Nickel Research Centre

Nickel News Roundup - Week 28

15th July, 2021 

Market Overview:

Digital assets slumped this week after last week’s growth, continuing the last few months’ trend of market indecision

  • Bitcoin once again traded within a tight range, staying mainly between $32,500 and $34,000, with a brief dip below $32,000 on Wednesday. Bitcoin is currently valued at $32,450
  • Ether was unable to sustain last week’s gains, and declined below the $2,000 mark on Wednesday—currently trading at $1,953
  • The overall market capitalisation of digital assets declined to $1.33tn
  • The total value locked in the DeFi sector grew slightly to $65.6bn, helped by more Bitcoin being locked into DeFi protocols

Digital assets declined this week as they were unable to sustain last week’s bullish momentum. However, the long-term prospects of the sector remain positive. Bank of America and Fidelity are both on hiring sprees to bolster their digital asset expertise, a multi-trillion asset manager bought a significant share in the world’s largest corporate Bitcoin holder, and governments across the world continue to drive forward with legislation, regulation, and economic integration of digital assets.


What happened: Bank of America creates unit dedicated to digital asset research

How is this significant?
  • This week, news emerged that America’s second-largest bank is dedicating numerous resources to growing their expertise in the digital asset field
  • In a memo cited by Bloomerg, Bank of America head of global research Candace Browning noted that crypto assets represent “one of the fastest-growing emerging technology ecosystems”, and that BoA will be “uniquely positioned to provide thought leadership due to our strong industry research analysis, market-leading global payments platform and our blockchain expertise”
  • In outlining the opportunity presented by the industry, Browning wrote “The sector is currently valued at about $2 trillion, inflows to new ETP/ETFs at $50 billion and growing and venture capital firms are making significant investments in crypto/blockchain companies”
  • This marks a move for BoA from broader usage of blockchain technology (such as joining the Paxos stock settlement system in May) into the more specific realm of digital assets as an investment opportunity

What happened: Stablecoin issuer Circle goes public via SPAC

How is this significant?
  • Circle—the company that developed and issued the widely-used USDC stablecoin—went public this week, the second large American digital asset company to do so after Coinbase
  • In March, USDC was adopted as a stablecoin by Visa across their payment network
  • Founded in 2013, the company is a veteran in the digital asset field, collaborating with Coinbase to develop the dollar-pegged USDC crypto asset in 2018
  • Previously, it had owned and operated digital asset exchanges and trading desks, and filings related to the SPAC revealed that a greater source of their income is currently derived from transaction and treasury services
  • The SPAC merger is between Circle and Concord Acquisition Corp, chaired by former Barclays chief Bob Diamond, and gives the company a valuation of $4.5bn
  • According to Diamond, “Circle is the true pioneer of trusted digital currencies, an increasingly critical part of the global financial system”
  • The new company is expected to trade under the ticker symbol CIRCL on the New York Stock Exchange

What happened: S&P Dow Jones expands tracking of crypto assets 

How is this significant?
  • On Tuesday, S&P Dow Jones issued a press release revealed that the world’s leading provider of investment indices is releasing 5 new indices dedicated specifically to digital assets
  • Among these new indices will be the S&P Cryptocurrency Broad Digital Market (BDM) Index, tracking the values of 240 different digital assets
  • The indices greatly expand the market coverage of S&P’s existing products, which tracked only Bitcoin, Ethereum, or both
  • As well as the Broad Digital Market Index, other new products share a focus on altcoins, with various exclusion filters applied (such as focusing on the largest assets by market capitalisation, excluding the “MegaCap” assets of Bitcoin and Ether)
  • Like the first three indices, these new products will use index points rather than prices to track the value of assets, making it more digestible to existing Wall Street investors
  • In the press release, an S&P spokesperson said “The expansion of our Digital Market Indices family gives one of the broadest snapshots yet of this rapidly growing asset class with the ability to slice and dice by market cap. We're excited to bring this significant level of additional transparency to the cryptocurrency market”

What happened: BNY Mellon to provide Grayscale with services for anticipated ETF

How is this significant?
  • BNY Mellon further deepened their involvement in the digital asset space this week, by confirming their position as transfer agent and ETF service provider for digital asset giant Grayscale’s forthcoming move into launching a Bitcoin ETF
  • The ETF is expected to launch as a conversion of Grayscale’s existing GBTC Trust product, although neither company committed to a specific date for the GBTC ETF launch in a press release announcing their partnership
  • BNY Mellon has already committed to providing similar services to Bitcoin ETF applicant Skybridge Capital, so this is the latest signal of interest in the asset class from the world’s largest custodian bank
  • Roman Regelman of BNY Mellon described the agreement as “another critical milestone in our rapidly growing digital asset capabilities and broader strategy of putting client choice at the center of everything we do”
  • In addition, Grayscale reported this week that its Digital Large Cap Fund has become a reporting company to the SEC, following the lead of its Bitcoin and Ethereum Trust products

