Nickel Research Centre

Nickel News Roundup - Week 32

11th August, 2023

Market Overview:

Digital assets posted a modest recovery this week, with Bitcoin briefly crossing $30,000 for the first time since the 24th of July.
  • Bitcoin once again traded primarily in a narrow range, with the majority of trading between $29,000 and $29,350
  • Its weekly high did briefly peak above the $30,000 mark at $30,050 on Tuesday, up from a Monday low of $28,750
  • Ether followed the same patterns as Bitcoin, from a low of $1,806 to a $1,872 high, with a general range between $1,825 and $1,850
  • Overall digital asset market capitalisation increased slightly to $1.17tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week recovered to $41.7bn

Digital assets experienced another week of stable trading, with only minor fluctuations in value. The biggest news of the week was PayPal announcing the creation of its own stablecoin on the public Ethereum blockchain, becoming the first major institution to enter the stablecoin space. Elsewhere, the SEC (as expected) moved to appeal their recent courtroom defeats against Ripple, Microsoft partnered with a blockchain project to leverage AI with Web3, several major crypto VC and funding rounds occurred, industry analysts reflected on the current state of the spot Bitcoin ETF race, and the CEO of $381bn AUM investment firm The Carlyle Group acknowledged growing global acceptance of Bitcoin and digital assets.

What happened: PayPal issues first corporate stablecoin

How is this significant?

  • On Monday, payments giant PayPal revealed that it’s releasing its own stablecoin—PayPal USD (PYUSD)—to be integrated across multiple business units
  • This makes the firm the first major corporation to create its own stablecoin, succeeding where Facebook failed in their abandoned Libra/Diem project
  • PYUSD is issued as an ERC-20 token on the Ethereum blockchain; instantly redeemable for dollars and exchangeable for all crypto assets within PayPal, and soon integrated into their payments app Venmo
  • The dollar-pegged stablecoin will be issued in partnership with Paxos, and backed by "US dollar deposits, short-term Treasuries and similar cash equivalents" according to PayPal
  • In a press release announcing the token, PayPal CEO Dan Schulman spoke enthusiastically about the potential for digital assets within the payments space; “The vision over time is that this becomes a part of the overall payments infrastructure”
  • Schulman added “We are in a place right now that people feel comfortable with a respected, well-regulated US financial entity moving into the stablecoin space and think that it’s an important initial move”
  • On Tuesday, PayPal revealed more about the strategy for PYUSD within their business, generating revenue from payments as well as the underlying assets
  • The company’s blockchain chief Jose Fernandez da Ponte told Bloomberg “Over time, going back to us as a payments company, we are interested in driving payment flows here that we will also be monetizing in a number of ways that are beyond just strictly the monetization of the reserve”
  • He also praised the technological potential, saying “We like the primitives, we like the ability to do things you couldn’t do before in payments”
  • Alongside usage within the crypto sector, da Ponte also foresees PYUSD adoption in the digitally native field of video games, and the cross-border transactions of remittance markets
  • There were a variety of responses across the political sphere; House Financial Services Committee chair (and Republican) Patrick McHenry commented that “stablecoins—if issued under a clear regulatory framework—hold promise [for payment systems]”
  • McHenry is attempting to advance stablecoin legislation through Congress, using PayPal’s entry as an opportunity to comment on the space; “We are currently at a crossroads to keep America at the forefront of digital asset innovation. Congress is making significant, bipartisan progress on legislation to ensure the U.S. leads the financial system of the future. We must finish the job.”
  • Meanwhile, his Democratic counterpart Maxine Walters voiced concerns, and the Federal Reserve quickly published guidance for banks, informing them that digital assets were regarded as part of the Fed’s “novel activities supervision program”, and that any banks planning on “issuing, holding, or transacting in dollar tokens to facilitate payments” would need to “receive a written notification of supervisory nonobjection from the Federal Reserve” beforehand
  • Alongside the aforementioned tentative forays by Facebook’s abandoned Diem project, one could regard JP Morgan's JPM Coin (which launched almost concurrently with PayPal's initial crypto foray in October 2020) as the first corporate stablecoin; but unlike PYUSD it exists only as an internal settlement tool on JPM's permissioned Onyx blockchain
  • JP Morgan analyst Nikolaos Panigirtzoglou appeared bullish on the future of corporate stablecoins on public blockchains, telling industry publication TheBlock “This could boost Ethereum activity and enhance Ethereum's network utility as a stablecoin/DeFi platform… more firms would be encouraged in the future to choose the Ethereum blockchain (or its layer 2 platforms) for their stablecoin or decentralised projects”
  • He also believed PYUSD could compensate for the market decline of BUSD; a stablecoin issued by PayPal’s partner Paxos and leading exchange Binance, which led to both being sued by the SEC earlier this year
  • Paxos, registered within the US, described PayPal’s move as a “watershed moment” in terms of bringing regulation into the space, thanks to Paxos’ NYDFS regulation
  • Walter Hessert, the firm’s head of strategy, also told industry publication Coindesk that they have “talked with a lot of the largest technology and financial services companies about stablecoins, integrating stablecoins, [and] launching white label stablecoins”

What happened: SEC files intention to appeal Ripple ruling

How is this significant?

