Nickel Research Centre

Nickel News Roundup - Week 40

6th October, 2022

Market Overview:

Digital assets experienced another week of moderate growth, with Bitcoin sustaining prolonged trading above $20,000.

  • Bitcoin traded between $19,100 and $19,600, for most of the week, before moving into growth mode on Monday
  • A weekly low of $18,920 on Thursday gradually grew to a high of $20,370 on Tuesday
  • With the conclusion of Q3, Bitcoin scored a quarterly victory over traditional markets, outperforming MSCI’s all-country stock index; and Ether posted an especially strong recovery from Q2, growing by over 30% 
  • One analyst stated “It appears Wall Street believes crypto is close to the bottom and will become an attractive diversification strategy once the peak in Treasury yields is in place... Despite all the doom and gloom on Wall Street, calls for another crypto crash have been somewhat quiet”
  • Bitcoin’s mining hash rate hit yet another all-time high, continuing recent upward trajectory and indicating fierce competition between miners despite higher energy costs and lower profit margins
  • Bitcoin’s current price of $20,190 represents a 4.5% weekly increase 
  • Ether followed broadly similar movements, but with a later weekly low, clocking in on Monday morning at $1,273 
  • Ether mainly traded between $1,309 and $1,340, with a high of $1,380 this morning
  • Ether’s current price of $1,364 represents 3.3% weekly growth
  • Overall market capitalisation increased to a current total of $967bn 
  • Total value locked in DeFi grew around $1bn to $28.2bn according to industry monitor DeFi Pulse

Digital assets experienced another positive week, with a major new raise from institutional Bitcoin stalwart NYDIG, a new platform release from Mastercard, official policy-level endorsement of Web3 business from Japan, new products from BlackRock and Fidelity, and potentially transformative technological breakthroughs on asset interoperability from SWIFT (working alongside a host of central and commercial banks).

What happened: NYDIG raises $720m for institutional Bitcoin fund

How is this significant?
  • Institutional Bitcoin firm NYDIG defied a bearish macro environment this week, announcing record Bitcoin balances, new C-suite leadership, and a new $720m institutional Bitcoin fund
  • The $720m (or $719,990,866 to be precise) was raised from 59 investors, at an average $12m contribution
  • On Monday, the firm issued a press release announcing the appointment of a new president and CEO, with the outgoing leadership remaining within NYDIG’s parent company, Stone Ridge Capital 
  • The press release also touted strong growth metrics for NYDIG despite 2022’s overall bearishness; “Bitcoin balances hit all-time highs in Q3, up almost 100% year-over-year, and revenue is up 130% through Q2, with another increase when the firm closes its books on Q3”
  • Last December, NYDIG secured $1bn in a funding round at a $7bn valuation, led by Westpac, Morgan Stanley, MassMutual, and Bessemer Venture Partners
  • NYDIG founder Ross Stevens said that despite the overall market slump, NYDIG managed to flourish thanks to the properties of Bitcoin acting as a hedge against currency declines
  • Stevens wrote; “When markets crumble, character emerges. A flight to quality from the most risk-aware institutional investors has relentlessly driven Bitcoin, and revenue, to NYDIG the last 12 months… The firm's balance sheet is the strongest it's ever been, and we're now investing aggressively into a capital-starved market… In Q3, the reality of fiat debasement overcame risk-off driven liquidity shocks, driving the dollar, yen, euro, and pound all down against bitcoin”
  • He also touted the growth in Bitcoin’s Lightning Network scaling solution as a potential boon for the asset, allowing for faster, cheaper, more accessible transactions

What happened: Fidelity adds Ether index fund

How is this significant?
  • New SEC filings by asset manager Fidelity revealed the launch of a new Ether Index Fund, which has attracted approximately $5m in investments since launching on September 26th
  • Minimum investments in the fund start from $50,000, positioning it beyond the means of the average retail trader and towards a more professional clientele
  • This marks the second index fund launched by Fidelity Digital Assets, following the Wise Origin Bitcoin Index Fund I in 2020
  • Greater access to digital assets is being driven by client demand across Fidelity’s businesses, with recent reports in the Wall Street Journal suggesting the firm is moving towards digital asset integration across their brokerage platform
  • Speaking to industry publication Coindesk, a Fidelity spokesperson stated “As the marketplace for digital assets grows, Fidelity recognizes the need for a diverse set of products and solutions that help customers gain exposure in a manner that aligns with their distinct financial objectives and risk tolerance. We have continued to see client demand for exposure to digital assets beyond Bitcoin”

