Nickel Research Centre

Nickel News Roundup - Week 47

24th November, 2023

Market Overview:

Digital assets recovered from last week’s pullback, posting weekly growth despite news of a DoJ settlement against the industry’s largest exchange.
  • Bitcoin traded across a wide range, dipping to a weekly low of $35,910 on Friday
  • Bitcoin recovered to hit a weekly high of $37,810 on Wednesday, with the majority of weekly trading occurring between $36,300 and $37,200
  • Ether followed similar chart patterns to Bitcoin, but outperformed it over the week, growing from a Friday low of $1,916 to a Thursday high of $2,085
  • Overall digital asset market capitalisation increased to $1.42tn
  • Digital asset investment products experienced an 8th consecutive week of inflows, totalling $176m and experiencing double the annual trading average
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week grew to $47.2bn, helped by Ether’s appreciation

Digital assets returned to growth this week, despite momentary market nerves following enforcement action against Binance. Ultimately, investors appear to have favoured the certainty of a resolution over the uncertainty of previous hearsay and conjecture regarding the DoJ investigation, as the market soon rebounded from the news. Elsewhere, several European banks (and Japanese financial giants) launched new digital asset offerings, as a Bitcoin advocate became Argentina’s president-elect. Tokenisation continues to gather steam, a former NYSE president bought a major crypto publication and Fidelity became the latest major name to join the spot Ether ETF race.

What happened: Binance reaches $4.3bn settlement with US Department of Justice

How is this significant?

  • Crypto asset exchange Binance this week reached a settlement in ongoing investigations from US prosecutors, leading to a $4.3bn fine and the resignation of Changpeng Zhao (as well as a personal $50m fine and potential 18-month sentence for Zhao, pending sentencing in February)
  • In particular, the DoJ identified sanctions violations (involving both nations and organisations) as a particularly egregious failing of the exchange, and that its growth was spurred, in part, by lacklustre AML or KYC practices
  • Changpeng Zhao, known as "CZ", was the long-standing CEO of Binance, which grew to become the largest global crypto trading platform since its launch in 2017, but along with his fine must step away from any executive roles within Binance (though he may maintain a majority ownership)
  • To contextualise, this $4.3bn fine—though one of the largest corporate censures in history—is still dwarfed by compliance fines paid by TradFi companies with decades (or even centuries) of operational experience
  • The likes of Goldman Sachs, Deutsche Bank, JPM, Credit Suisse, BNP Paribas, and Bank of America have all faced greater fines than Binance (with the record standing at $30.6bn for BoA) for various compliance failings or illicit practices
  • Despite the massive fine, some industry analysts still identified the news as a net positive for the industry; Bloomberg called the settlement a “grey swan” rather than a “black swan event”, writing “That Binance ends up surviving a coordinated, blockbuster investigation by paying $4.3 billion, replacing the CEO and promising to do better next time is considered a major win, rather than a loss of faith that would have accompanied a harsher outcome”
  • JP Morgan analysts led by Nikolaos Panigirtzoglou agreed, telling industry publication TheBlock “We see the prospect of settlement as positive as uncertainty around Binance itself would subside… For crypto investors the prospect of settlement would see the elimination of a potential systemic risk emanating from a hypothetical Binance collapse”
  • Matrixport analyst Markus Thielen said the resolution was bullish, far below a speculated $10bn fine—and free from any allegations of commingling funds
  • Janet Yellen proclaimed that "Binance turned a blind eye to its legal obligations in the pursuit of profit", but erstwhile rival, Coinbase CEO Brian Armstrong, put a positive spin on the news, calling it "an opportunity for the industry to turn the page"
  • Though Zhao pled guilty, US prosecutors nonetheless tried to bar him from returning to his home in the UAE, despite him posting a $175m bond
  • The market briefly reacted to news of Zhao's resignation, sending Bitcoin below $35,800, but at the time of writing it has recovered to trade at over $37,000; reflecting progress on the weekly chart
  • Binance withdrawals also increased in the immediate aftermath of the news, but not above historic levels

What happened: Fidelity follows BlackRock in spot Ether ETF filing

How is this significant?

