Nickel Research Centre

Nickel News Roundup - Week 33

18th August, 2022

Market Overview:

Digital assets grew strongly throughout the weekend, before cooling off, amidst fears of continued large interest rate hikes.

  • Bitcoin traded above $25,000 for the first time since June, peaking at $25,020 on Monday morning, before retracing steadily into midweek as July minutes from the Federal Reserve indicated rates would remain at a “sufficiently restrictive level” for “some time”
  • The majority of the week’s trading was spent ranging between $23,800 and $24,500, with a weekly low of $23,250 on Thursday morning
  • Bitcoin’s current price of $23,410 represents a 4.2% drop from last week
  • Ether rose above $2,000 for the first time since June; a rise of more than 100% since lows of $898 in mid-June
  • Ether’s movements closely followed Bitcoin’s, reaching a weekly high of $2,023 on Sunday evening, and a low of $1,823 on Wednesday afternoon
  • Current prices of $1,845 equate to a 1.9% weekly decline
  • Overall market capitalisation declined in line with the cooling momentum, to $1.12tn
  • Total value locked in DeFi increased to $48.5bn, according to industry monitor DeFi Pulse, primarily driven by Ether’s recent appreciation

Digital assets touched some landmark figures in the early part of the week to mark their best performance in months, before cooling off and retracing following indications of continued hawkish Fed policy. Institutional adoption continues regardless of Fed policy or crypto winters, as BlackRock made its second major crypto move in as many weeks, asset managers, VCs, banks, and hedge funds across the world made major acquisitions, launched new services, and developed new subsidiaries, and major financial institutions including Citi, Blackstone, and T. Rowe Price secured top talent for strategic leadership in this dynamic new asset class.

What happened:BlackRock creates institutional Bitcoin investing product

How is this significant?
  • Following last week’s news of their partnership with Coinbase, BlackRock—the world’s largest asset manager—moved even further into digital asset services with the announcement of a new product this week
  • BlackRock are releasing a private spot Bitcoin trust, tracking the price of the leading digital asset, and spurred into creation by widespread customer demand
  • This potentially provides many institutional clients in the US with the next-closest thing to direct Bitcoin exposure, after holding Bitcoin itself
  • The blog post announcing the move outlined the firm’s focus in the digital asset realms; “BlackRock has been conducting work in four areas of digital assets and their associated ecosystems where we see potential to benefit our clients and capital markets more broadly… permissioned blockchains, stablecoins, cryptoassets, and tokenization”
  • The blog also stated “Despite the steep downturn in the digital-asset market, we are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets using our technology and product capabilities”
  • The trust marks a dramatic shift from the $8.5tn asset manager, coming within four years of CEO Larry Fink claiming that no clients had declared any interest in crypto assets
  • This uptick of involvement from an American financial institution as significant as BlackRock has now led to speculation that they may eventually make a move to leverage their reputation into the first US spot Bitcoin ETF; Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said: “It may not be far off given they are now committed. It seems like the next logical step”

What happened: Asset manager Abrdn purchases stake in digital asset exchange

How is this significant?
  • Scottish asset manager Abrdn (£508m AUM) became the largest external shareholder in digital asset exchange Archax this week, granting them a seat on the board
  • Archax is the first digital securities exchange to win FCA approval in the UK, making them a particularly attractive option for an established firm like Abrdn
  • Abrdn CEO Stephen Bird acknowledged the growing profile of digital assets, stating “Blockchain technologies are inevitably going to form a big part of the future of financial markets”
  • He also told Financial News London that the technology of digital assets and tokenised securities could “transform asset management for cost, speed and control reasons”
  • The move was first reported in the Financial Times, who identified the move as part of a rising institutional tide including the likes of BlackRock, Fidelity, Charles Schwab, and Schroders
  • Speaking to the FT, research analyst Chris Brendler said it was the latest move in a wider attitudinal shift towards digital assets by institutions “Large asset managers are starting to consider this a real investment. I think it’s a major data point in terms of traditional asset management companies embracing what really for years has been almost ridiculed”

What happened: Contagion latest—cutbacks and cash offers

How is this significant?

What happened: Brazilian banks and brokers bet big on blockchain business

How is this significant?
  • Two major Brazilian businesses this week launched new trading capabilities aimed at providing customers with direct digital asset exposure
  • BTG Pactual, the largest investment bank in Latin America, announced the launch of a new crypto asset trading platform called Mynt, providing investment options in leading digital assets including Bitcoin, Ether, Solana, Polkadot, and Cardano
  • André Portilho, Head of Digital Assets at BTG Pactual said “Crypto is a new technology with great potential for transformation… We are closely following the technology's evolution in the market. Entering the crypto world is another important step for meeting a demand from our customers and fill a gap in the market”
  • In April 2021, BTG Pactual were the first institution to launch a Bitcoin fund in Brazil, so this latest development represents a further evolution of an existing institutional interest
  • Meanwhile, Brazilian broker XP launched their own XTAGE crypto trading platform, built on Nasdaq technology
  • As the country’s largest broker, this new platform provides digital asset exposure to a potential 3.6m existing customers—although internal forecasts aim at 200,000 by the end of the year
  • Trading is initially limited to Bitcoin and Ether, although they plan to expand to ten or so leading assets by 2023
  • Brazil is currently estimated to account for a quarter of the $500bn Latin American crypto market

