Nickel Research Centre

Nickel News Roundup - Week 14

5th April, 2024

Market Overview:

Digital assets pulled back this week, as truncated Easter ETF trading hours and increased bond yields led to a reduction in activity around Bitcoin and risk-on assets.
  • Bitcoin experienced mixed performance this week, trading across a wide range on the weekly candle
  • After a Monday high of $71,320, Bitcoin dropped as low as $64,780 on Tuesday amidst wider market pullbacks, before recovering somewhat to briefly exceed the 2021 bull run high of $69,000 on Thursday
  • On the quarterly candle however, Bitcoin’s performance was unequivocally positive; increasing by 64% in Q1
  • ETF trading, which served as a driver for a lot of this growth, was severely reduced this week due to US markets closing on Friday and Monday for the long Easter weekend
  • Ether exhibited similar market capitalisation to Bitcoin, falling from a Tuesday high of $3,646 to a Wednesday low of $3,240
  • Overall digital asset market capitalisation fell to $2.53tn, broadly in line with Bitcoin’s weekly movements
  • According to industry monitoring site DeFi Llama, total value locked in DeFi currently sits around $96.3bn

Digital assets had a subdued week following closed ETF markets over Easter and increased bond yields. However, even with a long weekend, there was significant activity across the sector, including major stablecoin developments, numerous big VC deals, record trading volumes, and new tokenisation efforts driven by central banks.

What happened: Stablecoin news

How is this significant?

  • Stablecoins dominated reporting this week, with several major firms announcing new developments and implementations
  • PayPal integrated its proprietary PYUSD stablecoin into remittance payments via its Xoom network, adding extra functionality to the first perceived “corporate stablecoin” launched last year
  • According to Jose Fernandez de la Ponte, Paypal’s SVP of blockchain and digital assets, remittances are a natural fit for blockchain benefits; “[building] on our goal of driving mainstream adoption of cryptocurrencies while also offering an easy way to securely send money to friends and family at a lower cost”
  • The remittance functionality will initially be limited to US-based PayPal users, who can convert PYUSD into USD for transfer to approximately 160 countries without any transaction fees
  • According to recent World Bank figures cited by PayPal, “the global average cost of sending $200 is just over 6%”
  • Ripple Labs CEO Brad Garlinghouse revealed in an interview this week that the company plans to release a dollar-pegged stablecoin for trading later this year, “backed by a one-to-one reserve of US dollar deposits, short-term US government bonds and other cash equivalent”
  • The tokens will be issued on both the Ethereum blockchain, and Ripple’s own XRP blockchain, although Garlinghouse didn’t share any confirmed exchange listings
  • Garlinghouse also added that he expects an American stablecoin bill to (finally) be approved before this year’s presidential election, as their dollar-analogous role has made them a key target for regulators
  • Regarding the current spate of stablecoin development activity, Bloomberg analysts explain that bond yields (earned on backing assets held to ensure a 1:1 dollar peg) have made them a profitable endeavour for issuers
  • Ripple CTO David Schwartz agrees, saying “The interest rate increase makes it a much more attractive market… [there’s space for a new stablecoin as] you don't want to have only one option”
  • Tether, the industry’s largest stablecoin is a prime example of this; the firm generated $5.4bn of excess reserves last year, enabling it to diversify into other investments including $627m of Bitcoin purchases in Q1 2024 (elevating the company to seventh-largest holder of Bitcoin)
  • Tether this week also announced completion of “System Organization Control (SOC) 2 Audit Type 1, marking the initial phase of achieving the highest level of security compliance an organisation can demonstrate”
  • CEO Paolo Ardoino told industry publication TheBlock “This independent validation of security controls is vital for Tether, demonstrating our commitment to being the world’s most trusted and compliant stablecoin”
  • ETF issuers VanEck were a surprise entrant into the stablecoin space this week
  • Nick Van Eck, son of VanEck CEO Jan, launched stablecoin startup Agora, complete with $12m of seed funding from industry VC Dragonfly
  • He commented that the firm will look towards partnerships with industry firms as a growth vehicle, rather than direct retail customers; “Until there’s federal legislation for stablecoins in the US, we’re going to focus primarily on customers outside of the US”
  • VanEck (the firm) is directly involved in Agora, via the management of the stablecoin’s backing reserves
  • VanEck digital assets head Kyle DaCruz told Bloomberg “There is a need to have transparent and trustworthy institutions managing the assets of these digital dollars”
  • Nick VanEck added “Where stablecoins really moved the needle are places like Argentina, Southeast Asia, and so we’re heavily focused on being the best partner stablecoin to partners, from exchanges to custodians to DApps to trading firms”

What happened: ETF news

How is this significant?

