Nickel Research Centre

Nickel News Roundup - Week 20

20th May, 2021

Market Overview:

Digital assets experienced a major reversal in momentum this week, with the largest correction since March 2020. 

  • Bitcoin’s price dropped below $40,000 to a 14-week low, after a mix of investor discomfort over Elon Musk’s public condemnation of Bitcoin, general conditions across all financial markets amidst inflation concerns, and several pieces of misreporting over purported digital asset bans in China (actually reiterations of existing restrictions) and investigations against digital asset exchange Binance. 
  • Elon Musk continually criticised the use of fossil fuels in Bitcoin mining, leading to widespread sell-offs, negative media coverage, and cascading liquidations across the market
  • Despite negative market reaction, Musk did temper his criticisms, noting that he still believes in crypto, and that Tesla hasn’t sold their Bitcoin holdingsnor have any plans to
  • Bitcoin’s performance was one of gradual decline throughout the week, before a sharp drop and bounce on Wednesday. The leading digital asset hit a low of $30,680, before recovering to current levels of $40,280
  • Ethereum’s recent record performance came to an abrupt halt, briefly dipping below $2,000 during Wednesday’s steep marketwide correction, before increasing to a current value of $2,733
  • The overall market capitalisation of digital assets sank to $1.76tn, a value last seen on April 25th
  • The total value locked in the DeFi sector sank in line with the declines in Bitcoin and Ether value, dropping to $72.1bn

The digital asset markets experienced without doubt their most bearish week of the last year, accelerating the downward momentum kicked off by Tesla’s reversal of support for Bitcoin payments. However, even amidst a sea of red, there were numerous positive stories about adoption, legislation, and earnings. From Nasdaq-listed Coinbase, to the Bank of England, to Swiss ETPs, to Chinese investment funds, to Singaporean private banks, to Indian regulators; the global appeal of digital assets continues regardless of momentary market conditions.


What happened: Coinbase announces results in Q1 earnings call

How is this significant?
  • On Thursday, Coinbase issued their first quarterly earnings report since going public in April
  • Figures largely matched forecasts estimated a week before they went public on the Nasdaq
  • Coinbase’s net revenue was $180bn, up from $585m in Q4 2020
  • Net profits of $771m quadrupled the previous quarter’s figures, and were 24 times higher when compared year-on-year
  • 94% of the company’s net revenue came from trading fees, as CFO Alesia Haas commented “We’re not trying to win on fees… We’re not trying to compete on fees. We’re competing on being the most trusted”
  • Monthly transacting users more than doubled from the previous quarter, with Haas telling CNBC that demand was driving priorities: “We are dealing with unprecedented growth in demand, and our focus was making sure that our exchange stayed up”

What happened: DBS Private Bank launches bank-backed crypto trust service

How is this significant?
  • On Friday, Singapore’s DBS Private Bank announced Asia’s first bank-based crypto asset trust service, via their DBS Trustee subsidiary
  • According to a press release announcing the service, private banking clients will be able to “invest, custodise and manage digital assets”
  • The service will initially be limited to four of the largest digital assets; Bitcoin, Ether, Bitcoin Cash, and XRP
  • This services follows DBS’ previous moves into digital assets with the DBS Digital Exchange, and was driven by an increased demand for crypto assets by high net worth clientele
  • According to Joseph Poon, DBS group head of private banking, “In recent years, more clients have expressed interest or are already invested in digital assets, and we expect this trend to accelerate as cryptocurrencies turn more mainstream… Our trust structure allows clients to conveniently hold these assets, with a peace of mind that they will be safely managed and passed on to their intended beneficiaries”

What happened: VanEck launches private Bitcoin tracker fund whilst waiting for ETF decision

How is this significant?
  • VanEck, one of several companies to file an application for a Bitcoin ETF in the United States, has already begun accumulating BTC for wealthy clients in a private fund according to SEC filings
  • As of Thursday, documents for the “VanEck Bitcoin Tracker Fund, LP” disclosed a $10m investment in the fund, which is only open to accredited investors and select offshore bank accounts
  • The fund is custodied by Gemini, and charges a 1% fee, allowing some investors to gain digital asset exposure before the anticipated launch of Bitcoin ETFs 

