Nickel Research Centre

Nickel News Roundup - Week 21

27th May, 2021

Market Overview:

Digital assets experienced further corrections this week, falling to lows over the weekend before beginning to rally on Tuesday. 

  • Bitcoin’s hit a low point of $31,740 on Sunday, before a steady rise to current values of $38,400, after failing to hold a brief break above $40,000 on Wednesday
  • Ethereum moved in line with Bitcoin, with a low of $1,784 on Sunday, recovering to nearly $2,900 on Wednesday before a slight retrace to current levels around $2,683
  • The overall market capitalisation of digital assets declined slightly to $1.64tn
  • The total value locked in the DeFi sector was flat for the week, at around $71.9bn

Last week’s bearish momentum for digital assets continued into the weekend, before a gradual recovery to current levels. Several more of the world’s leading financial institutions announced support for and access to digital assets, more national governments joined the CBDC race, and prominent individuals ranging from politicians to the founder of the world’s largest hedge fund all gave strong endorsements for this dynamic asset class.  


What happened: Goldman Sachs declares crypto “a new asset class”

How is this significant?
  • This week, Goldman Sachs published a 41-page research paper attempting to answer whether Bitcoin and other digital assets constitute an entirely new asset class—with overwhelming support in favour
  • They identified “widespread social adoption” as a critical component of Bitcoin’s success, identifying several recent landmarks such as Bitcoin balance sheets from Tesla, investment by Brevan Howard, and Coinbase’s public listing as evidence that “ social adoption of cryptocurrencies appears to be moving forward”
  • Goldman Sachs’ head of digital assets Matthew McDermott said that the firm’s move into the space was driven by “Client demand. Pure and simple”. He also noted the growth of the sector as a whole as compared to a few years ago; “What’s different today is the extent of institutional interest, coupled with very strong demand across the wealth management franchise”
  • As well as speaking to numerous economist, regulators, and industry experts, Goldman Sachs devoted several pages of their report to outlines of major coins and tokens in the digital asset space, including newer altcoins alongside Bitcoin and Ethereum

What happened: Bitcoin Mining Council (including Elon Musk) moves to address mining sustainability concerns

How is this significant?
  • After recent criticism of unsustainable mining practices, Tesla CEO Elon Musk announced this week that he had met with Bitcoin evangelist Michael Saylor and North American Bitcoin miners to improve the industry’s carbon footprint
  • The Bitcoin Mining Council will also promote transparency of the industry’s energy usage
  • Speaking at industry publication Coindesk’s annual Consensus summit, Microstrategy CEO Michel Saylor further explained the council’s role, stating that they will formulate standardisation of energy reporting for the industry and create a “benchmark versus other industries, giving institutional investors comfort as they enter the space”
  • In response to concerns that the council could increase centralisation of Bitcoin’s mining supply, Saylor said “The only reason we had the meeting is because we wanted to ensure the success of a decentralized cryptocurrency and the source of decentralization is energy usage”
  • The Bitcoin Mining Council aren’t the only group addressing these concerns; Seeking Alpha reported that Nasdaq-listed Marathon Digital had entered an agreement with Compute North to construct a new $67m data centre in Texas, with 70% carbon-neutral mining operations 

What happened: Wells Fargo opens digital asset investments for private wealth clients

How is this significant?
  • Wells Fargo, one of the largest banks in America (and the world), became the latest major traditional financial institution to offer clients access to crypto funds, starting in June
  • Darrell Cronk, head of Wells Fargo’s Investment Institute, said the category has now matured to a point where something like Bitcoin is seen as “an investable asset”
  • The bank outlined their position on the asset class in a recent report titled “The Investment Rationale for Cryptocurrencies”, writing that “long-term supply and demand trends support further industry growth, the potential for further compression in price volatility, and a possible role as portfolio diversifiers”
  • They particularly noted the potential impact of digital assets on the financial landscape “The disruptive potential of decentralized systems could be large across the economy. An entire system of such applications is developing to provide financial services – from trading to lending to custody”
  • Due to the comparative volatility of digital assets, Wells Fargo are currently only offering and recommending them to accredited investors
  • Wells’ report concluded optimistically for the future of the asset class: “we believe cryptocurrencies should show more viability and durability over time as investable assets… the evidence of their greater stability and long-term diversification potential together point to a viable investment asset for exposure in portfolios in a controlled way”

What happened: Noted hedge fund manager Ray Dalio confirms he holds Bitcoin

How is this significant?
  • Ray Dalio, the founder of Bridgewater Associates (the world’s largest hedge fund) confirmed at Coindesk’s Consensus summit that he holds Bitcoin, and that “Personally, I’d rather have Bitcoin than a bond”
  • Dalio’s endorsement of Bitcoin is a result of his concerns around wider economic policies and conditions, including the devaluation of the US dollar
  • According to Dalio, “Bitcoin’s greatest risk is its success”, although its decentralised nature would make it effectively impossible for governments to ban the asset

What happened: Fidelity’s Institutional Head notes high client demand for digital assets

How is this significant?
  • Speaking at the Consensus 2021 summit, Mike Durbin, head of Fidelity Institutional, said “We follow the demand of our clients” in terms of offering exposure to digital assets—even though “In some sense, it’s an existential threat to what we do”
  • He noted that it wasn’t just clients who had warmed to the asset class—he himself had been investing in a personal capacity long before there was widespread institutional access; “I’ve dabbled myself over the last few years”
  • Although Durbin conceded that the recent market correction may have been uncomfortable for some clients, his long-term belief in the sector remains unshaken, calling such events “blips along the way”

