Nickel Research Centre

Nickel News Roundup - Week 8

25th February, 2021

Market Overview:

Digital assets traded across a broad range this week, as record highs into the weekend were followed by a significant reversal and consolidation. February performance remains very strong.

  • Bitcoin had a record week in multiple senses; recording a new all-time high of $58,330, and exceeding a market cap of $1tn for the first time, before correcting and consolidating
  • At the time of writing, Bitcoin sits at approximately $49,000, an increase of over 50% for February to date, and ahead of the then all-time highs achieved early last week
  • Ethereum’s movements mirrored Bitcoin, crossing $2,000 for the first time and reaching a new all-time high of $2,036, before briefly dipping below $1,400 in line with the market-wide pullback, ultimately recovering to a current value of $1,590
  • Despite the market moves, overall market cap remained steady, as several altcoins saw strong growth that partially offset the drops in Bitcoin and Ethereum. At its height this week, the market witnessed a record value of $1.76tn, with a current value of $1.5tn in line with last week’s market cap, and $500bn above the $1tn value at the start of the month
  • The DeFi sector retracted slightly due to the pullbacks in Bitcoin and Ethereum, with a Total Value Locked of $45.9bn, down just under $3bn

Digital assets saw record prices, significant swings and ongoing technical progress. Outside of the markets, there was a steady stream of legislative and regulatory news this week, with advancement from European, Asian, and African central banks, uncertainty cleared in the United States, and some major digital asset purchases from institutional investors.


What happened: First North American Bitcoin ETF debuts to large trading volume

How is this significant?

  • Although Bitcoin ETFs have yet to be granted in the USA, in Canada, Thursday saw the debut of the Purpose Bitcoin ETF (BTCC) on the Toronto Stock Exchange
  • Within two days of launch, the ETF raised 421m CAD—roughly equivalent to an ETF in the United States raising $8bn, based on the relative size of their financial markets
  • According to reporting by Bloomberg’s senior ETF analyst Eric Balchunas, it was notable for being the most-traded ETF in Canada on its very first day of trading, with a rate of growth that could make it Canada’s largest ETF within three weeks of launching 
  • Even in the wake of the large early-week correction by Bitcoin, the ETF has continued to grow, with over 560m CAD in assets under management at the time of writing, indicating a continued investor appetite and trading volume in Canada
  • Friday saw the debut of another Bitcoin ETF in Canada by a company called Evolve, which traded in the top 20 ETFs on its first day
  • Several crypto asset ETFs (by VanEck and Valkyrie Digital Assets) are currently waiting on approval from the new administration in the United States, and the enthusiasm in Canada could help legitimise them as a financial vehicle in the eyes of US regulators
  • Meanwhile in Europe, a Swiss creator of crypto asset ETPs just passed $1bn in assets under management, citing “a rapid appreciation and acceptance from institutional investors in the crypto asset industry” as the key driver of their growth

What happened: SEC Commissioner encourages more legislative clarity to avoid stifling development in decentralised finance

How is this significant?

  • SEC Commissioner Hester Peirce has been a vocal advocate for the potential of crypto assets within economies, and provided her observations on legislation surrounding decentralised finance (DeFi) in a speech to George Washington University’s law school
  • Rather than running through banks, DeFi runs through smart contracts on blockchain technology, creating provable and transparent financial outcomes and opportunities
  • Although she acknowledged that DeFi is still a new and evolving field with “rough edges”, Peirce was optimistic overall regarding its potential, noting that “DeFi’s promises of democratization, open access, transparency, predictability and systemic resilience are alluring”
  • Peirce believes regulators “need to provide both legal clarity and the freedom to experiment so that DeFi can compete with CeFi [centralised finance] to offer investors financial services”, allowing for greater financial inclusion
  • Looking forward, the SEC commissioner believes that DeFi “does pose some new regulatory challenges, but it also gives us new tools to meet those challenges. We should use those tools with genuine care for the freedom of the people we regulate”

What happened: Federal Reserve appoints Bitcoin-friendly Chief Innovation Officer

How is this significant?

  • The United States Federal Reserve has just hired their first Chief Innovation Officer with a remit to “lead efforts to identify, research, enable and advocate for new technologies”
  • Sunayna Tuteja, former Head of Digital Assets at digital trading platform TD Ameritrade is the first person to occupy this new role
  • Last December, whilst still in her role at TD Ameritrade, Tuteja published several tweets speaking positively about digital assets, noting that Bitcoin “keeps bouncing back every time they are written off, and bounce back stronger, having been stress tested in ways expected and unexpected”
  • Following the nominations of Gary Gensler as chair of the SEC, Chris Brummer as CFTC chair, and Michael Barr as most likely nominee for OCC leadership, the appointment of Tuteja represents part of a growing trend of leadership appointees within the financial sector that have a working knowledge and appreciation of digital assets

What happened: Microstrategy raises over $1bn for Bitcoin purchase 

How is this significant?