  • Hot on the heels of BlackRock’s spot Ether ETF filing, $4.5tn AUM finance giant Fidelity followed suit, filing for their own spot Ether ETF
  • If approved, the product would “track the performance of Ether, as measured by the performance of the Fidelity Ethereum Index”, and list on the CBOE BZX exchange
  • Bloomberg Intelligence analyst James Seyffart noted that Fidelity were the seventh applicant to file in an increasingly crowded spot Ether ETF race
  • In the proposal, Fidelity noted that American investors are currently missing out’ “Heretofore, US retail investors have lacked a US regulated, US exchange-traded vehicle to gain exposure to [Ethereum]. Meanwhile, investors in other countries... are able to use more traditional exchange-listed and traded products”
  • Elsewhere in the filing, Fidelity called on legal precedent to urge approval for spot crypto ETFs, noting the recent Grayscale court victory which ruled the SEC “arbitrary and capricious” for rejecting spot Bitcoin ETFs whilst approving futures products
  • Fidelity also argued approval strengthens regulation; “approval of a Spot ETH ETP would represent a major win for the protection of US investors in the crypto asset space. If a Spot ETH ETP was available, it is likely that at least a portion of the billions of dollars tied up in those proceedings would still reside in the brokerage accounts of US investors”
  • In other ETF news, the first fee (0.8%) for a spot Bitcoin ETF filing was revealed via an update by ARK and 21Shares
  • Bloomberg ETF analyst James Seyffart believes there could be a race towards the 0.5% average ETF fee, but also concedes “the fact that Ark and 21Shares have updated their filing from a 70 basis point fee to 80 basis points might mean that running these products is going to cost even more than some sponsors and issuers thought it would”
  • 0.8% would still undercut existing Bitcoin exposure vehicles such Bitcoin futures ETFs, and Grayscale’s GBTC trust

What happened: Austria’s Raiffeisenbank opens up retail digital asset trading

How is this significant?

  • Raiffeisenbank—the second-largest bank in Austria—revealed plans to roll out digital asset trading capabilities for retail customers no later than the end of January
  • The move will be conducted in conjunction with European crypto exchange Bitpanda, following a partnership agreement earlier this year
  • Initially, trading services will be limited to customers in Vienna (where both companies were founded), before rolling out nationwide
  • As Curt Chadha, Raiffeisenbank’s head of innovation told Coindesk; “We are starting in Vienna where about a quarter of Austria's population lives. The customer can use their mobile device to enter Bitpanda through the Raiffeisen app… confirming a trade will work exactly like an account-to-account bank transfer”
  • In other European banking news, Santander is launching Bitcoin and Ether trading services for private wealth customers in Austrian neighbour Switzerland
  • Assets are custodied directly by the bank, and other crypto assets may be added in the future, according to an internal announcement viewed by Coindesk
  • John Whelan, Santander’s head of crypto and digital assets stated “Swiss regulation related to digital assets is one of the first and most advanced in the world… As holding of crypto as an alternative asset class continues to expand, we expect that our clients prefer to rely on their existing financial institutions to be responsible for their assets”

What happened: South Korea to launch retail CBDC pilot

How is this significant?

  • Next year, South Korea will begin trialling a national digital currency, according to reports in the nation’s Korea Times newspaper
  • The CBDC trial will be jointly administered by the Bank of Korea (BOK), Financial Services Commission (FSC) and Financial Supervisory Service (FSS)
  • Around 100,000 Koreans across the cities of Jeju, Busan, or Incheon will participate in the pilot, allowing them to purchase goods with “Digital Won” deposit tokens issued by commercial banks, between next November and January 2025
  • The money will be “programmable” insofar as it can only be spent on selected goods or services; a particular criticism many observers have of CBDCs
  • The BOK outlined several advantages of a CBDC; “digital currencies have the potential to significantly address challenges with existing voucher systems, such as special grants during COVID-19 and childcare grants offered by the government”
  • In other Asian policy news, Singapore moved to further restrict retail participation in digital asset trading or crypto speculation
  • The Monetary Authority of Singapore is cracking down on incentives for retail trading, including “referrals, learn-and-earn programs and similar promotions”
  • These measures will be phased in from mid-2024 onwards

What happened: UK chancellor supports digital asset industry in new budget

How is this significant?

