Nickel Research Centre

Nickel News Roundup - Week 1

8th January, 2021

Market Overview:

The digital asset market accelerated further on the bullish momentum of the previous two weeks, as Bitcoin and Ethereum both crossed significant milestones (including several new all-time highs for Bitcoin), and both retail and institutional interest continued to grow.

  • Bitcoin continued to break records this week, pushing through $30,000 on Saturday, and recovering quickly from a dip below that milestone on Monday, to achieve a new all-time high briefly over $40,000. Bitcoin is currently trading at $38,400
  • Ethereum led the market this week, despite Bitcoin’s new all-time highs; growing from less than $740 to $1,290 late on Thursday, 10% below its December 2017 peak. Sunday and Monday saw particularly bullish performance, as Ethereum grew more than 40% in a 24 hour period as it broke through $1,000. Ethereum is currently trading at $1,194, with its price appreciation representing a weekly rise of over 60%
  • All of the top 10 cryptocurrencies experienced growth in value over the past week
  • The overall cryptocurrency market cap recovered broke through to a new all-time high, exceeding the 2017 record by over $200bn, for a total market cap exceeding $1tn
  • The DeFi sector reached another new Total Value Locked all-time high, non-Bitcoin DeFi value was measured at $21.4bn this week (representing more than a $6bn weekly gain), whilst Bitcoin implemented in DeFi applications had a value of $5.5bn, for a combined value of $26.9bn

2021 began with perhaps the most bullish week the cryptocurrency market has ever seen. The total market cap eclipsed the speculation-driven high of January 2018, passing $1 trillion in value, Bitcoin continued its upward trajectory and re-wrote the record books with numerous new all-time highs, and Ethereum achieved more than 60% growth over the previous week. 

What happenedThe United States Office of the Comptroller of Currency announces banks can participate in blockchain networks and issue payments with cryptocurrency

How is this significant?

  • The Office of the Comptroller of the Currency (OCC) published an interpretative letter about whether federally-regulated banks could participate as nodes on a blockchain or use cryptocurrencies (especially dollar-pegged stablecoins) to settle payments
  • Acting as nodes opens up new revenue possibilities to banks, as well as further disseminating knowledge of cryptocurrency throughout traditional banking infrastructures
  • The OCC concluded positively that blockchains “may be more resilient than other payment networks” due to the decentralised distribution of nodes making it more difficult to tamper with or manipulate any financial records
  • OCC Chief Brian Brooks formerly worked at Coinbase, the largest cryptocurrency exchange in America (and the first to announce plans for an IPO)
  • According to industry observers like Kristin Smith of the Blockchain Association, this judgement by the OCC means that cryptocurrencies and blockchains effectively “have the same status as other global financial networks, such as SWIFT, ACH and FedWire”, opening potential for wide scale adoption from traditional banks and financial institutions.

What happened: UK ban on crypto derivatives (for retail investors) goes into effect

How is this significant?

  • The ban on trading of crypto derivatives specifically affects retail investors, potentially driving more of the investor market towards spot trading. Institutional investors are still permitted exposure to derivatives
  • Taking place in-line with Brexit, this reduced exposure to cryptocurrencies could lead to UK investors being locked out of digital assets compared to their European contemporaries
  • As a result of this legislation, several traditional investment firms that offered exposure to crypto have withdrawn their services to customers
  • Although UK regulators at the Financial Conduct Authority (FCA) estimated that the ban would save retail investors from £53m in harm, local crypto institutions have
  • Expressed concerns that it could instead drive UK retail investors to unregulated or off-shore trading platforms beyond the FCA’s remit

What happened: JP Morgan speaks about Bitcoin potentially “crowding out” gold

How is this significant?

  • Despite Bitcoin outperforming gold by a factor of more than 10:1 in 2020, gold’s overall market cap remains a multiple of Bitcoin’s, leading analysts from JP Morgan to write that it could converge on and “crowd out” gold in terms of valuation in the long term if their volatities converge 
  • According to their calculations, Bitcoin achieving parity with gold as an alternative currency could potentially lead to a Bitcoin valuation in the six figures“A crowding out of gold as an ‘alternative’ currency implies big upside for Bitcoin over the long term [...] a convergence in volatilities between Bitcoin and gold is unlikely to happen quickly and is in our mind a multiyear process. This implies that the above-$146,000 theoretical Bitcoin price target should be considered as a long-term target”
  • Whilst JP Morgan don’t completely discount the medium-term growth potential of Bitcoin, they currently urge caution, expecting a correction after the recent run-up: “While we cannot exclude the possibility that the current speculative mania will propagate further pushing the Bitcoin price up toward the consensus region of between $50,000–$100,000, we believe that such price levels would prove unsustainable”

What happened: Singapore-based Three Arrows buys over $1bn worth of Bitcoin

How is this significant?

