Nickel Research Centre

Nickel News Roundup - Week 29

22nd July, 2021 

Market Overview:

Digital assets experienced another indecisive week, marked by a steep decline on Tuesday in line with wider financial markets, before a recovery on Wednesday.

  • Bitcoin predominantly traded within a tight $31,000 to $32,000 channel throughout the majority of the week, but dropped below $30,000 throughout Tuesday against a background of uncertainty in other markets and reports of new legislation in the EU. Bitcoin’s current price of $32,127 represents a modest decrease from last week
  • Ether couldn’t break out convincingly above $2,000, dipping to lows of $1,722 on Tuesday—but the current price of $1,992 actually represents an approximately 2% increase on last week’s snapshot
  • The overall market capitalisation of digital assets declined to a low of $1.18tn, before recovering to $1.32tn for a flat weekly performance
  • The total value locked in the DeFi sector remained steady at just over $65bn, with Ether’s slight growth offsetting Bitcoin’s mild decline

Digital assets performed steadily throughout the week, with one day of significant downside volatility cancelled out by upside volatility the next. This week saw over a billion dollars raised by digital asset companies seeking to fuel their growth, whilst traditional finance companies like BNY Mellon, State Street, JP Morgan, Bank of America, and Mastercard all moved to deepen their involvement in this dynamic and evolving financial space. Other major themes in the limelight this week included regulatory proposals and sustainability efforts, addressing key areas of concern for investors.


What happened: FTX exchange completes largest ever digital asset fundraise

How is this significant?
  • FTX, a major digital asset exchange, achieved several milestones this week thanks to a major fundraising round
  • The exchange, founded two years ago by Sam Bankman-Fried, has boosted its public profile significantly over the past few months with several major sponsorship deals, including Major League Baseball in the United States
  • On Tuesday, the company issued a press release announcing the completion of a Series B funding round worth $900m—the largest-ever raise by a company in the digital asset space, more than doubling the $440m recently raised by USDC stablecoin issuer Circle
  • The raise gives the company a total valuation of $18bn, with 1 million traders and $10bn in daily transaction volume
  • Funding contributors included Sequoia Capital, the Paul Tudor Jones family, Alan Howard, Hudson River Trading, Coinbase Ventures, and Sino Global Capital

What happened: Fidelity research finds a majority of institutional investors expect to buy digital assets in future

How is this significant?
  • Results of a survey issued by Fidelity this week showcased a continuing appetite for digital assets amongst institutional investors, despite current downward market movements
  • Commissioned by Fidelity Digital Assets, the research was carried out by financial analytics firm Coalition Greenwich, across a global respondent pool of 1,100 institutional investors
  • The results found that a strong majority (approximately 7 out of 10) institutional investors planned to invest in digital assets within the next 5 years
  • Of those who announced an intention to invest, 90% believed their client or company portfolios would feature digital asset exposure within the next 5 years, including stocks, indirect exposure through derivatives, and direct exposure through digital asset purchases
  • Price volatility was cited as the major barrier to entry amongst investors
  • The findings correlated with other recent surveys of institutional investors and wealth managers, including one released earlier this month by Nickel Digital

What happened: ARK Investments increases digital asset holdings after Square’s Bitcoin DeFi announcement

How is this significant?
  • Cathie Wood’s ARK Investments (over $50bn AUM) has been a key institutional representative during the growth of the digital asset market over the last year—and current challenging market conditions haven’t diminished their faith in the sector
  • After Square Payments CEO (and Twitter co-founder) Jack Dorsey announced the company is building a Bitcoin-centric DeFi platform, ARK moved swiftly to increased their holdings, buying more than 225,000 shares in Square, according to their daily holdings reporting
  • Square also recently announced the development of a hardware wallet for Bitcoin, aiming to make the top crypto asset even more ubiquitous
  • Additionally, ARK increased their investments elsewhere in the digital asset space this week, purchasing nearly 139,000 Coinbase shares on Tuesday, and almost $3.4m worth of shares in the Grayscale Bitcoin Trust