What happened: Bank of England official forecasts the launch of a British CBDC

How is this significant?
  • Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, gave a speech on Thursday in which the institution gave one of the clearest signals yet that the UK could join other central banks in the development and release of a national digital currency
  • Titled “Do we need ‘public money’?”, Cunliffe acknowledged that “the majority of the money held and used by people in the UK today is not physical ‘public money’, issued by the state, but digital private money’ issued by commercial banks”
  • As a consequence, Cunliffe declared that it was “probable” that a CBDC would be created, as “The knowledge that under stress depositors have the option to switch into state money may be important in preventing a more general loss of confidence in money”
  • Citing stablecoins that have already been developed, Cunliffe praised the technology, stating that digital money could “have greater functionality and lower transaction costs than the current commercial bank digital money offering and could quickly attract a large number of users”

What happened: Crypto mining groups work on carbon emissions

How is this significant?
  • Following on from a rising media narrative of concern around the carbon footprint of Bitcoin mining, several major mining entities announced moves towards greener Bitcoin mining operations this week
  • Publicly-listed Argo Blockchain and DMG Blockchain Solutions signed the “Crypto Climate Accord” on Friday, aimed at decarbonisation of the blockchain industry, with a goal of net zero greenhouse gas emissions by 2040
  • According to Argo Blockchain CEO Peter Wall: “The Crypto Climate Accord helps lay the groundwork for real, tangible action to address Bitcoin mining’s impact on the environment and we are both eager and determined to ensure that Supporters and Signatories remain committed to the group’s goals”
  • Another major mining operation, Greenidge Generation, also made moves towards carbon neutrality, announcing that from June 1st, the company will “operate an entirely carbon neutral bitcoin mining operation at its facility in Upstate New York”
  • As well as offsetting 100% of carbon emissions, Greenidge will also invest a portion of profits into renewable energy projects, enabling a wider decarbonisation of electricity

What happened: “Long Bitcoin” is most crowded trade in Bank of America survey

How is this significant?
  • On Tuesday, the latest survey of fund managers by Bank of America found that “Long Bitcoin” is once again the most crowded trade, indicating a long-term bullishness in the asset’s value proposition
  • According to the survey of 194 managers with $592m of AUM, 27% were Long Bitcoin, a position the trade previously occupied in January
  • The last time Long Bitcoin topped the survey, it was overtaken by Long Tech the next month, but underwent significant subsequent growth, rather than signalling a relative top

What happened: Swiss asset manager launches altcoin ETPs

How is this significant?
  • Valour, a Swiss asset manager, launched two digital asset ETPs this week—but unlike the majority of existing ETPs on the market, their offerings focus on newer altcoins
  • The ETPs offered will provide fully-backed exposure to Cardano (ADA) and Polkadot (DOT), currently 6th and 8th respectively by total market cap
  • The products will both be launched on the Nordic Growth Market, and represent a new avenue for altcoin exposure, with most previous ETPs having been limited to 1st and 2nd-generation coins like Bitcoin, Ether, Litecoin, and Bitcoin Cash

What happened: Bank of America joining blockchain-based same-day stock settlement service

How is this significant?
  • Bank of America announced on Tuesday that they’ve joined Paxos, the Ethereum blockchain-based service enabling same-day stock settlements
  • BofA is the third major financial institution to sign on with the service, following Credit Suisse and Japan’s Nomura Holdings
  • Kevin McCarthy, BofA’s head of financing and clearing, believes that the service will enable a better return on assets through increased efficiencies; “We can determine the settlement cycle down to T+0… We then can free up the collateral we’d have to post on an overnight basis”