What happened: SWIFT successfully trials inter–blockchain CBDC payments

How is this significant?
  • Financial messaging system SWIFT claims to have solved the challenge of cross-network CBDC interoperability, according to a press release they issued this week
  • SWIFT stated that “CBDCs and tokenised assets can move seamlessly on existing financial infrastructure – a major milestone towards enabling their smooth integration into the international financial ecosystem”
  • The organisation noted that nine out of every ten central banks are currently exploring digital currencies, but that CBDCs must be able to move outside of national silos to fully realise their potential
  • SWIFT successfully achieved CBDC-to-CBDC transactions between different networks, with participants in a testing environment including “Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo”
  • Additionally, they managed to transact tokenised assets across a variety of networks; “Working in collaboration with Citi, Clearstream, Northern Trust, and SETL, its technology partner, SWIFT explored 70 scenarios simulating market issuance and secondary market transfers of tokenised bonds, equities and cash. It successfully served as a single access point to various tokenised networks… as well as provide interoperability between different tokenisation platforms and existing account-based infrastructure”

What happened: New report from Basel Committee outlines crypto exposure among banks

How is this significant?
  • Banking supervisory group the Basel Committee published a paper this week outlining the overall exposure to digital assets within the world’s top banks
  • Findings suggested that the asset class is still treated as very nascent by the world of established finance
  • The committee polled 19 global banks, primarily from so-called “Group 1” banks; the largest in the world
  • According to their research “Total cryptoasset exposures reported by banks amount to approximately €9.4 billion. In relative terms, these exposures make up only 0.14% of total exposures on a weighted average basis across the sample of banks reporting cryptoasset exposures”
  • When applied to overall Basel III monitoring participants (i.e. including those who reported no cryptoasset holdings or activities at all), this figure sinks to just 0.01% exposure
  • The exposure was concentrated predominantly amongst what the Basel Committee currently deems “Group 1” cryptoassets; “Bitcoin (31%), Ether (22%) and a multitude of instruments with either Bitcoin or Ether as the underlying cryptoassets (25% and 10% respectively)”
  • The remainder of exposure was mainly found in other Top-20 market capitalisation digital assets, but the Basel Committee currently classifies them as “Group 2 cryptoassets”; “subject to a new conservative prudential treatment”
  • The activities banks engaged in were dominated by custody (50.1%) alongside clearing and market-making services (45.7%), with only a small minority (4.2%) actively holding or lending from their own balance sheets

What happened: Contagion latest—Asset seizures, resignations, and calls for regulations

How is this significant?
  • Following Celsius CEO Alex Mashinsky’s resignation last week, co-founder Daniel Leon did likewise, leaving the company in the midst of ongoing bankruptcy proceedings
  • South Korean media reported that local authorities had successfully frozen additional digital assets (worth nearly $40m) belonging to Do Kwon, founder and developer of the collapsed Terra Luna blockchain ecosystem
  • Do Kwon is currently subject to a red notice by Interpol, as South Korean authorities seek to extradite him, but he continues to claim through Twitter that he is not on the run, nor used any of the platforms where his assets were frozen
  • Leading stablecoin issuer Tether reduced the amount of commercial papers used as backing assets for their stablecoin to below $50m (down from $20.1bn in May), according to a statement from CTO Paolo Ardoino
  • They now claim 58.1% of their asset portfolio in US Treasury Holdings, up from 43.5% in June—part of a move towards more stable backing assets to lower risk against future market contagion events
  • The US Treasury’s financial stability watchdog (the FSOC) released a report this week, identifying the sector’s growth as a possible risk vector for the wider economy, advocating for greater regulation
  • The report concluded “crypto-asset activities could pose risks to the stability of the U.S. financial system and [we] emphasise the importance of appropriate regulation, including enforcement of existing laws”
  • The FSOC conceded that at the market’s zenith last year, the overall value of $3tn accounted for no more than 1% of global financial assets, but that it’s growing popularity made regulation and enforcement a necessity
  • Nasdaq said they would wait for more regulatory clarity before directly launching any digital asset exchanges, concentrating on custody services for now; a market where they see “massive” opportunities
  • Meanwhile, Citigroup wrote in a new research report that growing regulation could drive more traders to decentralised exchanges (DEXes) with less-stringent KYC requirements than centralised exchanges (CEXes)
  • The report noted that DEXes currently account for about 18% of spot-trading volumes, growing at a greater rate than CEXes over the last two years—and that growth could accelerate in the face of “onerous” regulatory landscapes
  • In other enforcement news, Kim Kardashian was fined nearly $1.3m by the SEC for undisclosed promotion of a digital asset deemed to be a security; potentially the first of several lawsuits against high-profile celebrity endorsements in the sector