  • ETF trading was significantly truncated due to TradFi markets shutting over the long Easter weekend, but there were nevertheless several significant pieces of news from continued activity and interest
  • As March closed, Bloomberg ETF analyst Eric Balchunas reported on impressive growth across the nascent products; “MARCH MADNESS: Bitcoin ETFs traded $111b in March, which is just about triple what they did in Feb and Jan”
  • He did however add that he “can’t imagine” increased volume in April, “but who knows”
  • On April 3rd—and for the first time since spot Bitcoin ETFs launched on January 11th—GBTC was not the fund with the largest outflows, as ARK experienced $88m
  • Despite this, ETFs as a whole still posted net inflows for the day
  • Bloomberg ETF analyst James Seyffart believes that GBTC sell-offs as part of bankruptcy settlements may have ended now, or at least be over the worst
  • BlackRock’s IBIT and Fidelity’s FBTC meanwhile maintained their runs of post-launch inflows, with IBIT successfully flipping GBTC in volume market share
  • The SEC opened its request for comments on proposed Ether ETFs, leading to a swift contribution from ecosystem developers Consensys, who claimed that “Ethereum’s Proof of Stake (PoS) implementation meets and even exceeds the security of Bitcoin’s Proof of Work (PoW), which underlies bitcoin-based ETFs that have already been approved for trading by the SEC”
  • On Tuesday, ProShares launched two new Bitcoin-based ETFs; “ProShares Ultra Bitcoin ETF (ticker BITU), which tracks two times the daily performance of Bitcoin via the Bloomberg Bitcoin Index, and ProShares UltraShort Bitcoin ETF (SBIT), which tracks the inverse”
  • As of April 1st, US Bitcoin ETFs held 4.25% of all current Bitcoin supply—a trend which correlates with Bitcoin held on exchanges dropping to record lows since CryptoQuant began tracking that data in 2021

What happened: JP Morgan believes decentralisation protects Ether against security claims

How is this significant?

  • In a new research note published on Wednesday, JP Morgan analysts led by Nikolaos Panigirtzoglou put forth reasoning as to why they believe the US SEC cannot reasonably classify Ether as a security
  • Arguments against labelling Ether a security centred mainly on decentralisation and new network upgrades
  • According to the Hinman Documents, released publicly during the SEC’s court loss against Ripple last year, “tokens on a sufficiently decentralised network are no longer securities as there is no controlling group in the Howey sense”
  • Analysts pointed out that “The share of [staking platform] Lido in staked ETH has decreased further from around one third a year ago to around a quarter at the moment… This should reduce concerns about concentration in the Ethereum network, thus raising the chance that Ethereum will avoid being designated as security in the future”
  • They also believed that the network’s recent Dencun upgrade strengthened Ethereum’s position by reducing costs on its Layer-2 and Layer-3 scaling solutions, which could “help Ethereum to increase its dominance against alternative Layer-1 blockchains and to recapture the lost market share due to previous scalability issues”

What happened: Crypto asset trading volume reaches record high in March

How is this significant?

  • According to a new report by industry analytics firm CCData, Bitcoin’s new record high in March wasn’t the only impressive monthly metric; it was also the industry’s busiest month ever, volume-wise
  • In fact, March trading blew all previous months out of the water; the combined volume of spot and derivatives trading on centralised exchanges hit $9.1tn—nearly double the previous record
  • Spot trading rose to its highest levels in almost three years, since May 2021
  • Derivatives trading almost doubled on a monthly basis as well, as the report noted “Institutional trading volume on the CME rose to an all-time high 60.6% to $155 billion in March… largely influenced by Bitcoin futures, which rose 65.4% to $123 billion in monthly volume”

What happened: Singapore broadens crypto regulation

How is this significant?

  • Singapore expanded the scope of its ruleset regarding digital assets this week, according to a new announcement from the Monetary Authority of Singapore (MAS)
  • This includes more regulatory overview of firms involved in custodying tokens, as well as international transfers thereof
  • The MAS said the new requirements “impose requirements relating to anti-money laundering and countering the financing of terrorism”, whilst TRM Labs senior policy advisor Angela Ang recognised the rules “bring regulatory clarity to key parts of the crypto ecosystem”
  • Despite limiting access for retail investors, Singapore remains a proponent of benefits within blockchain technology, such as more efficient payments and asset liquidation

What happened: Binance names first board of directors

How is this significant?

  • Following on from last year’s resignation of exchange founder Changpeng “CZ” Zhao, Binance moved to further refurbish its image this week, appointing its first-ever board of directors
  • The new board consists of four internal appointees, as well as three independent outsiders
  • Outsiders include diplomat Gabriel Abed, Gojo & Co managing partner Arnaud Ventura, and Bayview Acquisition Corp. CEO Xin Wang
  • Columbia business school professor Ausitn Campbell commented that the move represented progress rather than revolution; “Binance having a board composed primarily of company insiders tells me they are still resistant to outside control and oversight… Even so, this is a step in the right direction versus having no board at all, so what will matter is if they are effective shepherds of the company going forward”

What happened: VC news

How is this significant?