What happened: Bitcoin electricity consumption drops to November 2020 levels 

How is this significant?
  • Following the recent drop in Bitcoin’s network hash rate due to several mining bans in China, the blockchain’s electricity usage has fallen significantly
  • According to data from the Cambridge Bitcoin Electricity Consumption Index (CBECI), current power consumption levels have dropped to levels not seen since last November
  • Since the all-time high electricity consumption recorded in mid-May, the network’s energy usage has fallen by approximately 60%
  • After last week’s report on renewable energy usage by the Bitcoin Mining Council, this latest data may provide some momentary respite from concerns over Bitcoin’s sustainability; although ideally mining hardware from China would migrate to low-carbon electricity regions to prevent a second wave of media narrative on the issue when that lost hashpower comes back online and mining difficulty increases once more

What happened: Fidelity increases digital asset headcount

How is this significant?
  • According to a Bloomberg report, Fidelity are delving deeper into the digital asset space by making a significant amount of hires for their Fidelity Digital Assets division, increasing headcount by approximately 70%
  • This equates to around 100 new hires, split across multiple locations; including Boston, Dublin, and Salt Lake City
  • Fidelity president Tom Jessop said the hiring spree is driven by an anticipated increase in both institutional demand, and demand beyond Bitcoin
  • Jessop told Bloomberg “We’ve seen more interest in Ether, so we want to be ahead of that demand”, as well as clarifying their intent to provide trading services “full time for most of the week” due to the 24/7 nature of digital asset markets

What happened: Group buys 12% share of MicroStrategy

How is this significant?
  • Led by Bitcoin evangelist Michael Saylor, MicroStrategy is currently the largest single (publicly-identified) Bitcoin holder on the planet, with over 105,000 Bitcoin in total (not counting another 5,000 held by Saylor and associated enterprises)
  • SEC filings this week showed that Capital International Group recently purchased 12.2% of MicroStrategy’s stock, holding more than 950,000 MSTR stock currently valued at over $560m, coming close to BlackRock’s $700m holding from an earlier purchase
  • Capital International Group currently has more than $2tn in assets under management
  • This makes Capital International Group one of the world’s largest indirect investors in Bitcoin, giving exposure to a range of family offices, pension trustees, and other institutional investors that they manage

What happened: Brazilian SEC approves Ether ETF

How is this significant?
  • Whilst the US Securities & Exchange Committee has yet to make any final decisions on the numerous Bitcoin ETF applications submitted to them, other regions have been more proactive in providing digital asset exposure to traditional investors via ETFs and ETPs
  • In Brazil this week, the country’s regulators confirmed approval for the first Ether ETF in Latin America, according to an announcement by the fund’s issuer
  • The QETH11 fund will be traded on the B3 stock exchange, offering direct exposure to the world’s second-largest digital asset, custodied by the Winkelvoss brothers’ Gemini exchange
  • In a statement announcing the fund’s launch, the issuers QR Capital said that it will provide “a simple, safe and regulated option for any investor to gain direct exposure to Ethereum through their preferred brokerage, without worrying about registrations in exchanges, wallets or private keys”
  • The QETH11 fund is the third digital asset ETF approved in Brazil, following a Bitcoin ETF, and and one tracking 5 major digital assets (including Bitcoin and Ether)

What happened: UK pressure on Binance leads to increased adoption of other exchanges

How is this significant?
  • Over the past few weeks, the world’s largest (retail-focused) digital asset exchange, Binance, has faced increasing regulatory scrutiny in light of the sector’s overall growth
  • Although the exchange hasn’t been banned outright, it has recently been ordered to halt regulated activity such as futures trading in the UK, as well as halting fiat on-and-off ramps in the UK
  • CNBC reported this week that restrictions on Binance haven’t dampened consumer appetite for digital asset trading—they’ve just driven those consumers elsewhere
  • Rival exchange Bitstamp for instance has registered a 138% increase in users since the FCA announced restrictions on Binance’s regulated activity three weeks ago
  • Similarly, more regulation-conscious exchanges like Kraken and Gemini have also noted increased adoption from British customers; Kraken said UK users approximately doubled recently
  • A Gemini spokesperson told CNBC “ We have seen tremendous user growth as consumers look towards approved firms when entering the market… We expect to see exchanges and custodians registered with the FCA continue to gain market share due to the value placed on the approval process”

