Nickel Research Centre

Nickel News Roundup - Week 5

2nd February, 2023

Market Overview:

Digital assets traded in a relatively tight range throughout the week, before recent bullish momentum returned on Wednesday following news of smaller rate hikes.

  • Bitcoin briefly broke through $24,000 late on Wednesday; its first time above that level since August 2022
  • Bitcoin traded between $22,700 and $23,200 for the majority of the week, with a low of $22,680 on Friday and a high of $24,170 on Wednesday
  • Bitcoin’s current price of $23,820 equates to 3.2% weekly growth
  • Bitcoin experienced its best January in a decade, growing from $16,540 to $23,130; a monthly increase of 40%
  • Ether exhibited similar performance, trading predominantly between $1,560 and $1,615, with a weekly low of $1,549 and a high of $1,687
  • Ether’s current price of $1,671 equates to a 3.5% increase
  • Total Ether issuance continued declining below pre-merge levels, with burn rates from transactions exceeding new Ether entering circulation. Current annual issuance remains deflationary at -0.3%
  • Overall market capitalisation sustained itself above $1tn throughout the week, with a current value of $1.09tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms increased by nearly $3bn to $49.3bn

Digital asset markets responded positively to news of lower interest rate increases from the Federal Reserve, carrying on the bullish momentum since 2023 began. There were several positive pieces of adoption within the asset class this week, including integration within German financial services, wider recognition of stablecoins, BNY Mellon and BlackRock both increasing their commitment to the industry, a myriad of legislative and regulatory proposals, and new frontiers in bond tokenisation.

What happened: European Investment Bank issues digital sterling bond with BNP, RBC, HSBC

How is this significant?

  • The European Investment Bank (EIB) announced its first ever sterling-denominated digital bond this week, developed in partnership with BNP Paribas, HSBC and RBC Capital Markets
  • The £50m bond was registered on a private blockchain, but the EIB told Reuters that “a public blockchain mirror record would provide increased transparency on an anonymised basis”
  • This marks the first foray into tokenised UK currency bonds by the EIB, following several previous digital bond issues denominated in Euros
  • EIB Vice-President Ricardo Mourinho Felix was bullish on the potential for such assets in international trade, saying “This new financial tool will provide additional capital flow that the EIB will invest in projects with global impact”

What happened: Legislative news

How is this significant?

  • The United Kingdom government published proposals for “robust” crypto regulation, seeking a balance between consumer protection and “our commitment to grow the economy and enable technological change and innovation”
  • They plan to use existing regulations (FSMA 2000) for the sector, rather than creating a bespoke regime from scratch, but are now opening a consultation period on their proposals until the end of April
  • Proposals include standards on public promotion, data reporting requirements, and measures against artificial price inflation schemes
  • In the United States, there is increased fervour for regulation, but no united front yet on the scope and depth thereof—although the Biden White House this week issued a statement announcing their intention to establish a digital asset legal framework “to mitigate cryptocurrencies’ risks” within the next few months
  • Whilst some politicians like California’s Brad Sherman would allow the asset class to be banned, others like Texas’ Ted Cruz are proposing that digital assets be accepted as a means of payment within Capitol Hill itself
  • There have also been several recent proposals for digital asset adoption on a statewide basis; Arizona senator Wendy Rogers recently proposed bills to recognise Bitcoin as legal tender (and a means to pay state agencies) within Arizona, and a bill before the New York Senate seeks to accept digital assets (specifically Bitcoin, Ether, Litecoin, and Bitcoin Cash) as payment for state agencies
  • Meanwhile, some observers believe that China may be softening its stance on digital assets, pointing towards Hong Kong’s recent promotion of the asset class alongside a wider economic reopening within China

What happened: German finance giant Dekabank adds digital asset services

How is this significant?