What happened: Bank of America increases digital asset services for clients

How is this significant?
  • On Friday, news broke that Bank of America (the second-largest bank in the United States) was moving further into the digital asset space by offering select clients the facility to trade Bitcoin futures
  • According to industry publication Coindesk, several clients are in the process of onboarding for the service, but a few may have already started (and settled)
  • This move follows on from several other major financial institutions in the recent past, including Goldman Sachs and Citigroup
  • On Tuesday, more information emerged, revealing that Bank of America’s prime brokerage unit will provide clearing and settlement services for digital asset ETPs to Europe-based hedge funds
  • Unlike America, where approval for a digital asset ETF remains elusive, Europe has been a fertile ground for crypto ETFs and ETPs across multiple jurisdictions, including France, Germany, Switzerland, and the UK

What happened: BNY Mellon joins State Street in backing new digital asset exchange

How is this significant?
  • On Wednesday, the Financial Times reported that the two oldest banks in America—BNY Mellon and State Street—have entered a digital assets alliance, with BNY joining a new digital asset exchange that State Street announced in April
  • The exchange, Pure Digital, has seen particular interest from custody banks, with CEO Lauren Kiley telling reporters “We have spoken to all the top-tier banks but we think custody banks were some of the first to see demand, so they are now more advanced”
  • This marks a change in attitude from custody banks according to the FT, signalling a greater client demand for digital assets driving these traditionally-conservative financial institutions into adoption of new technology
  • Pure Digital co-founders said that they expect the first trades (in Bitcoin) to be executed on their platform within the next week
  • Commenting on their involvement, BNY Mellon’s global head of foreign exchange, Jason Vitale said it was part of a long-term vision for the bank; “Digital assets are only going to become more embedded in global markets in the years ahead, and this collaboration accords with BNY Mellon’s wider strategy to develop a digital asset capability for clients across the entire trade life cycle”
  • The FT believes that six banks in total are involved, although only two have thus far been disclosed; “BNY Mellon, State Street and the other unnamed banks behind the project will create a cash cryptocurrency trading venue, in hopes of competing against larger incumbents”

What happened: Mastercard tests USDC stablecoin payments on its network

How is this significant?
  • Following the recent successful conclusion of their $440m funding round, Circle—the issuers of the USDC stablecoin—had more good news this week as Mastercard announced a pilot to use USDC as a bridge between crypto and fiat payments
  • Aimed at simplifying transactions for merchants, Mastercard would follow in Visa’s footsteps of enabling USDC as a payment asset on its merchant network; reducing friction compared to direct attempts at crypto-to-fiat conversion
  • Converting a digital asset to a stablecoin would typically be subject to less slippage and deeper liquidity than attempts to convert directly into fiat 
  • This functionality would allow Mastercard to offer simplified payment cards for use with crypto assets
  • In a press release, Raj Dhamodharan, EVP of digital asset and blockchain at Mastercard said "The engagement between Mastercard and Circle fuels new payment opportunities and commerce in digital currencies. The cryptocurrency market continues to mature and we are driving it forward together to reduce friction and create choice for people"

What happened: JP Morgan moves to increase blockchain headcount in hiring spree

How is this significant?
  • A series of new listings on JP Morgan’s job portal indicate that the bank is currently willing to spend in order to recruit blockchain experience and expertise for future plans
  • There are currently around 100 listings across a variety of blockchain related roles located in Hong Kong, India, Singapore, the United States, and UK
  • Industry observers noted that in the United States alone, over 30 new job listings have been added in the last week
  • As well as blockchain infrastructure knowledge, several of the roles also request experience with consensus mechanisms like Proof-of-Stake, and specific digital assets like Bitcoin and Ethereum—not long after a JP Morgan report predicted that Ethereum’s transition to Proof-of-Stake could create a $40bn staking industry

What happened: Silvergate Bank takes over $4bn in deposits from digital asset customers