  • As speculated, the US Securities and Exchange Commission does not appear inclined to graciously accept the recent ruling of a federal judge, which held that only direct institutional sales of Ripple’s XRP token constituted an investment contract and thus classified the asset as a security
  • The SEC appealed in part because of the sheer scale of legal enforcement they’ve recently undertaken, telling judge Analisa Torres they are seeking a prompt response to their appeal due to a “number of actions currently pending that may be affected”
  • One example of this is Coinbase, who requested on Friday that a judge dismiss the SEC’s lawsuit against them, citing the Ripple judgement
  • In its motion for dismissal, the exchange stated “The SEC has violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws”
  • The SEC meanwhile argues that a judge in the same court recently ruled contrary to Torres reasoning in a different case, claiming “These two issues involve controlling questions of law on which there is substantial ground for differences of opinion, as reflected by an intra-district split that has already developed”
  • Ripple’s chief legal officer Stuart Alderoty noted that the SEC’s filing is an interlocutory appeal—because Judge Torres’ ruling didn’t conclude the entire case, the SEC has to petition for permission to appeal aspects of her ruling, rather than having an automatic right to do so
  • Alderoty added that Ripple would respond to the SEC’s attempt in court next week
  • If the appeal is indeed granted, it could further prolong the legal tussle between the SEC and Ripple, already ongoing since 2020

What happened: Carlyle Group chairman comments on growing institutional crypto comfort

How is this significant?

  • David Rubenstein, CEO and co-founder of $381bn AUM investment firm Carlyle Group spoke at length about digital assets this week; first through a Bloomberg Wealth interview with Galaxy Digital CEO, Mike Novogratz, and then a Bloomberg Surveillance interview soon after
  • Rubenstein noted that “People make fun of Bitcoin and other cryptocurrencies, but now the establishment, Larry Fink at BlackRock, is now saying they’re gonna have an ETF in Bitcoin, so now you’re saying ‘wait a second, the mighty BlackRock is gonna have an ETF in Bitcoin? Maybe Bitcoin’s gonna be around for a while”
  • He added “There’s no doubt that Bitcoin is something that I wish I had bought it when it was at 100 dollars a Bitcoin like when Mike Novogratz started buying it; it’s now at $29,000, so he’s made a lot of money”
  • Rubenstein acknowledged that the FTX collapse last year greatly shook American confidence, commenting that the “United States government… Democrats in Congress, the SEC has been sceptical, but outside the United States, there’s a lot of interest in it”
  • He pointed out that the transactional freedom of censorship-resistance of Bitcoin is a major selling point internationally, and “the Republicans on Capitol Hill have been generally supportive of it”
  • Rubenstein further speculated that an eventual relaxing of interest rates would benefit digital assets; “I don’t think Bitcoin or cryptocurrencies—the better ones, the better-known ones—are gonna go away. There’s enormous interest around the world”

What happened: Microsoft partners with blockchain project on Web3 AI development

How is this significant?

  • On Wednesday, reports emerged that tech giant Microsoft was working alongside new layer-1 blockchain project Aptos Labs in order to capitalise on potential growth within both AI and web3
  • Microsoft’s global director of business development, Daniel An, told TechCrunch “We predict that AI will be infused into web3 solutions at greater scale in the coming months and years”
  • An believes the transparency of blockchain could be transformative in ensuring accurate outcomes from AI ventures; “How do we know that the training data is bias free in the first place? Blockchain-based solutions can help with verifying, time-stamping and attributing content to its source, thereby improving credibility in a distributed digital economy”
  • He added that “The openness and immutability of blockchain can improve the trust that people place in AI-generated content and provide confidence that they’re making the right decisions”
  • In a press release, Aptos CEO Mo Shaikh stated “Artificial intelligence and blockchain technologies are quickly converging for one important reason: They are both generational breakthroughs that profoundly impact the evolution of the internet and shape society”
  • Additionally, the companies will explore numerous other applications of blockchain technology, including asset tokenisation, financial service products, payments and CBDCs

What happened: L1 Digital raises $152m for crypto asset VC fund

How is this significant?

