Nickel Research Centre

Nickel News Roundup - Week 3

19th January, 2024

Market Overview:

Digital assets experienced significant pullbacks, following last week’s ETF approval euphoria and widespread profit-taking from Grayscale’s converted GBTC ETF.
  • Bitcoin surrendered last week’s gains and pulled back to levels from a month ago, amidst widespread Grayscale customer sell-offs and general profit-taking following ETF approvals
  • Bitcoin hit a weekly low of $40,630 late on Thursday, marking a steady decline from its Friday high of $45,910
  • However, digital asset investment products saw huge inflows of $1.18bn, alongside record ETP trading volumes of $17.5bn, dominated by traders in the United States
  • Ether followed Bitcoin’s lead, dropping from a Friday high of $2,710 to a Thursday low of $2,426
  • Overall digital asset market capitalisation dropped to $1.63tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi grew to $58.8bn, despite declines elsewhere in markets

Digital assets pulled back from last week’s growth amidst a mix of GBTC sell-offs and general “buy the rumour, sell the fact” investor behaviour. However, the new Bitcoin ETFs continued to build on their impressive launch day performance, with the first full trading week boasting over $1bn of total inflows. Elsewhere, Hong Kong digital asset firm HashKey achieved unicorn status, a major Bitcoin miner exited bankruptcy thanks to market recovery, and several significant VC deals were struck.

What happened: Spot Bitcoin ETFs complete first week of trading with over $1bn of inflows

How is this significant?

  • After their heavily-anticipated and roaring debut last week, Bitcoin ETFs completed their first week of trading, giving greater insight into their performance
  • Overall, the various funds saw healthy inflows across the first five trading days, achieving net inflows of around $870m in the first three days of trading, and $1.05bn in the first five
  • Excluding Grayscale—which saw large outflows—the performance of the majority of funds was even more impressive in terms of inflows
  • BlackRock’s ETF (ticker: IBIT) led the race, accruing over $1bn of inflows within the first week, followed by Fidelity’s FBTC at $880m
  • On Wednesday alone, both funds secured over $350m of inflows
  • Todd Sohn, an ETF strategist at Strategas said “it shows how serious they are about this as an asset class. There’s too much opportunity to not have some power behind the launch”
  • Rachel Aguirre, BlackRock’s iShares head of US product, said interest in their ETF was broad-based; “We’re really seeing flows come from a number of different directions. Clearly, the interest we’re seeing is both from retail, from self-directed investors and there are some who were ready to invest on day one but we’re also focused on those investors who are also just now beginning to look at this new asset class”
  • Momentum also remained positive; as Bloomberg ETF analyst Eric Balchunas pointed out, volumes increased as Bitcoin price dipped, indicating continued interest despite the underlying asset flagging somewhat
  • On Thursday, he wrote “[the new ETFs] actually saw a 34% jump in volume today vs yesterday. Normally with a hyped up launch you see volume steadily decrease each day post-launch, rare to see it reverse back up. All but one saw a jump too but GBTC changed flat so wasn't a volatility thing. Good sign IMO”
  • Balchunas also contextualised the significance of trading volume for the ETF cohort; “Let me put into context how insane $10bn in volume is in the first three days. There were 500 ETFs launched in 2023. Today, they did a COMBINED $450m in volume. The best one did $45m. And many have had months to get going. $IBIT alone is seeing more activity than the entire '23 Freshman Class”
  • In fact, by Thursday, Bitcoin had become the second-biggest ETF commodity in the US behind gold, surpassing silver in the process
  • Cathie Wood’s ARK Investments put their money where their mouth is; buying nearly $16m worth of their own ETF shares
  • However, this positive performance was not matched by the actual price of Bitcoin, which fell sharply over the course of the week
  • Industry analysts suggest a couple of reasons for this discrepancy between ETF inflows and price performance; firstly is the classic “buy the rumour, sell the news” investor behaviour, and secondly is profit-taking from Grayscale’s converted GBTC fund
  • For several years prior to its ETF conversion, GBTC traded at a considerable discount to NAV (reaching a record of 49% in December 2022), partly due to greater restrictions around redemption periods
  • Those who bought during discount days now stand at a handsome profit compared to entry—but as the SEC insisted on cash redemptions, the individual investor’s Bitcoin “share” cannot be transferred to any other ETFs, and must be sold; which has resulted in approximately $1.5bn of GBTC outflows thus far
  • JPMorgan analysts led by Nikolaos Panigirtzoglou previously predicted $3bn of outflows from GBTC, believing the fund’s vast holdings (debuting as an ETF with $29bn in Bitcoin) could lead to further profit-taking and price suppression; “If the previous $3 billion estimate proves correct and given $1.5 billion has exited already, then there could be an additional $1.5 billion still to exit the bitcoin space via profit-taking on GBTC, thus putting further pressure on bitcoin prices over the coming weeks”
  • Hedge fund manager Anthony Scaramucci also acknowledged high sell volume from GBTC, and added another factor; “The second thing we are seeing is the bankruptcy estate of FTX is unloading into the ETF announcement. There is a heavy volume of selling in Bitcoin right now. I expect the supply overhang to be done in the next six to eight trading days”
  • BlackRock CEO Larry Fink spoke to CNBC, praising the performance of IBIT’s debut, but also maintained a longer-term horizon on digital assets and their influence in finance; “I think ETFs are step one in the technological revolution in the financial markets. Step two is going to be the tokenisation of every financial asset... We're looking at Bitcoin, we're looking at ETFs in the same manner, these are technological changes that are gonna allow us to move forward”