How is this significant?
  • Silvergate, a crypto-friendly bank, revealed in an earning call on Tuesday that they had taken $4.3bn in deposits from clients in the digital asset sector in Q2 2021
  • Based in La Jolla, California, the bank serves institutional clients like the American digital asset exchanges Coinbase, Kraken, and Gemini, among a select roster of 1,224 clients in total
  • Giving more detail on the financial breakdown of their business, Silvergate CEO Alan Lane said “In the second quarter, average deposits from digital currency customers grew by $3.5 billion to $9.9 billion… Driven by the record volume we experienced on this, we are prudently deploying these deposits into interest earning assets, including the purchase of $4.5 billion of both short and long duration securities during the quarter”
  • Additionally, the bank has secured a position as the exclusive stablecoin issuer for Facebook’s Diem digital currency project, with industry publication Coindesk writing that “Silvergate plans to profit off of the transaction fees on minting and burning Diem’s stablecoin, yield on the reserve deposits from Diem, and on offering traditional banking services to customers that come to the bank through Diem. This past quarter, Silvergate raked in $11.3 million in fees from digital currency customers, up 59% from the previous quarter”

What happened: PayPal raises digital asset payment limit for customers

How is this significant?
  • PayPal’s move to support digital assets was one of the first major signs of institutional adoption last year, helping to catalyse bullish momentum across the market
  • The company has gradually been expanding customer capabilities concerning digital assets purchased on PayPal, such as enabling them to transfer their assets to externally-owned blockchain wallets
  • Now, they have quintupled the weekly purchase limit on digital assets for customers in the United States, increasing the maximum weekly buy from $20,000 to $100,000
  • Additionally, they have removed the previous $50,000 annual purchase limit
  • Explaining the move, Jose Fernandez da Ponte, PayPal’s vice president of blockchain, crypto and digital currencies said “These changes will enable our customers to have more choice and flexibility in purchasing cryptocurrency on our platform”

What happened: SoftBank invests $75m in upcoming SPAC-listed exchange

How is this significant?
  • Japanese financial giant SoftBank has been reported by Bloomberg as ready to make another major investment in the digital asset sector, following significant investments in Brazilian exchange Mercado Bitcoin, and crypto-friendly bank Revolut
  • Now, SEC filings have revealed Softbank plans to buy 7,500,000 shares in the Peter Thiel-backed exchange Bullish, which is slated to go public via SPAC before the end of the year
  • Although Bullish has fostered some skeptical response in the space by announcing plans to go public before even launching, with some seeing it primarily as a vehicle to promote the underperforming EOS blockchain, Softbank appears convinced enough to invest $75m at $10 a share

What happened: NFT adoption continues to grow

How is this significant?
  • Opensea, a leading non-fungible token (NFT) marketplace this week announced the successful conclusion of a $100m funding round led by a16z, on an overall valuation of $1.5bn
  • This makes the company the latest digital asset “unicorn”, with Opensea CEO Devin Finzer saying the investment would help the company scale their marketplace and expand globally, noting “The fundraise is really all around bringing widespread adoption to NFTs. And it’s about growing the platform that we’ve built, which has seen significant volume growth over the last the first half of the year. We think NFTs are really one of those once every couple-of-decades paradigm shifts that is just incredibly exciting”
  • In other NFT news, Singapore-based Enjin became the first NFT developer to join the UN Global Compact, aiming to create new implementations of NFTs aligned with equitable development and sustainability, such as using them to monitor and transfer carbon capture credits
  • Irakli Beridze, Head of the Centre for AI and Robotics, at the United Nations said "While we are struggling to recover from the global pandemic and its impacts, we are experiencing exponential growth of technologies like AI and blockchain. More than ever, we need to take advantage and harness the potential of these new technologies to ensure that we are better equipped and more united in the future, in order to make our planet a more livable, equitable place for all"

What happened: Rothschild quadruples its digital asset exposure since April

How is this significant?
  • Recent SEC filings revealed that Rothschild Investment Corp. have quadrupled their Bitcoin exposure since the beginning of the second quarter
  • Rothschild now own over 141,000 shares in the Grayscale Bitcoin Trust (GBTC), up from around 38,000 in April
  • Converting the shares into Bitcoin, Rothschild currently own around 138.5 Bitcoin, indicating that declining prices over the last quarter haven’t caused any panic amongst executives at the investment manager