What happened: Date approaches for Ethereum network “Merge” upgrade event

How is this significant?
  • Following a successful trial run on all three of the Ethereum network’s developer testnets, core Ethereum developers have now released more precise timelines concerning the long-awaited “Merge” event
  • The “Merge” incorporates a software update to Ethereum that transitions the network from energy-intensive proof-of-work consensus conducted by miners, to more efficient proof-of-stake consensus, where any holder of 32 ETH or more can act as a validator on the network
  • Ethereum co-founder Vitalik Buterin believes the Merge will take place on September 15th, marking the beginning of the proof-of-stake transition
  • The exact time on the 15th is scheduled in the early morning UTC time, although that could shift slightly depending on hashrate in the interim
  • Anticipation of the Merge is believed to have been a key driver in the recent price recovery of Ether, as investors sought to secure enough Ether to act as validators on the upgraded network
  • JP Morgan have predicted that existing proof-of-work chain Ethereum Classic (a less-popular chain that preserved the original state of Ethereum) could benefit as existing Ethereum miners and proof-of-work loyalists seek to keep their mining infrastructure running 
  • As a result, JP Morgan analysts speculate that Ethereum Classic could “hedge against any potential disruptions in the Ethereum blockchain during the shift from PoW to PoS”

What happened: Major licences granted for crypto asset operations in Europe and UK

How is this significant?
  • Leading European digital bank Revolut was granted regulatory approval to offer crypto services across the European Economic Area (EEA) this week, courtesy of the Cyprus Securities and Exchange Commission (CYSEC)
  • The approval allows the e-Bank to provide their 17 million EEA customers with a range of digital asset services, based out of a crypto hub in Cyprus
  • Establishing an EEA presence was a crucial move for the UK-based bank, granting them an established presence and regulated entity ahead of the EU’s Markets in Crypto Assets (MiCA) regulation coming into force within the next few years
  • Meanwhile, leading exchange was granted approval by UK financial watchdog the FCA, recognising them as a regulated “cryptoasset service provider”
  • CEO Kris Marszalek identified the UK as a “strategically important market” for the firm, stating that FCA approval now allows them to “invest with confidence” in establishing a presence
  • Current Prime Ministerial candidate Rishi Sunak announced ambitions for the UK to become a “global crypto hub” during his tenure as chancellor, making it a more attractive destination for—but it remains to be seen whether those ambitions will be supported in the event that he doesn’t become the UK’s next PM

What happened: Point72 hedge fund founder plans to launch crypto asset manager

How is this significant?
  • According to reports in industry publication Blockworks this week, Steve Cohen—the billionaire founder of hedge fund Point72 Asset Management—is in the process of launching a new asset management firm dedicated solely to digital assets
  • Sources with knowledge of the matter told Blockworks that the new firm will trade crypto assets on a spot basis, marking “a new approach for Cohen-associated firms”
  • Additionally, it was reported that the firm may seek to generate yield via participation in DeFi protocols, as well as staking Ether when the network goes proof-of-stake
  • Cohen has personally invested in digital assets since 2018, and has been heavily involved in the creation of the new firm, according to sources
  • Additionally, Point72 is seeking high-level crypto-knowledgeable talent for its existing $26.1bn AUM hedge fund

What happened: Financial institutions continue crypto hiring push

How is this significant?
  • Citigroup filled two top-level posts for digital assets this week, appointing Ryan Rugg and David Cunningham to its Treasuries and Trade Solutions (TTS) unit in roles pertaining to digital assets and blockchain
  • Rugg will serve as global head of digital assets for the TTS group, after previously leading IBM’s blockchain division
  • A Citi spokesperson told industry publication Coindesk that the hires aimed to position the firm at the forefront of a growing industry; “Ryan will be tasked with advancing TTS to the next phase of our Digital Assets journey—a critical step in making Citi a leader in the digital assets space as we work to enable our clients to thrive in today's digital world”
  • Private equity firm Blackstone ($881bn AUM) hired Coinbase and Bakkt veteran Adam White as a senior advisor with a special focus on blockchain and digital assets
  • Blackstone Growth MD Vishal Amin stated that White would “help us think critically about the broader ecosystem for digital assets, including the potential areas of disruption as blockchain technology is applied to new sectors”
  • American investment firm T. Rowe Price ($1.3tn AUM) hired their first-ever Head of Digital Assets Strategy, with Blue Macellari joining them from crypto hedge fund Dunamis Trading

What happened: Crypto VC firm Dragonfly Capital purchases hedge fund

How is this significant?
  • This week, Dragonfly Capital—one of the largest digital asset VCs—announced a rebranding as well as an acquisition
  • Now simply going by “Dragonfly”, the company bought investment fund Metastable in what managing partner Haseeb Qureshi identified as a sign of consolidation within the sector
  • Qureshi said “The bear market has caused a lot of traditional funds and crossover funds to exit the crypto market. We’re the opposite: we’re going deeper, and committing to our crypto-native roots”
  • He said that the company’s rebrand reflected an evolution beyond just acting as a VC within the industry; “Dragonfly is a lot bigger now than when it first started, and so is the crypto industry. The traditional VCs will be back eventually, but the space will have moved on even further by then, and so will we”
  • As of July 31st, MetaStable (co-founded by Naval Ravikant) had over $400m AUM
  • Although terms of the deal were not disclosed, the latest public records showed Dragonfly had around $3bn in regulatory assets under management, and raised $650m for a fund as recently as April
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