  • Microstrategy is one of the key advocates of institutional Bitcoin investment, and the sale of senior notes they announced last week to fund purchase of additional Bitcoins was completely filled, exceeding their original raise goal
  • Having originally announced last Tuesday a plan to sell $600m of notes for Bitcoin funding, the figure was revised to $900m the next with an upper boundary of $1.05bn, which was achieved on Friday
  • The speed at which the funds were raised indicates a continuing institutional appetite for digital assets, particularly as the notes mature in 2027, and were sold at “a premium of approximately 50% over the last reported sale price of $955.00 per share of MicroStrategy’s class A common stock”
  • In an interview with CNBC on Tuesday, Microstrategy CEO Michael Saylor gave very bullish forecasts on Bitcoin’s long-term prospects, believing it will “subsume gold” in market cap, calling Bitcoin an asset class and a “bank in cyberspace”, declaring that “people are storing their monetary energy in Bitcoin for the long term”
  • Microstrategy moved quickly to convert their dollars into Bitcoin, buying $1.026bn worth on Wednesday, at an average cost of $52,765

What happened: Payment app Square reports record Bitcoin salesand increases investment

How is this significant?

  • Square, the payments app created by Twitter co-founder Jack Dorsey, filed its Q4 report with the SEC this week, shedding light on much of their activity involving Bitcoin sales and purchases
  • Buoyed by a strong price appreciation in Q4 2020, Square noted “significant growth in bitcoin revenue year over year... bitcoin revenue was $4.57 billion in 2020, up approximately 9x year over year”
  • Consumer appetite for digital assets is on an upward trajectory according to their report; “In the fourth quarter, we saw more customers adopting bitcoin on their first day of onboarding than ever before. In January 2021, more than one million customers purchased bitcoin for the first time”
  • Although Square only applies a small margin in their Bitcoin sales to consumers, they have also been involved in acquisition as an institutional investment, purchasing over $170m worth of Bitcoin at over $51,000 each
  • The company takes a long-term view on the value of digital assets, and plans to increase their position within its portfolio “Aligned with the company’s purpose, Square believes that cryptocurrency is an instrument of economic empowerment, providing a way for individuals to participate in a global monetary system… The investment is part of Square’s ongoing commitment to bitcoin, and the company plans to assess its aggregate investment in bitcoin relative to its other investments on an ongoing basis”
  • This faith has proved profitable for Square thus far; in October they purchased $50m worth of Bitcoin; an investment which has approximately quintupled in value since

What happened: Coinbase implied valuation before public listing reaches $100bn

How is this significant?

  • The price of Coinbase shares on the NASDAQ private market grew more over the last week, to a value of $373 per share; equivalent to an implied valuation of $100m for the USA’s largest cryptocurrency exchange
  • In the first week of trading on NASDAQ private market, shares first sold at $200, almost half the current value
  • Digital asset analysis company TheBlock notes that although the identities of the purchasers aren’t publicly disclosed, there are large volumes being purchased and “a source said that they are likely large investment firms”, eager to secure Coinbase equity ahead of their direct listing

What happened: Tether and Bitfinex reach settlement with New York Attorney General’s Office

How is this significant?

  • As the largest stablecoin by volume, an investigation from the New York Attorney General’s Office concerning Tether’s financial reserves (to ensure each USDT is backed by one dollar held physically) were a major source of uncertainty in the crypto asset space
  • On Tuesday, two years after the probe began, the company behind Tether (and its associated cryptocurrency exchange, Bitfinex) settled directly with the attorney general, paying $18.5m in fines, withdrawing services in the state of New York, and committing to the submission of quarterly financial reports
  • Although the settlement and the exclusion of services to New York state are seen as damaging to Tether, the submission of financial records has been identified as a positive from commentators in the digital asset space, as it will increase transparency and confidence in the company going forward, including “verification that Bitfinex and Tether have appropriately segregated client, reserve, and operational accounts”

What happened: Chinese private banks join government digital currency trials

How is this significant?

  • China is at the forefront of global CBDC development, with numerous reports expecting the launch of the Digital Yuan this year
  • According to Bloomberg, private banks are now joining the digital currency trials, ensuring compatibility with the four major state-owned banks who have thus far formed the basis of the trials
  • WeBank (owned by Tencent) and MYBank (owned by Alibaba affiliate Ant Group) will offer e-wallets with similar functions to those created by the state-owned banks, and their services will be integrated into the Digital Yuan app, as reported by the state owned China Securities News publication
  • For the world’s largest centrally-planned economy to allow private companies into the trial of their CBDC, rather than competing against them, indicates a willingness to make it as accessible and widespread as possible

What happened: European Central Bank comments on stablecoin usage in the EU

How is this significant?

  • On Tuesday, the ECB announced that they wish to have a veto power over the launch of stablecoins such as Facebook’s Diem (formerly Libra)
  • The ECB expects stablecoins to abide by “comprehensive rules for crypto-assets, including stress tests as well as capital and liquidity requirements” to ensure that they have the reserves necessary to cope with large scale outflows
  • Additionally, in the case of tokens linked to multiple currencies, the ECB wants to ensure that they “grant end-users a direct claim on the issuer or on the reserve assets and redemption rights”
  • This increased legislative clarity is an indication of the increased presence and legitimacy of digital assets within global financial infrastructure; ECB Chief Christine Lagarde commented in an interview with Reuters last month that she believes regulation around crypto assets should be global to avoid any potential cross-border loopholes

What happened: Governments increase CBDC efforts across the globe 

How is this significant?

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