What happened:Mastercard releases crypto asset risk assessment tool

How is this significant?
  • Payments industry giant Mastercard have (alongside competitor Visa) been at the forefront of digital asset integration over the last few years, and their latest release this week seeks to solidify their position even further
  • The company announced “Crypto Secure”, a technology solution from CipherTrace (acquired by Mastercard just over a year ago for an undisclosed amount) designed to “help card issuers stay compliant with the complex regulatory landscape of the digital assets sector”
  • This makes it easier for issuers to identify and decline transactions from crypto merchants specifically flagged as fraud-prone, rather than adoption brute force one-size-fits-all approaches that could falsely reject legitimate transactions
  • The new platform is in addition to digital asset consulting services which Mastercard launched earlier this year
  • Ajay Bhalla, Mastercard’s Cyber & Intelligence president, said “trust is our business and with cryptocurrency more intertwined in our daily lives this is an exciting next step in our journey”
  • Additionally, Mastercard’s press release touted a continued commitment to crypto, stating “Crypto Secure is the latest step in Mastercard’s broader digital assets strategy, which helps bridge the gap between traditional finance and the world of crypto, and enables individuals to seamlessly spend funds from their crypto accounts in everyday transactions”

What happened: VC news—Katie Haun outlines VC approaches during “crypto winter”

How is this significant?
  • Web3 banking platform Juno raised $18m to continue building a banking platform enabling direct payment via crypto, alongside the launch of a tokenised loyalty program
  • Revolut veterans launched Solvo, an app aimed at simplifying crypto asset investments, funded by a $3.5m seed round
  • Blockchain video game developer Horizon raised $40m in a new funding round led by Brevan Howard Digital
  • A previous funding round last year put Horizon at a $89.5m valuation, according to Pitchbook data, indicating a likely (but undisclosed) growth in current valuation
  • Emurgy, a development lab dedicated to Layer-1 blockchain Cardano, announced a $200m ecosystem fund to attract projects over the next three years
  • Web3 data protocol Golden announced a successful $40m Series B funding round, led by Andreessen Horowitz (a16z)
  • Katie Haun, founder of crypto VC firm Haun Ventures, gave an interview with Bloomberg, in which she acknowledged that for the first time in her decade of digital asset experience, a crypto winter is coinciding with a global macroeconomic winter
  • However, she remains long-term optimistic on the sector, saying she wants “to continue to invest in this ecosystem that is so broad… we have an early-stage fund that does seed stage, Series A, even Series B… we’re set up to hold tokens, to participate in the token ecosystem… we’re making seven-to-ten year bets”
  • Haun also said that the crypto winter had a minimal impact on current fund deployments; “The only thing that’s changed in our strategy as a result of the market correction is really more of a focus on the early stage… long-term, our strategy hasn’t changed”
  • She also declared the infrastructure layer of digital assets as a particularly compelling focal point for VC firms right now

What happened: Japan pledges Web3 investment as state policy

How is this significant?
  • Japanese prime minister Fumio Kishida declared in a policy speech on Monday that “digital transformation” plans for the nation include investments in NFT and Metaverse services
  • Speaking to the national Diet (parliament) Kishida said Japan is “supporting the social implementation of digital technology” and will “promote efforts to expand the use of Web3 services that utilize the metaverse and NFTs”
  • This follows the mid-July establishment of a Web3 policy office under the remit of Japan’s Ministry of Economy, Trade and Industry (METI), which noted “the weight of the digital space is increasing, with the potential for a dramatic increase in business value”
  • These moves are part of a broader push within Japan to streamline tax and business laws related to digital asset and Web3 companies, as old laws (which taxed paper gains on digital asset holdings) led to a brain-drain situation of crypto firms moving overseas

What happened: BlackRock launches Metaverse ETF

How is this significant?
  • BlackRock, the world’s largest asset manager, became the latest traditional finance powerhouse to move into Metaverse exposure, launching a new ETF tied to the sector
  • BlackRock’s ETF will track companies with Metaverse exposure, via the iShares Future Metaverse Tech and Communications ETF
  • Earlier this year, BlackRock published an insight piece outlining a bullish position on the Metaverse concept, declaring “We expect it is going to be big, and very likely change people's daily lives. But we don't yet know exactly how, or how big the shift will be… The metaverse may not be mainstream until later this decade, but investment opportunities are available now”
  • Exposure could come in a broad variety of ways, including “products or services tied to virtual platforms, social media, gaming, digital assets, augmented reality and more”
  • Industry analysts noted that interest in blockchain and metaverse ETFs has lulled through the crypto winter, but also recognise “there’s a ton of competition in the space”
  • Bloomberg analysts believe that the ETF lull may be coming to an end, as outflows dropped by 97% in Q3; indicating that the majority of bearish investors may have removed their positions
News Roundups