  • In the UK’s new mini-budget (or Autumn Statement) published this week, chancellor Jeremy Hunt outlined measures to help grow the digital asset sector
  • Most notably, the government will create a sandbox to speed the adoption of digital assets across the finance sector; “The government will lay a statutory instrument to implement the Digital Securities Sandbox, delivering on the Edinburgh Reform announcement to implement a Financial Market Infrastructure Sandbox in 2023”
  • Zodia Markets general counsel Dina White outlined the significance of this commitment; the sandbox “allows for a wide range of assets to interact with wider financial market activities, such as being used as collateral, or as part of repo transactions. Given that these will include both 'digitally native’ securities and digital representations of traditional instruments, this represents exciting experimentation in a well-established industry”
  • White added “We are seeing a continual progression of digitalization across a range of financial instruments, and this represents a critical step in the adoption of new technologies as they are applied to traditional financial assets”
  • In other British news, Reuters reported on Friday that UK investment managers have approval to create tokenised funds, according to industry trade body the Investment Association
  • Michelle Scrimgeour, chief executive of Legal & General Investment Management, commented “Fund tokenisation has great potential to revolutionise how our industry operates, by enabling greater efficiency and liquidity, enhanced risk management and the creation of more bespoke portfolios”

What happened: Argentina elects pro-Bitcoin president

How is this significant?

  • On Sunday, Argentinians voted for populist candidate (and Bitcoin advocate) Javier Milei in the country’s run-off election, following his earlier primary success with a 55% share of the vote
  • Milei previously served as chief economist at Corporacion America Internacional, and appeared at the WEF, but has staunch libertarian ideals; identifying the nation’s central bank as a “scam”, forcing an “inflationary tax” on citizens, whilst praising Bitcoin as a return to “private money”
  • He also called Bitcoin “the natural reaction against central bank scammers” and praised its transparent issuance mechanisms
  • Milei’s opponent, Economy Minister Sergio Massa, proposed the opposite; suggesting a CBDC as a means to tackle inflation, whilst Milei wants to “shut down the central bank, replace the Argentine peso with the US dollar, and embrace decentralised finance” in an “economic shock therapy” approach
  • Some speculate Milei’s inauguration could “supercharge” adoption of digital assets across Latin America’s second-largest economy; Grayscale published a research note on Monday, writing “His presidency could pave the way for greater acceptance and integration of cryptocurrencies in Argentina's economy… Milei sees Bitcoin as a crucial tool in countering the inefficiencies and corruptions of centralised financial systems”
  • Argentina is perhaps better conditioned than any other country to appreciate some of the fundamental properties of digital assets like Bitcoin, such as predictable, guaranteed issuance rates; national inflation currently stands at nearly 143%, but this isn’t the first time the country has battled hyperinflation

What happened: UAE crypto miner IPO 33x oversubscribed

How is this significant?

  • Phoenix Group, a crypto asset miner listing publicly on the Abu Dhabi Securities Exchange (ADX) reported this week that its IPO was 33 times oversubscribed, indicating ongoing interest in the industry within the Emirates
  • The UAE firm was offering 907,323,529 shares at 1.50 dirhams each, targeting a raise of 1.36bn dirhams ($368 million)—equivalent to just under 18% of the company’s shares
  • This limited supply evidently bred great demand; according to a press release “Retail investors oversubscribed 180 times and professional investors contributed to a 22-fold oversubscription”
  • Phoenix offers hosted mining and rented hashrate services, as well as running the M2 crypto exchange powered by a proprietary ERC-20 token on the Ethereum blockchain
  • Trading of the shares is scheduled to go live on December 4th, so it remains to be seen whether the levels of IPO oversubscription translate to similar appetite at the opening bell

What happened: Former NYSE president buys crypto media platform Coindesk

How is this significant?

  • Bullish, a digital asset exchange run by former NYSE president Tom Farley, acquired leading crypto industry publication Coindesk this week, in an all-cash deal
  • The value of the acquisition was not publicly disclosed, but previous rumoured bids for Coindesk ranged from $125m to $200m
  • Competing crypto news site TheBlock was valued at $70m when Singaporean VC Foresight Ventures bought a majority stake in them last week
  • Coindesk will operate as an independent subsidiary, maintaining its branding, and Farley has pledged to “immediately inject capital” to help the media platform grow
  • Matt Murray, previous Wall Street Journal editor-in-chief will head a new editorial committee intended to ensure the publication’s independence
  • Coindesk’s (former) parent company Digital Currency Group has faced financial challenges since its subsidiary Genesis Global Lending was caught up in industry contagion, leading it to put the publisher up for sale
  • Ironically, it was reporting by Coindesk which helped to expose FTX’s fraudulent practices—fraud which led to massive losses by Genesis
News Roundups