What happened: Grayscale announces DeFi fund

How is this significant?
  • Grayscale, the world’s largest digital asset investment manager, announced the creation of an institutional-grade decentralised finance fund during a CNBC interview on Monday
  • Working alongside industry publication Coindesk, they plan to create a decentralised finance index, and offer institutional investors exposure to DeFi assets, such as the protocol tokens for decentralised exchange Uniswap, or DeFi protocol AAVE
  • In the interview, CEO Michael Sonnenschein also reaffirmed Grayscale’s plans to convert their Bitcoin Trust product into an ETF alongside BNY Mellon, as soon as regulatory permission is granted
  • Believing it’s a case of “when” not “if” ETFs will be approved, Sonnenschein said “I think in our seat, from our view of the world, we’re really looking for a couple of different points of maturation in the underlying market, and that’s really the final stages of what we think regulators need to approve those types of products and give investors the protections that they’re looking for”
What happened: EU proposes regulations for tighter digital asset oversight

How is this significant?
  • In a meeting this week, the EU discussed plans to add a greater deal of reporting around the transfer of digital assets like Bitcoin, aiming to reduce anonymity
  • The European Commission argued that crypto assets should be subject to the same AML scrutinies as wire transfers, and "extend these rules to the entire crypto-sector, obliging all service providers to conduct due diligence on their customers"
  • They also announced plans to ban anonymous blockchain wallets, but all the above comes with the caveat that it could take two years for any of these proposals to be confirmed as law across the EU

What happened: Green energy crypto mining ETF launches on New York Stock Exchange

How is this significant?
  • Investment manager Viridi Funds have launched a new ETF on the NYSE Arca, aimed at addressing concerns over the sustainability of crypto mining, one of the key drivers of recent declines in Bitcoin prices
  • The Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF will carry 80% exposure to digital asset mining companies switching to renewable (or nuclear) energy in a bid to clean up Bitcoin’s supply chain, and 20% exposure to semiconductor companies that also engage in clean energy
  • This is part of a wider trend within digital asset mining; a Bloomberg report this week revealed that Australian renewable-focused Bitcoin miner Iris Energy have courted $200m in funding before undertaking a direct listing on the Nasdaq

What happened: Elon Musk speaks at Bitcoin conference

How is this significant?
  • On Monday, Elon Musk was officially confirmed for “The B Word” conference alongside Jack Dorsey and Cathie Wood, having teased his participation on Twitter last month
  • Themed “How Institutions Can Embrace Bitcoin”, the conference will include representatives from Square Payments, ARK Investments, the MIT Digital Currency initiative and others, alongside the mercurial Tesla CEO
  • Musk’s participation involved a live panel discussion with Dorsey and Wood on Wednesday, speaking on the topic of “Bitcoin as a Tool for Economic Empowerment”
  • The Tesla CEO confirmed that he, Tesla, and the privately-held SpaceX all own Bitcoin, and that he holds Ether in a personal capacity, calling them the “only meaningful assets” he owns outside of company stock
  • Musk re-affirmed his long-term belief in the asset class, declaring “We’re not selling any Bitcoin, nor am I selling anything personally or nor is SpaceX selling any Bitcoin”
  • He also acknowledged recent miner crackdowns in China may have been positive in terms of removing large amounts of coal-powered mining from Bitcoin’s production, saying “There appears to be a positive trend. I want to do a little more diligence to confirm that the percentage of renewable energy usage is most likely at or above 50% and that there is a trend towards increasing that number. If so, Tesla will resume accepting Bitcoin,”

What happened: JC Flowers buys portion of largest institutional exchange

How is this significant?
  • LMAX, an institutional forex and digital asset exchange, confirmed this week that they had sold a 30% stake of their business to private equity firm JC Flowers for $300m, giving them a valuation of $1bn
  • According to LMAX, 30% of their group revenues come from digital assets, despite only contributing 11% of trading volumes
  • Founded in 2018, their digital asset arm “as become the leading institutional spot crypto currency exchange, serving over 500 institutional clients and is the second largest bitcoin exchange globally” according to a press release announcing the deal
News Roundups