What happened: SEC delays decision on spot Ether ETF

How is this significant?

  • As widely expected, the United States SEC took the first potential decision deadline on a spot Ether ETF (filed by Fidelity)
  • Ether outperformed Bitcoin last week, as approval for spot Bitcoin ETFs elevated expectations that similar Ether-based products could be rubber-stamped, but judging by the agency’s track record thus far, any final decisions will likely be reserved until the final deadlines
  • In its filing explaining the delay, the SEC stated “The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein”
  • The next decision window is in March, but industry experts including Bloomberg ETF analyst James Seyffart don’t expect any final verdicts until the final deadline in May

What happened: Hong Kong crypto firm HashKey achieves unicorn status with $100m raise

How is this significant?

  • HashKey, one of two officially-licenced digital asset exchanges in Hong Kong, achieved unicorn status this week, benefitting from the city’s continued push to become a global crypto asset hub
  • The company began a $100m Series A funding round shortly after securing its licence in August, concluding it this week
  • This gives the company a valuation of $1.2bn
  • HashKey’s current operations include a “trading platform, venture funding and asset management in Hong Kong and Singapore”, and the funding will be used to expand Hong Kong’s Web3 ecosystem

What happened: Bitcoin miner Core Scientific exits bankruptcy, plans to relist

How is this significant?

  • Core Scientific, a Bitcoin miner that entered bankruptcy during crypto winter as a result of declining Bitcoin and rising energy prices, secured approval from a federal judge this week to exit bankruptcy proceedings
  • Their position has been buoyed by “favourable changes in the cryptocurrency and power markets” since the firm filed for bankruptcy in December 2022, at which point Bitcoin was trading at around $16,800
  • According to the approved restructuring plan, creditors “have agreed to swap about $400 million in debt for equity in the reorganised business”
  • Additionally, court documents disclose $400m in debt reduction, saving $60m in interest costs and allowing the company to save 240 jobs
  • Core Scientific plans to relist on the Nasdaq next week, and “also secured new financing in the form of a $55 million rights offering and $80 million exit facility from its existing bondholders”

What happened: World’s top-performing ESG fund drove performance through crypto exposure

How is this significant?

