ways to apply blockchain technology across Apollo’s business, we look forward to collaborating with Anchorage for the safekeeping of client assets”
  • Diogo Mónica, president of Anchorage Digital, said that institutional custody proves the long-term appeal of the asset class; “It’s the validation of this incessant drumbeat that [crypto] is here to stay. This is a very long-term horizon process and technology, and that for the large institutions, it doesn’t really matter that there is volatility short term”
  • Apollo previously invested in Anchorage’s Series D funding round, concluded in December 2021

What happened: VC news—Quarter-billion fundraise kicks off

How is this significant?
  • New SEC filings on Monday revealed that digital asset investment firm Coinfund is raising $250m for seed-stage investments across three separate parts of their proposed Coinfund Seed IV fund
  • This comes within three months of their Coinfund Ventures I fund announcement, a $300m fund dedicated to digital asset firms “showing commercial traction”
  • Former Bain Capital investor Magdalena Kala meanwhile just concluded funding on a somewhat more modest—but still impressive—$30m consumer VC fund
  • Her new firm, Double Down, initially aimed to raise $20m for their first fund, but exceeded that target within a month
  • As a veteran of Bain and family office investing, Kala believes her fund is well-positioned to take advantage of the current crypto winter; “I’m used to doing real diligence and being disciplined, and I think with a lot of LPs that has resonated… I’m not going to fly by the seat of my pants, especially given market conditions”
  • Blockchain interoperability project Evmos raised $27m through a token sale led by Polychain Capital, with funds earmarked for developer recruitment, partnerships, and decentralised app (DApp) development

What happened: Banking industry news: Singapore seeks tokenisation innovation

How is this significant?
  • Despite Singapore’s recent steps away from retail trading of digital assets, the city-state remains dedicated to the asset class on a more institutional level, as evidenced by recent developments in the local banking sector
  • Local media reported “live tests” in DeFi, featuring “the trading of digital assets across liquidity pools and platforms”
  • The Monetary Authority of Singapore (MAS) carried out transactions of tokenised deposits with smart contracts on a public blockchain in the first pilot of their “Project Guardian” study
  • According to Singaporean newspaper The Straits Times; “ Project Guardian, launched in May by MAS, aims to explore the use of public blockchains to build open and interoperable networks that enable digital assets to be traded across platforms and liquidity pools”
  • The deposits featured “tokenised Singapore Government Securities, Singapore dollars, Japanese government bonds and Japanese yen”, and were conducted between DBS, JP Morgan, and Japan’s SBI Digital Asset Holdings
  • Han Kwee Juan, DBS Group head of strategy, said “We wanted to show it was possible to tokenize government securities and cash within a DeFi liquidity pool…we wanted to create an institutional-grade DeFi venue which regulators would be comfortable with”
  • MAS confirmed two other banking industry pilots; one led by Standard Chartered to “explore the issuance of tokens linked to trade finance assets”, and the other featuring HSBC, UOB and Marketnode collaborating on “native digital issuance of wealth management products”
  • DBS also confirmed themselves as the first banking user of a new digital asset platform being launched by the Singapore Exchange’s SGX Group
  • Additionally, stablecoin issuer Paxos announced plans to make at least 130 hires in Singapore across 3 years, after securing a central bank licence for digital token payment services 
  • Neobank Revolut widened the scope of their digital asset offering, allowing clients to directly spend from their digital asset balance, and increasing the number of available digital assets to over 100
  • Payments and remittances firm Moneygram also moved into digital assets, allowing US-based users of their mobile app to buy, sell, and hold Bitcoin, Ether, and Litecoin

What happened: Visa partners with for Qatar FIFA World Cup

How is this significant?
  • Payments giant Visa had a busy week in the digital asset space, sealing a major partnership alongside numerous patent filings
  • The firm partnered with digital asset exchange for the largest sporting event in the world, collaborating on a FIFA World Cup NFT series called The Visa Masters of Movement
  • As well as honouring classic World Cup goals, football fans will be able to generate their own NFTs through LED movement-tracking pitches at the official fan festival in Doha that generate digital art of their best football moves
  • Industry publication Coindesk also reported that Visa recently filed trademarks across a broad range of digital asset subjects, including Metaverse, NFT, and digital wallet applications

What happened: South African supermarket chain accepts payments via Bitcoin

How is this significant?
  • South African newspaper The Times reported this week that leading local supermarket chain Pick n’ Pay now accepts payments via Bitcoin, conducted through the Lightning Network scaling solution
  • This implementation follows a five-month trial across ten stores, and has now been rolled out to a further 29 locations nationwide—but according to The Times, they aim to integrate it in all 1,628 stores within the next few months
  • A Pick n’ Pay spokesperson praised the user-friendly nature of the Lightning Network, stating “The transaction is as easy and secure as swiping a debit or credit card. Customers scan a QR code from the app and accept the rand conversion rate on their smartphone at the time of the transaction. The service fee for each transaction is minimal, costing the customer on average 70c (about 4 cents) and takes less than 30 seconds”
  • In other international news, the Indonesian stock exchange (IDX) signed a memorandum of understanding with Singapore’s Metaverse Green Exchange (MVGX) to develop an Ethereum-based carbon registry for emissions trading
  • Bo Bai, MVGX co-founder told TechCrunch that blockchain technology prevents the double-counting problem, and maintains accountability for climate actions; “The infrastructure provides an immutable record of the creation and ownership of the credit, as well as a tamper-proof record of the performance of the green project with which the carbon credit is associated, to date”
  • Finally, Norway became the latest nation to embrace the Metaverse, with the nation’s tax authority partnering with Ernst & Young in the blockchain-based Decentraland virtual world to deliver taxation services and education to a younger audience
News Roundups