  • There were several significant developments in digital asset venture funding this week, featuring involvement from both industry-native and traditional VC firms
  • In fact, according to new data, VC funding saw a 50% month-on-month increase, as Bitcoin’s new record high perhaps returned confidence to VCs sat on the sidelines
  • Around $1.16bn of venture capital was allocated to the industry in March, with over half of investments serving as seed capital between $1m and $5m
  • Digital asset VC Paradigm—which boasted one of the sector’s largest ever raises with a $2.5bn fund in 2021—is currently in talks to raise at least $750m for a new fund, according to Bloomberg sources
  • The fund could potentially raise up to $850m, reflecting returning enthusiasm whilst remaining well below the levels of 2021 bull run mania
  • Paradigm are still actively investing in the industry; this week the firm led a round for blockchain social media firm Merkle, at a $1bn valuation
  • Brevan Howard Digital and Galaxy Digital both invested in a new $100m fund by crypto accelerator Alliance
  • The Alliance Fund III will focus on early-stage investments, allocating around $500,000 per startup
  • Galaxy Digital is itself in the process of raising for a new fund, aiming at a $100m warchest for investments with a minimum $1m allocation
  • In a statement, the firm said “For years, we’ve been putting our own capital behind these innovators. Now we’re launching Galaxy Ventures Fund I LP to partner with outside investors, allowing us to continue fueling the digital asset ecosystem by backing promising early-stage companies”
  • Investment firm 1kx completed an oversubscribed raise of a $75m closed-end fund on Friday, including “participation from Marc Andreessen and Chris Dixon, as well as Accolade Partners and Galaxy Digital”
  • Neoclassic Capital, a new VC launched by Goldman Sachs and BlockTower alumni, outlined its investment thesis this week, following capital commitments from prominent investors including Marc Andreessen, Chris Dixon, and Tampa Bay Lightning owner Jeff Vinik
  • The latter supported the new firm based on how the founders “consistently show[ed] the ability to both identify and capitalise on opportunities across both Asia, specifically in Korea and Japan, as well as through their deep US crypto ecosystem”

What happened: Bank for International Settlements announces tokenisation trial

How is this significant?

  • News emerged this week that the Bank for International Settlements (BIS) is working alongside seven central banks (including the New York Federal Reserve) to trial tokenisation as a means “to increase the speed and integrity of international payments”
  • The trial, named Project Agora, aims to leverage the innate benefits of blockchain to overcome limits of legacy systems within international value transfers, such as “different legal, regulatory and technical requirements, operating hours and time zone”
  • Agora participants are a heavyweight set of central banks alongside the New York Fed, including the Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England, and Bank of France as a broader Eurozone representative
  • In a Wednesday press conference, Cecilia Skingsley, head of the BIS Innovation Hub, called Agora “an exciting new project which will experiment with how tokenisation can improve the global monetary system… We believe that tokenisation is the next frontier in terms of the digitalisation of money and payments. Agora is the most ambitious project launched by the BIS Innovation Hub so far”
  • This exploration could be viewed as an alternative to the entrenched but “very slow and expensive” SWIFT system
  • Hyun Song Shin, BIS economic adviser and head of research told TheBanker “The biggest advance in this particular project is going to be the combination of messaging and settlement as one atomic transaction… rather than sending messages and then updating the balance sheet separately, we have the transaction go through all in one piece so that you go from the original sender to the ultimate recipient through whatever intermediaries there are along the way, and have the messaging and the settlement all happen at the same time”
  • Shin also sounded optimism about the “game-changer” nature of blockchain technology; “Tokenisation of deposits and wholesale central bank money means that both the primary means of payment, as well as the settlement function of central bank money, can be integrated seamlessly on the same programmable platform”
  • Bitcoin returned to growth this week, breaking back above $70,000 after GBTC outflows slowed
  • Bitcoin exhibited a consistent upward trajectory throughout the week, growing from a Friday low of $62,770 to a Thursday high of $71,550
  • Ether mounted a more modest recovery from last week’s decline, with the shadow of reported SEC investigations and lowered odds for a spot ETF still hanging over the asset
  • Ether grew from a Saturday low of $3,287 to a weekly high of $3,664 on Tuesday, after trading between $3,300 and $3,500 throughout the weekend
  • Overall digital asset market capitalisation grew to $2.65tn, broadly in line with Bitcoin’s weekly movements
  • According to industry monitoring site DeFi Llama, total value locked in DeFi once again neared the $100bn mark, with a total of $98.5bn
News Roundups