Nickel Research Centre

Nickel News Roundup - Week 37

15th September, 2022

Market Overview:

Strong early trading in digital assets allowed for a positive weekly performance, despite a steep drop following higher-than-forecast inflation figures.

  • Digital assets experienced significant bullish momentum before CPI data on Tuesday dropped global markets amidst expectations of possible future 100 bps rate hikes
  • Bitcoin demonstrated a consistent upwards trajectory prior to the CPI figure releases, growing from a weekly low of $19.090 on Thursday to a weekly high of $22,620 on Tuesday
  • However, response to the negatively-received inflation figures was swift, dropping Bitcoin to the $20,100 mark within 12 hours of the news
  • Traditional markets seemed to suffer more (comparatively) than digital assets; US stocks experienced their worst day since June 2020, whilst Bitcoin experienced its worst daily performance since June 2022
  • Despite the steep drop, Bitcoin’s current price of $20,190 still represents a 5.3% weekly increase thanks to the strong early growth
  • Ether also experienced strong pre-CPI performance, buoyed by anticipation of the network’s proof-of-stake upgrade, which triggered early on the 15th of September
  • Ether hit a weekly high of $1,784 on Sunday, trading the majority of the week in the $1,700 to $1,750 range, before falling to a weekly low of $1,565 after the CPI shock on Tuesday
  • Ether’s current price of $1,632 represents a 1.3% increase from last week’s figure
  • Overall market capitalisation increased slightly thanks to Bitcoin’s growth, reaching a weekly high of $1.07tn before retracing to current levels of $982bn following marketwide risk-on selloffs
  • Total value locked in DeFi decreased significantly to $26.5bn, according to industry monitor DeFi Pulse
  • Due to the low comparative drop in Ether’s spot price, the drop is likely indicative of many stakers pulling their ETH out of DeFi protocols in anticipation of the network’s proof-of-stake upgrade
  • A key consequence of Ethereum’s move to proof-of-stake is the potential “airdrop” of a matching amount of coins on anticipated proof-of-work “forks” of the main chain, aiming to keep the old consensus mechanism alive

Digital assets performed well this week, before slumping alongside wider global markets following high US inflation figures. Despite wider economic turmoil, news from the digital asset industry read like a who’s who of institutional finance, featuring names like Fidelity, Charles Schwab, KKR, Citigroup, SWIFT, Citadel Securities, Sequoia, Vanguard, and Northern Trust, as well as massive corporations like Starbucks and major family offices.

What happened:Traditional finance powerhouses announce new digital asset exchange

How is this significant?
  • This week, the launch of EDX Markets was announced—a spot digital asset exchange backed by Charles Schwab, Fidelity Digital Assets, Paradigm, Sequoia Capital, Citadel Securities and Virtu Financial
  • The exchange will trade a limited number of major digital assets, with a trial opening scheduled for November, followed by a full launch in January 2023
  • EDX Markets will aim to mimic the mechanics of traditional finance trading platforms, with investors able to buy and sell through their broker-dealers
  • CEO Jamil Nazarali (formerly head of global business development at Citadel Securities) said the new exchange should provide the best of both worlds for experienced investors; “We’re taking some of the best features of traditional finance and bringing it to the digital markets to make it more efficient, and bring that cost saving to investors”
  • Nazarali believes the background of the exchange could provide a new gateway into digital assets for investors whose interest has been piqued, but whose trust remains in traditional structures; “Many investors are interested in cryptocurrencies but are worried about a potential hack, or other unknowns with existing crypto exchanges… But they are familiar with broker dealers in other asset classes, and if crypto is offered, they are comfortable trading through them”
  • In a press release, the EDX board of directors echoed Nazarali’s sentiments, stating “Crypto is a $1 trillion global asset class with over 300 million participants and pent-up demand from millions more… Unlocking this demand requires a platform that can meet the needs of both retail traders and institutional investors”