What happened: European Central Bank launches Digital Euro project

How is this significant?
  • As CNBC development continues across the world, one of the most significant financial bodies—the ECB—announced they were moving into the next phase of their digital currency initiative
  • On Wednesday, the ECB issued a press release outlining a future development roadmap for the Digital Euro
  • ECB chief Christine Lagarde sounded an optimistic tone, saying “It has been nine months since we published our report on a digital euro. In that time, we have carried out further analysis, sought input from citizens and professionals, and conducted some experiments, with encouraging results. All of this has led us to decide to move up a gear and start the digital euro project”
  • The next 24 months will be dedicated to an investigation phase, which “will focus on a possible functional design that is based on users’ needs”

What happened: Major corporations drive digital asset adoption in Korea

How is this significant?
  • South Korea is a key market for digital assets, although its share of overall trading activity has significantly decreased since the 2017 bull run, due to wider global enthusiasm for the asset class
  • This week, the Bank of Korea announced their shortlist of three potential technology providers for their planned Digital Won CBDC, after announcing a bidding process in May
  • The shortlisted providers are all titans of the Korean IT and telecoms industry; subsidiaries of SK Inc., Naver, and Kakao
  • Additionally, Korean banks have made inroads into the digital asset market, with the Korea Economic Dailyreporting that four major banks have now created companies or joint ventures dedicated to crypto trading and custody, including the country’s largest bank, KB Financial Group

What happened: More economies outline CBDC plans

How is this significant?
  • As well as the ECB and Bank of Korea, other central banks across the world spoke on their plans for CBDCs this week
  • The Bank of Jamaica announced plans to roll out a pilot of services with financial institutions, beginning in August
  • The Bank of Ghana disclosed their intentions to pilot by September, identifying it as equivalent to fiat money, acting as “cash on its own”
  • The Banque du France publicised the latest in a series of CBDC experiments, this time a successful trial involving cross-border automated market makers with the Monetary Authority of Singapore 

What happened: Argentina and Paraguay propose Bitcoin-based legislation

How is this significant?
  • Following El Salvador’s acceptance of Bitcoin as legal tender, several other nation-states have expressed an interest in deeper integration of digital assets into their economies, including others in the Latin America region
  • This week, Paraguay submitted a draft law seeking to give more formal legal recognition to digital assets. Industry publication Decrypt obtained a leaked version, which said the bill proposed “to establish legal certainty, financial and fiscal in the businesses derived from the production and commercialization of virtual assets”
  • The bill outlined further economic benefits of crypto asset recognition; “It is important that companies can register these products within their accounting so that they can have their real valuation, additionally [it] helps to optimize the tax collection of this industry, finally giving traceability of what is produced in the country facilitating its tracking by supervisory authorities”
  • In neighbouring Argentina, a bill was submitted to legalise workers and exporters of services being paid—fully or partially—in digital assets to “promote greater autonomy and governance of the salary” in light of Argentina’s current troubles with hyperinflation

What happened: 21Shares expands crypto ETP access to German savings accounts

How is this significant?
  • 21Shares, a leading European creator of digital asset ETPs, announced a partnership with online brokerage comdirect in Germany this week, providing integration of physically-backed crypto ETPs into savings accounts
  • This could potentially bring access to 3 million existing comdirect customers with Spar savings accounts, and onboard those who may be crypto-curious, but intimidated by the technological procedures associated with directly trading digital assets themselves
  • The partnership will provide access to 11 different physically-backed crypto ETPs, at zero commission
  • 21Shares CEO Hany Rashwan said in a press release “We are very excited to offer German clients who wish to add Bitcoin and other crypto assets to their savings plan a compelling option to do so thanks to comdirect, an option that was not available for any crypto products until now”

What happened: New digital asset VC launches with $55m startup capital

How is this significant?
  • This week, digital asset VC veteran Ash Egan (a former partner at Accomplice VC) launched a new venture capital fund for digital assets
  • Egan raised $55m from a variety of sources—including Digital Currency Group and his former employers—to launch the new fund, called Acrylic
  • In contrast to recent larger launches like a16z’s $2.2bn Crypto Venture Fund 3, Acrylic is focused on “inception capital”; being amongst the very first investors, rather than providing investment near the end of the development pipeline
  • Outlining the motivations for the fund, Egan stated that he believes the world is still very early on the digital asset adoption curve; “Broadly, my thesis is that smart contracts and crypto networks will permeate every industry. My belief is every kind of marketplace – every time you’re interacting with the internet – can be underpinned by crypto networks”

What happened: Goldman Sachs identifies Coinbase stock as a “tactical trade”

How is this significant?
  • In a memo this week, Goldman Sachs identified Coinbase’s COIN stock as a “top 25 tactical trade”
  • Explaining their recommendation, Goldman noted that even if Bitcoin declines in value, COIN could appreciate as a result of trading volumes (and therefore more revenues for Coinbase from trading fees)
  • Goldman analyst Will Nance believes that Coinbase’s earnings per share could thus outperform consensus by 11%, and believes that investors could be “re-engaging in the coming quarters”
News Roundups