What happened: Several hedge funds move towards DeFi funds

How is this significant?
  • According to exclusive reporting by industry publication Coindesk, multiple hedge funds—and even an established bank—are all at various stages of setting up funds aimed at leveraging growth in the DeFi (decentralised finance) industry
  • Although their sources requested to remain nameless, they did cite specific hedge funds getting involved in the DeFi space, both through traditional investment vehicles, and utilisation of mechanisms on DeFi platforms
  • “These very conservative, traditional hedge funds are not just looking to buy these tokens, but are interested in using these protocols… So they’re looking to trade on some of these decentralized exchanges. They’re looking to provide liquidity on some of these platforms to earn a yield on top of their positions”
  • The source reported “Point72 is standing up a crypto fund. They are probably six months away from launch with a product… Millennium is hiring operations people right now, and Matrix has started to build out a crypto team as well”
  • Although Point72 ($17bn AUM) and Matrix ($10bn AUM) declined to comment, Millennium ($50bn AUM) did respond, confirming that “We’ve been engaged in crypto trusts, futures, and ETFs. It’s likely we’ll continue to be active in the space”
  • News of these moves followed soon after Dutch bank ING released a research paper on Defi, with ING’s blockchain lead Herve Francois noting “DeFi could be more disruptive than Bitcoin to the financial sector… DeFi is an integral part of ING’s digital asset vision”

What happened: Indian government moves towards digital asset support

How is this significant?
  • Contrary to several previous widely-reported stories that India’s government was seeking a blanket ban on crypto assets, news emerged this week that a new committee is being set up to properly regulate the asset class
  • Reporting in the Economic Times of India noted that “This comes amid the prevailing view that the recommendations by a committee headed by former finance secretary Subhash Garg in 2019 for a blanket ban on these assets had become outdated”
  • The proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was deferred before this year’s budget committee, with sources noting it was based on outdated recommendations by former finance secretary Garg, whilst current finance ministerNirmala Sitharaman proposed the government take a “calibrated view” on digital assets rather than banning them 

What happened: ARK Investment’s Cathie Wood increases digital asset exposure

How is this significant?
  • Cathie Wood continued her recent support for digital assets this week, saying in an interview with Bloomberg TV that, whilst Bitcoin’s current dip might not have reached a bottom yet, it is “on sale”, and the price movement hasn’t shifted her long-term $500,000 Bitcoin price forecast
  • Wood’s ARK investments recently added to their $50bn AUM with an addition of $20m worth of Ethereum exposure according to recent filings 
  • Wood also took time this week to speak out directly against Elon Musk’s commentary about Bitcoin’s sustainability, saying that consistent demand for Bitcoin mining could speed a wider transition towards renewable energy, and that “the concerns around Bitcoin’s energy consumption are misguided”

What happened: Coinbase to raise $1.25bn in bond issue and expands product offering

How is this significant?
  • On Monday, Coinbase announced the proposed issue of $1.25bn worth of convertible senior notes, due in 2026
  • According to Coinbase’s press release on the issue, the notes will be “convertible into cash, shares of Coinbase’s Class A common stock, or a combination thereof, at Coinbase’s election”
  • The announcement caught several off-guard given Coinbase’s recent public listing, but some analysts noted it as a shrewd move to raise extra capital when interest rates are near historically low levels
  • In their press release, Coinbase said “This capital raise represents an opportunity to bolster Coinbase’s already strong balance sheet with low cost capital that maintains operating freedom and minimizes dilution for Coinbase’s stockholders”
  • It was also reported this week that Coinbase plan to launch their own media arm (reporting directly to the marketing team), and optimised their existing Coinbase wallet application for DeFi protocols, through the release of a browser integration 

What happened: China Merchants’ Bank launches $50m blockchain fund

How is this significant?
  • China Merchants’ Bank, through their CMB International subsidiary, announced a $50m joint investment fund with the Nervos blockchain this week, focused on opportunities within the DeFi and non-fungible token (NFT) space
  • According to a press release announcing the fund, “The $50 million fund will be deployed over a three-year period, with startups receiving initial investments between $200,000 and $2,000,000 to support their project’s growth on Nervos and in the greater blockchain ecosystem”
  • China Merchants’ Bank said they have been exploring DeFi and decentralised apps (DApps) since 2019
News Roundups