What happened: KKR tokenises portion of private equity fund on blockchain

How is this significant?
  • $471bn AUM investment firm KKR worked alongside digital asset firm Securitize this week to make an interest in their Health Care Strategic Growth Fund II available on the Avalanche blockchain
  • Speaking to the Wall Street Journal, executives said they believed it was the first instance of a major investment firm directly utilising blockchain in such a manner
  • According to Securitize co-founder Carlos Domingo “What we're going to be providing to investors are digital asset securities or security tokens that represent an economic interest [in] a feeder fund of the the main KKR healthcare fund”
  • KKR promoted blockchain as an efficient means of expanding access to investment opportunities, with managing director Dan Parant stating “With its ability to digitise operational inefficiencies and increase ease of use for individual investors, blockchain technology has the potential to play an important role in the future of private markets”
  • This tokenisation method provides a means for investors to gain access to fractionalised portions of investment funds at lower buy-ins than the full amounts previously only available to accredited or institutional investors; “democratising” financial services

What happened: Fidelity reportedly adding Bitcoin trading to retail brokerage platform

How is this significant?
  • According to a Wall Street Journal article this week, sources within Fidelity have revealed the investment management giant is considering an expansion of Bitcoin trading capabilities across its platforms
  • “People familiar with the matter” told the Journal that Fidelity could soon let individual brokerage customers trade Bitcoin, potentially opening access to the asset to over 34m individual brokerage accounts across Fidelity
  • Such a move would be the latest of several signs that major financial institutions are opening attitudes to digital assets; including BlackRock’s recent creation of a Bitcoin product for institutional investors
  • When asked for comment, Fidelity issued an official statement saying “While we have nothing new to announce, expanding our offerings to enable broader access to digital assets remains an area of focus”
  • Fidelity CEO and Chairman Abby Johnson recently reaffirmed the firm’s commitment to digital assets despite the ongoing “crypto winter”, arguing that “There’s been plenty of ups and downs, but I see that as an opportunity”
  • Additionally, several postings on Fidelity’s careers portal point towards an increased focus on digital assets, including the disclosure that “Fidelity Digital Assets, a Fidelity Investments Company, is developing a full-service enterprise-grade platform for storing, trading, and servicing digital assets, such as Bitcoin and Ethereum”
  • Speaking at the SALT Conference in New York, Galaxy Digital CEO Mike Novogratz echoed the reports about Fidelity’s expanded access, saying “we are still this institutional march and that gives crypto its floor”

What happened: Contagion latest—Lawsuits, Arrest Warrants. And Partnerships

How is this significant?
  • On Wednesday, South Korean courts issued an arrest warrant for Do Kwon—founder of the collapsed Terra Luna blockchain ecosystem
  • The decoupling of Terra’s algorithmic UST stablecoin was one of the key catalysts of this summer’s wider digital asset market downturn, creating contagion and liquidity crunches amongst numerous firms with exposure to their blockchain ecosystem
  • A revived version of the LUNA token created by Do Kwon fell by over 40% following news of the warrant, leading to a scenario where the original (failed) chain which Do Kwon abandoned (renamed LUNA Classic, or LUNC) is now worth several times more than the revived chain he championed, following community-led development
  • On Monday, BitGo filed a lawsuit against Galaxy Digital, citing “wrongful repudiation and willful and intentional breach” of a previous merger agreement
  • In May last year, Galaxy announced plans to acquire BitGo in a cash plus stocks deal, but pulled out of the deal in August this year, after BitGo failed to produce requested financial records
  • In a contrasting example of an agreement that did come to fruition, FTX took a 30% stake in Anthony Scaramucci’s hedge fund SkyBridge Capital
  • According to a statement announcing the investment, $40m will be used by SkyBridge for digital asset purchases as a balance sheet investment
  • In July, SkyBridge suspended withdrawals from one of its funds following exposure to crypto contagion, and the wider global market downturn

What happened: SWIFT initiates blockchain pilot program

How is this significant?
  • Financial messaging system SWIFT—a cornerstone of global transactions between financial institutions—is running a blockchain pilot alongside several partners, according to reports viewed by Bloomberg
  • The program, run alongside fintech company Symbiont, Citigroup, Vanguard, and Northern Trust, centres on “efficiencies in communicating significant corporate events”
  • Symbiont’s technology will help SWIFT automate corporate action workflows, with Symbiont’s smart contract and blockchain capabilities creating “a network effect that leverages our 11,000 plus institutions connected to SWIFT globally”
  • SWIFT’s chief innovation officer Tom Zschach said “By bringing Symbiont’s Assembly and smart contracts together with SWIFT’s extensive network, we’re able to automatically harmonize data from multiple sources of a corporate action event. This can lead to significant efficiencies”
  • Symbiont CEO Mark Smith commented “Via our smart contract technology, we are enabling market participants to automate the reconciliation process”