  • €360bn AUM German financial services firm Dekabank announced a partnership with Swiss technology provider Metaco this week, to “underpin and orchestrate DekaBank’s digital asset custody and management operations”
  • Dekabank is the main provider of asset management and capital market solutions to Sparkassen Finanzgruppe—the network of public banks that comprise the largest financial services group in Germany (and Europe)
  • This could widely increase accessibility of—and confidence around—digital assets within the German financial services sector
  • A press release said that Dekabank would use Metaco’s Harmonize platform to potentially deliver digital asset custody capabilities across its network of banks in the Sparkasse group; “DekaBank’s digital asset custody services will offer a safe and compliant value proposition to its extensive network of savings banks—with the highest standards of security”
  • Andreas Sack, DekaBank’s head of digital asset custody, said “Digital assets are a critical part of the future, a radical new way for how assets will be represented, from currencies to real estate. Today we make another important step towards laying the foundation for giving our institutional investors and millions of people in Germany access to this transformational opportunity”
  • Dekabank becomes the latest major financial institution to use Metaco’s infrastructure to develop digital asset capabilities, following Societe Generale and Citi

What happened: Credit rating firm Moody’s develops stablecoin scoring system

How is this significant?

  • According to Bloomberg reports this week, Moody’s is designing a new rating system for stablecoins, as they come under increasing regulatory scrutiny and wider market attention
  • A source said the firm would include up to 20 stablecoins across a variety of blockchains, “based on the quality of attestations on the reserves backing them”
  • Stablecoins are a particular subject of interest to many regulators; proving they are 100% backed by fiat currencies or stable assets is crucial since the collapse of the Terra Luna blockchain’s algorithmic UST stablecoin set off industry contagion last summer
  • Although it won’t form an official credit rating system, it nonetheless reflects growing attention from the TradFi establishment
  • This includes attention from banks who’ve developed their own stablecoins, starting with JP Morgan’s JPM coin back in 2019, to National Australia Bank’s AUDN stablecoin announced just two weeks ago

What happened: Contagion latest—Celsius reveals some users can withdraw assets

How is this significant?

  • A new court filing in beleaguered lender Celsius’ bankruptcy proceedings brought good news to customers—albeit only a small proportion of them
  • Eligible users of Celsius custody program can now withdraw approximately 94% of the assets they had held in custody
  • However, qualifying users will still have to bear the costs “related to gas and transaction fees associated with withdrawal activities”
  • The remaining 6% of custody customers’ assets could also be released at a later date, pending a court ruling on the matter
  • A court-appointed examiner was scathing about Celsius and former CEO Alex Maschinsky this week, compiling a 689 page report that concluded the firm lacked risk management and “Behind the scenes, Celsius conducted its business in a starkly different manner than how it marketed itself to its customers in every key respect”
  • BlockFi, another lender bankrupted by industry contagion, secured court approval to auction off hardware from its crypto mining business
  • Lawyer Francis Petrie said that current market conditions meant presented an opportunity; “We’ve received substantial interest in the market for bidding purposes and current volatility in the cryptocurrency market, which means we need to act quickly”
  • Digital asset manager Osprey added to Digital Currency Group(DCG)’s recent woes, suing the company’s Grayscale subsidiary over its GBTC fund
  • Osprey allege “false and misleading advertising” as well as “unfair trade practices”, charges which a Grayscale spokesperson dismissed as “frivolous”
  • Alameda Research attempted to claw back $446m from Voyager (recently acquired by Binance.US), but this bid was swiftly rejected by both Voyager and its creditors’ committee
  • Disgraced Alameda founder and ex-FTX CEO Sam Bankman-Fried meanwhile denied claims of witness-tampering this week, after contacting the current general counsel of FTX US via the encrypted messaging service Signal
  • Prosecutors argued for new bail conditions in the wake of this revelation, asking for a ban on Bankman-Fried using encrypted messaging apps or speaking to FTX personae without his legal counsel

What happened: Mastercard partners with Binance for crypto credit card in Brazil

How is this significant?

  • Payments giant Mastercard deepened their presence in the digital asset space yet further this week, partnering with Binance on the release of a new credit card allowing Brazilian users to make payments and pay bills with 13 different crypto assets
  • This represents the latest of several such collaborations between the companies, following similar cards in Argentina and the EEA
  • The prepaid cards will charge a 0.9% fee on transactions involving digital assets, but also offer up to 8% cashback
  • Brazil represents a major opportunity for Binance, sitting within its top 10 markets globally
  • The partnership also makes sense for Mastercard; a 2022 survey by the company revealed that 49% of respondents in Brazil made at least one crypto asset transaction over the last year
  • Marcelo Tangioni, president of Mastercard Brazil, said in the press release “Brazilians are eager to use cryptocurrency beyond an investment asset”

What happened: BNY Mellon reaffirms commitment to digital assets and blockchain

How is this significant?