  • According to Bloomberg data, the top ESG fund in the world last year was run by crypto advocate Cathie Wood’s ARK Investment—and the performance of the fund itself was greatly enhanced by crypto exposure
  • ARK’s $2.4 billion Nikko AM Ark Positive Change Innovation Fund achieved 68% profits in 2023, more than doubling the return of the S&P 500
  • The biggest holding in the fund was crypto exchange Coinbase, which accounted for about 10% of fund allocations
  • ARK portfolio manager Thomas Hartmann-Boyce told Bloomberg that Coinbase has “major room to run,” due to its function as “the leading custodian for those underlying [spot] Bitcoin [ETF] assets”, calling COIN shares “certainly our highest conviction name that falls within the digital assets category”
  • Hartmann-Boyce said that digital assets qualified for the fund (despite concerns over energy consumption of mining) thanks to the strength of its decentralisation’ “the fund’s sustainability rationale relates to the transparency around transactions, and the provision of financial services to the underbanked”
  • In other Coinbase-related news, the firm requested a dismissal of its current SEC lawsuit regarding alleged securities violations
  • New York District Judge Katherine Polk Failla questioned the SEC on several matters, telling the agency “it is a real fear that I have that your argument is just sweeping too broadly”

What happened: VC news

How is this significant?

  • Alongside HashKey’s raise, several other digital asset firms concluded funding rounds this week, amidst a busy VC start to the year
  • Inception Capital closed a $30m fund of funds for crypto emerging managers
  • Founder David Gan told TechCrunch that this does not include any capital from the firm’s existing $50m Venture Fund 1
  • The fund “is backed by investors including Mirana, FJ Labs and Serafund”, and targets family offices and HNWIs; Gan said “Instead of family offices trying to make the best investments themselves, this vehicle is a good hedge and risk adjusted downside vehicle to get crypto exposure
  • Gan disclosed that the fund will focus on early-stage startups, “This is a good calendar year to double down on the space, invest early and back entrepreneurs”
  • Specialist investment firm Deus X ($1bn AUM) teamed up with Fabiano Consulting in order to explore opportunities in the digital asset mining field, according to a statement this week
  • Deus X CEO Tim Grant commented “Mining will form a critical part of our complementary portfolio of companies as we seek to find innovative businesses that can contribute to and support a financial system that is free of silos and welcomes low barriers to entry for the benefit of everyone”
  • Meanwhile in the field of proof-of-stake consensus, Ether staking platform Kiln raised $17m to assist in expansion efforts
  • This expansion will include a new Asian headquarters in Singapore
  • The funding round was “led by 1kx, with participation from IOSG,, Wintermute Ventures, KXVC and LBank”
  • Flowdesk, a crypto market maker, achieved a $250m valuation following a $50m Series B funding round
  • French state-owned investment bank Bpifrance was one of the participants in the round, alongside Ripple, Cathay Ledger Fund, Eurazeo, and ISAI
  • Flowdesk currently provides liquidity services for Grayscale’s GBTC, and CEO Guilhelm Chaumont says the firm has benefitted from returned investor interest; “As of Jan. 2024, we have witnessed a 3x year-on-year revenue increase and a 10x volume increase”

What happened: Cantor Fitzgerald CEO confirms Tether backing assets

How is this significant?

  • Cantor Fitzgerald CEO Howard Lutnick told Bloomberg this week that Tether’s backing liquidity—a long-standing concern within the industry—is fully accounted for
  • Speaking at the World Economic Forum, Lutnick said “They have the money they say they have. I’ve seen a whole lot and the firm has seen whole lot, and they have the money. And so there has always been a lot of talk ‘Do they have it or not?’ and I’m here with you guys and I’m telling you we’ve seen it and they have it”
  • Cantor Fitzgerald operate as a custodian for many of Tether’s backing assets
  • Tether CEO Paolo Ardoino emailed Bloomberg a statement noting “While naysayers have had their go at Tether over the years, it’s heartening to hear Cantor Fitzgerald CEO Howard Lutnick affirming the robustness of our reserves”
  • In other Tether news, the company confirmed purchase of 8,888 Bitcoins at the end of Q4 2023, bringing their total Bitcoin investments to 66,465 Bitcoins
  • Tether currently has a policy of quarterly Bitcoin purchases as a diversification tool, using up to 15% of its profits
News Roundups