What happened: Blockchain Association creates PAC to amplify lobbying efforts

How is this significant?
  • Digital asset trade group The Blockchain Association is launching a new political action committee (PAC), in an effort to step up its industry lobbying in US Politics
  • The blockchain industry has already been the largest political donor in this election cycle, with Federal Election Commission data logging $72.8m of donations from crypto asset firms, compared with $70.6m from the oil and gas industry
  • Having a PAC will streamline the political donation process, with the new BA PAC “able to parlay the existing relationships of the nearly 100 member companies of the Blockchain Association into its fundraising efforts”
  • This membership roster includes several industry heavy hitters like digital asset exchanges Kraken and, as well as stablecoin issuers Circle
  • The PAC could potentially amplify industry donations several times over, since the bulk of donations thus far specifically come from FTX CEO Sam Bankman-Fried’s own Super-PAC, accounting for over $41m of the total industry donations
  • Unlike Bankman-Fried’s Protect Our Future Super-PAC, the BA PAC aims to donate equally to both sides of the American political aisle
  • Lobbying efforts could grow increasingly important for the industry as it’s grown too big to ignore; the White House this week warned about the carbon footprint of proof-of-work mining, and digital asset exchange Huobi delisted several major privacy-focused coins, citing “compliance policies of every country”—interpreted as a nod to recent US sanctions against crypto “mixer” Tornado Cash

What happened: VC news—new nine-figure fund enters the arena

How is this significant?
  • In a statement issued on Tuesday, digital asset-centric investment firm North Island Ventures (NIV) announced the successful close of a new crypto venture fund
  • The NIV Fund II accrued $125m of commitments, following a $72m fund launched last year with investment from the likes of Paul Tudor Jones
  • NIV’s new fund will primarily focus on early-stage investments, announcing a strategy of making “30 to 40 early-stage investments in emerging crypto and Web3 companies and protocols, with initial investments ranging from $250,000 to $3 million”
  • In other VC news, two of Singapore’s most prominent families moved to increase their exposure to the asset class
  • Multi-family office the Whampoa Group is anchored by principals from two of the city-state’s most prominent dynasties—both named Lee
  • Alongside the Lee family who founded Overseas-Chinese Banking Corp. (OCBC), Amy Lee (niece of independence prime minister Lee Kuan Yew) both play prominent roles in the group
  • Now, Whampoa seeks to raise $50m for a market-neutral digital asset hedge fund, and an additional $100m for a digital asset VC, according to group CEO Shawn Chan
  • Blockchain data infrastructure firm GoldSky raised $20m in a seed round led by VC firms Felicis and Dragonfly, alongside numerous angel investors 

What happened: Starbucks reveals Web3 and NFT loyalty program details

How is this significant?
  • This week, Starbucks officially announced their first move into the Web3 technology space, with Starbucks Odyssey
  • The new program will combine their existing rewards and loyalty program with an NFT platform, “allowing its customers to both earn and purchase digital assets that unlock exclusive experiences and rewards”
  • Starbucks CMO Brady Brewer told TechCrunch that the platform would open up a broader array of loyalty rewards, accessible to Web3 adopters and non-techies alike
  • “It happens to be built on blockchain and web3 technologies, but the customer — to be honest — may very well not even know that what they’re doing is interacting with blockchain technology. It’s just the enabler”
  • The NFTs are hosted on Ethereum scaling solution Polygon, and can be earned for completing a variety of online challenges aimed at deepening engagement with the brand
  • Limited-edition NFTs will also be available for purchase via credit card directly through Starbucks’ web app, with portions of proceeds donated to charities
  • Brewer added “We’re bullish on the future of these technologies enabling experiences that were not possible before. It’s really important that we’re looking at it for the long-term. But, given that we’re plugging it into our industry-leading, massive scale rewards program—we’re committed”
News Roundups