  • Singapore is at the forefront of blockchain and cryptocurrency adoption, with several major banks recently moving to introduce crypto exchange services to their clients, as well as advanced CBDC development
  • Three Arrows’ recent purchase of $1.3bn in Bitcoin value makes them the latest in a string of institutional investors to accrue in excess of one billion dollar worth
  • They now hold nearly 37,000 Bitcoin in total, with co-founder Kyle Davies planning to seek more exposure to digital assets, saying that they “look forward to investing more in the crypto ecosystem”

What happened: Bitcoin leads on FT front page for its 12th birthday

How is this significant?

  • On January 3rd 2009, the very first Bitcoin block—known as the Genesis block—was mined with the inclusion of a headline from the Times about the Chancellor bailing out banks. 12 years later, Bitcoin’s performance was the lead story in the Financial Times 
  • As the first business day of 2021, the Financial Times headline helped to highlight the leading digital asset’s performance over the last year
  • The other big piece of news on the front page was about European shutdowns amidst the COVID crisis, further illustrating Bitcoin’s current outperformance of traditional financial assets and systems

What happened: US lawmaker seeks to create office to formalise government use of blockchain 

How is this significant?

  • A more formal framework around federal applications of blockchain technology could act as a catalyst to spur adoption within the United States
  • A bill, proposed by representative Darren Soto of Florida, seeks to “establish an office within the Department of Commerce to coordinate all non-defense related deployment and activities related to blockchain technology within the Federal Government”
  • Soto has been a vocal supporter of cryptocurrency within the ranks of US government, criticising the treasury department for attempting to rush through legislation around the monitoring of cryptocurrency wallets

What happened: US Treasury logs numerous institutional and retail comments on plans to monitor crypto wallet use

How is this significant?

  • One of the last acts of Treasury Secretary Steven Mnuchin before leaving office was to propose new rules rules requiring extensive reporting of cryptocurrency transactions above a $3,000 value threshold, as well as monitoring self-hosted wallets
  • Whilst new proposals for rules involve public requests for comment, this proposal only allowed a 15 days for comment (meaning 8 working days spread across two holidays) rather than the usual 60 days—leading many to view it as a parting shot at cryptocurrency by Mnuchin
  • Despite the truncated response period, numerous major companies and individuals within the digital asset space offered official comment, including hedge fundsCoinbaseand Twitter co-founder/Square Payments CEO Jack Dorsey
  • All in all, there were over 6,000 official comments submitted before the deadline, a considerable amount of activity bearing in mind the majority of the response window fell within the holiday period

What happened: Cryptocurrency exchanges globally involved in M&Aphysical branch locationslicense acquisitionand record revenues

How is this significant?

  • Cryptocurrency exchanges remain the primary point of interaction with cryptocurrencies for a majority of investors, and developments in the space demonstrate demand in digital assets
  • In Argentina, Ripio exchange (which achieved 1 million users late in 2020) acquired the second-largest crypto exchange in Brazil in a bid to expand its presence across Latin America
  • Indian online banking platform Unicas opened “the world’s first physical crypto banking branch” in Jaipur, India—offering traditional banking services alongside cryptocurrency trading, announcing plans for a further 100 branches by 2022
  • Liechtenstein-based LCX acquired a variety of assets allowing them generate security tokens for clients, including banks, making them “the only token generator in the region”
  • Canada-listed Voyager reported revenues of $3.5m in Q4, up 75% from the previous quarter—and up 3,877% from Q4 2019

What happened: Institutional platforms see record volume for Bitcoin trading

How is this significant?

  • According to cryptocurrency analysis firm Arcane Research, Monday saw an all-time high for trading volume across a variety of platforms tailored to institutional investor
  • LMAX exchange for example saw a total volume of $2.62bn
  • CME’s Bitcoin Futures market achieved a $2.7bn value on the same day
  • Technology researcher Kevin Rooke further noted that nine funds now hold over $23bn in Bitcoin, accounting for more than 737,000 of the 18,592,000 that have currently been mined
  • Supply is struggling to keep up with demand; one fund alone bought 3 times more Bitcoin in December than was mined in the same time period
News Roundups