  • On Tuesday, crypto VC L1 Digital revealed the conclusion of a successful funding round to industry publication Coindesk
  • The Zurich-based investment advisor raised over $150m for their second crypto VC fund, of which 70% will be invested directly into digital asset startups, with the remaining 30% providing early-stage capital to other investment firms
  • Founded in 2018, L1 Digital has previously backed other industry investors including Multicoin Capital and Castle Island Ventures
  • CEO Ray Hindi told Coindesk “We're most active during bear markets… this is when it makes a lot of sense to onboard funds for two reasons. Number one, the effect of advantage is really important and acute. The second benefit of investing in bear markets is to de-risk operations. In bear markets, competition is pretty low, typically”
  • L1 researcher added that security and UI improvements were key areas of focus for the firm; “Our thesis is really that the [crypto] space will mature as time goes on. We're long term bullish here”
  • In other VC news, a recent profile in Fortune revealed that Haun Ventures, a crypto VC founded by Andreessen Horowitz alum Katie Haun still has around $1bn to deploy from an initial raise of $1.5bn last year
  • $33bn AUM hedge fund Brevan Howard made another investment in the space through its BH Digital arm this week, participating in a seed round for blockchain infrastructure firm Puffer Finance
  • Ample funding was also revealed on a government level; the Monetary Authority of Singapore (MAS) announced up to $150m of investment over three years as part of Singapore’s Financial Sector Technology and Innovation Scheme
  • The city-state’s central bank issued a release concerning the fund, stating that “MAS recognizes the importance of partnering with the industry to support innovative FinTech solutions arising from emerging technologies such as Web 3.0”

What happened: Industry analysts (generally) predict spot Bitcoin ETF approval

How is this significant?

  • BlackRock’s filing for a spot Bitcoin ETF last month reignited interest in the space, leading to a rush of other filings; with the dust now slightly settled, a variety of industry experts and analysts have spoken about the chances of success for said applications
  • As the first firm to file, ARK Invest expects an initial ruling by August 13th, with a timeline allowing a final verdict no later than January 10th, 2024
  • ARK’s founder Cathie Wood spoke to Bloomberg, speculating that the SEC will delay ruling on the 13th, but given the slew of filings “I think the SEC, if it’s going to approve a Bitcoin ETF, will approve more than one at once”
  • Bloomberg ETF strategists James Seyffart and Eric Balchunas recently revised their perceived odds of approval to 65%—up from 50% a few weeks ago, and up from 1% a few months ago before any suspicions of a BlackRock filing
  • Seyffart predicted that Grayscale should win their lawsuit against the SEC regarding denial of converting their GBTC fund into a spot ETF; if that victory does transpire “we think the path of least resistance is simultaneous approval for all 8 filers + Grayscale in the aftermath of the courts”
  • Galaxy Digital CEO Mike Novogratz cited sources at BlackRock and Invesco, claiming they viewed ETF approval as “a question of when not if”, claiming BlackRock specifically had created a shift in perception among institutional investors
  • However, not all industry observers are quite so optimistic; Stuart Barton, co-founder of ETF issuer Volatility Shares believes “if it [regulation] stays on the present course, that’s a couple of years away at least”, and Ric Edelman, founder of the Digital Assets Council of Financial Professionals told CNBC “We would love a Bitcoin ETF… But the SEC has rejected every Bitcoin ETF application for the past 10 years”

What happened: UK progresses CBDC and stablecoin plans

How is this significant?

  • This week, the UK moved forward on digital asset development, as both the Bank of England (BoE) and Treasury releasing updates on their efforts within the space
  • The BoE announced the creation of an Academic Advisory Group for the Digital Pound research efforts
  • In a press release, the BoE stated “We will bring together experts related to our work on the digital pound, including monetary policy, finance, competition economics, industrial organisation, behavioural science, law, innovation theory, marketing, and business”
  • Specifically, academics will work to “understand the practical challenges of designing, implementing and operating a CBDC”
  • Meanwhile, on Tuesday the Treasury released a consultation response on systemic stablecoins
  • In the document, the Treasury advised that regulators define their collaborative roles in a memorandum, with the BoE able to overrule the FCA regarding any entities deemed systemic in nature

What happened: Pioneering digital asset exchange raises funds for international expansion

How is this significant?

  • Founded in 2011, Luxembourg-based Bitstamp was one of the first digital asset exchanges of any description, and still qualifies as the world’s 7th-largest exchange; now the company is in talks over fresh funding to finance expansion
  • A spokesperson told Bloomberg that the exchange began raising in June, with a goal of increasing their global footprint, focusing on Asia
  • CEO Jean-Baptiste Graftieaux commented that “Bitstamp is not for sale, and we are not actively looking to sell the company. Our current and exclusive priority is to raise money through strategic investors to accelerate Bitstamp’s growth by providing new products and services to retail and institutional crypto customers”
  • The company also aims to increase their derivatives offering and presence within the UK; the chosen markets for expansion sharing a common denominator of greater regulatory clarity than the US
  • In other news of lesser-reported exchanges, American institutional exchange Bakkt released an earnings statement, revealing a significant increase in total revenue
  • Year-on-year, Bakkt’s Q2 revenue increased from $14m (net) to $348m (gross), indicating “a significant increase in gross crypto services revenues” driven by recent acquisitions

What happened: Contagion latest

How is this significant?