  • BNY Mellon, the world’s largest custodian bank, hasn’t been deterred from the digital asset industry by the crypto winter—in fact, they view it as an opportunity to increase their presence in the space
  • In particular, BNY are investing more in blockchain, custody, and asset tokenisation efforts
  • Speaking on a monthly earnings call, CEO Robin Vince said they could benefit from recent turbulence within the market by virtue of their long history and reputation; “If anything, the recent events in the crypto market only further highlight the need for trusted regulated providers in the digital-asset space”
  • He also confirmed that the crypto winter hadn’t dampened the bank’s enthusiasm about the space; “This will continue to be a focus for us, not so much for crypto, but really the broader opportunity that exists across digital assets and distributed ledger technology”
  • Bloomberg also reported continued industry interest from other heavy hitters in finance;
  • BlackRock is “focusing on four areas: stablecoins, private blockchain, tokenization and crypto assets”
  • Goldman Sachs are working on issuance of financial securities as digital assets, benefitting from drastically-increased efficiencies; trades can settle in a minute rather than days, “transform[ing] the risk profile of a trade”
  • JP Morgan runs several projects from its Onyx blockchain division, despite CEO Jamie Dimon’s personal distaste for digital assets
  • Other firms identified by Bloomberg include Fidelity, Standard Chartered, Nomura, Cboe, CME Group, TP ICAP Group, Societe Generale, and State Street
  • Speaking at Davos last month, State Street CEO Ronald O’ Hanley also remained optimistic about the asset class; “There is still a bright future for tokenization… There’s a lot of central banks thinking about central bank digital currencies—I think that is proceeding forward at pace”

What happened: BlackRock discloses increased stake in digital asset bank Silvergate

How is this significant?

  • Like many firms operating in the digital asset space, Silvergate Bank—known for providing services to crypto companies—suffered a torrid 2022, but their 2023 began on a more positive note
  • In recent filings, BlackRock revealed that they’ve increased their stake in the bank over the past year, rather than pulling back as digital asset values dwindled
  • BlackRock now holds a 7.2% stake in Silvergate, or just over 228,000 shares
  • Markets responded positively to news of BlackRock’s increased stake on Tuesday, with share prices increasing almost 10% following the disclosure

What happened: Former UK chancellor becomes chairman of crypto custodian

How is this significant?

  • Philip Hammond, former Chancellor of the Exchequer, took on a new role at London-based digital asset custodians Copper this week, being appointed chairman
  • Hammond had previously served in a senior advisory role at the company, and has acted as an advocate for productive crypto regulations within the UK, backing up prime minister Rishi Sunak’s ambitions for the nation to become a global crypto asset hub
  • He was also named one of the “20 Most Influential” people in the space by Financial News London, leveraging his status as former chancellor (and subsequent lordship) to help promote the industry
  • Copper acts as custodian for firms including State Street Digital and Nickel Digital, and raised $196m in funding last year despite challenging market conditions
  • Speaking after his appointment, Hammond was keen to stress the need for institutional standards; “Recent security and regulatory challenges affecting the digital asset sector have only served to emphasise the need for safe, well-regulated trading infrastructure”
  • In other UK custody news, regulated exchange Archax (part-owned by ABRDN) launched an FCA-approved custody service in partnership with Metaco, utilising IBM Cloud technology
  • Archax CMO Simon Barnby echoed Hammond’s calls for institutional standards in digital assets; “Events like FTX have highlighted the need for a more traditional approach to things”

What happened: Premier League football signs partnership with NFT firm

How is this significant?

  • The English Premier League—the most-watched sports league in the world—inked a 4 year licencing deal with French NFT startup Sorare this week, enabling the development of official Premier League NFTs
  • Thanks to NFT technology, fans can purchase and trade limited-run digital trading cards which also double as assets within fantasy football leagues
  • Sorare raised $680m in Series B funding back in 2021, and has already secured partnerships with several major football leagues, including Germany’s Bundesliga, Italy’s Serie A, and Spain’s La Liga
  • Additionally, they’ve expanded into American sports leagues, with similar licencing deals for the NBA and MLB
News Roundups