  • The SEC settled their lawsuit with digital asset exchange Bittrex this week, “for a total monetary payment of $24 million”
  • Formerly one of the world’s leading exchanges, Bittrex lost ground to Binance in the 2017 bull market, and was only sued by the SEC after announcing plans to shutter its US operations
  • Industry conglomerate Digital Currency Group sought the dismissal of a lawsuit from Gemini exchange against subsidiary company Genesis and group CEO Barry Silbert, arguing that it amounts to little more than “a character assassination campaign” by Gemini co-founders Cameron and Tyler Winklevoss
  • Gemini allege that Genesis misrepresented their risk management capabilities, which led to a liquidity crunch at the lender and forced the termination of products developed in partnership with Gemini
  • FTX administrators lashed out at the official committee of unsecured creditors in a court filing this week, claiming that creditor demands “foreshadow an inclination to pursue an unrepresentative plan that vests control of the debtors’ billions of dollars in liquid assets in the hands of unrestricted crypto traders and market makers”
  • The creditors had previously advised administrators to proactively use recovered assets rather than leaving them idle; this included the staking of crypto assets, and investing cash “in short-term Treasuries to net greater income for the bankruptcy estate”
  • Former FTX executive Ryan Salame is reportedly in negotiations with federal prosecutors about a plea deal regarding charges including campaign finance violations; following in the footsteps of former colleagues Caroline Ellison, Gary Wang, and Nishad Singh, who’ve all pled guilty to various charges involving misdeeds at FTX
  • Coinbase launched a tender to buy back up to $150m of junk bonds, due 2031, at between $615 and $645 per $1,000 of principle
  • The exchange has recruited Citigroup to manage the tender offer
  • Galaxy Digital reported a Q2 loss of $14m; which represented a significant year-on-year improvement compared to a Q2 2022 loss of $544m
  • CEO Mike Novogratz stated “Galaxy’s operating businesses performed well in the second quarter against a backdrop of continued uncertainty and regulatory pressure”, opining in an interview with David Rubenstein that “the US government has been thwarting growth in the industry… Gary Gensler has been regulating through enforcement in what I think is an unfair and unfortunate way… a federal judge has said the rules are nothing close to clear”
  • A federal judge denied an attempt by former Celsius CEO Alex Maschinsky to dismiss a New York civil fraud lawsuit against him
  • Data by a Swiss-based investment advisor indicates that 13% of digital asset hedge funds have shut down this year, as crypto winter continues to bite
  • According to the report by 21e6, the stark conditions of last year led many funds to allocate more towards cash reserves; which led them to lose out on Bitcoin’s year-to-date growth
  • Additionally, the lack of available banking partners in the US was cited as another factor behind some funds setting up shop
  • UK fintech firm and e-bank Revolut announced plans to withdraw crypto services from US customers from September onwards “As a result of the evolving regulatory environment and the uncertainties around the crypto market in the US”

What happened: USDC stablecoin issuers Circle outline strategy

How is this significant?

  • Following PayPal’s entry into the space, stablecoin issuer Circle commented more on their current positioning and business model this week
  • CEO Jeremy Allaire told Bloomberg in an interview that the company had experienced a mixed year of good and bad news; “We were meaningfully generating cash… The Terra collapse helped us; the Binance forced-conversion [removal of USDC trading pairs] hurt us. The FTX collapse sort of helped us, and then the failure of regional banks hurt us”
  • Allaire also revealed the company has more than $1bn in excess cash as of June, mostly generated from interest on backing assets; “That’s significantly more than we had expected, and allows us to have a lot of staying power as a company to invest, build out major new revenue streams, build on major new products, and execute global international expansion profitably”
  • He welcomed PayPal’s addition to the sector, believing it could help grow general acceptance of stablecoins as a concept; “It’s great to have this new competition—I do think it’s going to drive more and more companies into the field”
  • Circle also released information on the launch of their own “programmable wallets”, allowing the company to “ease common pain points for developers, remove friction from value exchange, deliver more seamless user experiences and help drive blockchain-powered wallet adoption”
  • The “programmable” refers to the ability to streamline user experiences based on expected utilisation; “Offering a wallet infrastructure that allows wallets to be configured for each use case”
News Roundups