What happened: $8.6bn IT firm becomes the latest corporate Bitcoin buyer

How is this significant?
  • Globant S.A., an IT company worth nearly $9bn, became the latest major corporation to add Bitcoin to their balance sheet, according to recent filings with the SEC
  • They listed their crypto investments amongst their “intangible assets”, because “it lacks physical form and there is no limit to its useful life”
  • Although they didn’t reveal the specific unit cost basis of their investment, Globant did disclose that “During the first quarter of 2021, the Company purchased an aggregate of [$500,000] in crypto assets, comprised solely of bitcoin”

What happened: American state governors move towards greater acceptance of digital assets

How is this significant?
  • In the USA, several state governors spoke in favour of crypto assets at Consensus 2021 this week, adding to previous statements by prominent political figures such as Miami mayor Francis Suarez, and New York mayoral candidate Andrew Yang
  • Wyoming governor Mark Gordon revealed that he personally owns digital assets, noting that his state has invested resources to be at the forefront of digital asset legislation in America; “People often look to New York or Miami or Delaware before they look at Wyoming. But a lot of the pioneering work has been done here”
  • Meanwhile, Colorado governor Jared Polis (the first politician to officially accept Bitcoin for campaign donations back in 2014) wanted to integrate them into his government’s own coffers, stating “I’d be thrilled to be the first state to let you pay your taxes in a variety of cryptos”

What happened: One River asset management files for carbon-neutral Bitcoin ETF

How is this significant?
  • On Monday, One River asset management submitted an S-1 filing with the SEC, seeking to list a carbon-neutral Bitcoin ETF, in response to recent public concerns about mining sustainability
  • According to the filing, the ETF would list on the New York Stock Exchange
  • The One River Carbon Neutral Bitcoin Trust would work on the basis of purchasing carbon credits, rather than direct production powered by sustainable energy
  • Coinbase Custody have been listed as custodians for the ETF’s Bitcoin assets, should approval be granted
  • As ETF filings continue in America, Teucrium became the latest provider to submit an application, seeking to list a Bitcoin Futures ETP on the NYSE Arca exchange

What happened: More nations join the race for CBDC development

How is this significant?
  • Across the world, more central banks made announcements regarding the creation of their own central bank digital currencies (CBDCs) this week
  • On Tuesday, the South African Reserve Bank issued a statement that it “has embarked on a study to investigate the feasibility, desirability and appropriateness of a central bank digital currency (CBDC) as electronic legal tender, for general-purpose retail use, complementary to cash”
  • In South Korea, the Bank of Korea is in the selection process regarding potential technology providers for their CBDC pilot program, according to Reuters reporting
  • On Tuesday, the Bank of Indonesia announced plans to launch a CBDC, with governor Perry Warjiyo declaring “BI plans in the future to issue a central bank digital currency, digital rupiah… as a legal digital payment instrument in Indonesia”

What happened: DBS declares Bitcoin can influence stock markets, and is no longer a “fringe asset”

How is this significant?
  • On Tuesday, DBS published a research report titled “Shifting cross-asset correlations”, investigating the relationships between various asset classes, including Bitcoin
  • Although they noted a “relatively low” average correlation of 0.20 between Bitcoin and the S&P 500 futures, they found that the correlation increased significantly to 0.26 during particularly volatile events for Bitcoin
  • According to the report’s authors, “This suggests that broader equity sentiment could become more coupled with sentiment in bitcoin markets for a temporary period of time (60h), post an unusually large move”
  • They also noted that stock market volatility was “markedly higher than normal” after big moves by Bitcoin, concluding that “Bitcoin is no longer the fringe asset that it once was, given the higher correlations and increased US equity volatility that trail extreme moves in Bitcoin markets”

What happened: Ripple pilots first blockchain-based remittances between Gulf region and India

How is this significant?
  • India is the world’s largest recipient of remittance payments, a significant amount of which comes from migrant workers in the Gulf region
  • Thus far, the remittance industry hasn’t featured much infrastructural support for digital assets, missing out on the increased transaction efficiencies they can provide
  • On Tuesday, Ripple (the developers of the XRP digital asset) announced that BankDhofar was the first bank in Oman to join their payment network
  • According to Ripple’s press release, BankDhofar “will connect with leading Indian private sector bank IndusInd Bank to drive real-time payments into India. This will enable cross-border transactions made via their Mobile Banking App to be processed instantly, reliably, cost-effectively and with end-to-end visibility anywhere in the world”

What happened: Retail and Institutional digital asset exchanges experience record volume

How is this significant?
  • LMAX, a digital asset exchange focused on institutional investors, revealed record trading volume on Bitcoin’s “Black Wednesday” last week, trading a total value of $6.6bn
  • David Mercer, the company’s CEO, accounted for this spike in volume by noting that whilst a lot of retail trading volume is driven by leverage (which can lead to cascading liquidations, as happened last week), “Institutions are largely not involved in that market, staying out. And then they see an opportunity to add to their portfolio”
  • In total, the daily trading volume last week equated to about 170,000 Bitcoin at an average price of $35,000, suggesting institutions were “buying the dip”
  • Retail-focused exchanges also experienced record volumes recently, with Canadian exchange Voyager Digital reporting a 16-fold increase on quarter-to-quarter revenue, driven by a quarterly increase of trading volume from $350m to $5bn

What happened: PwC report reveals a growing investment in DeFi from crypto-focused hedge funds

How is this significant?
  • On Monday, PwC released their third annual crypto hedge fund report, where one of the key findings was the growing participation within DeFi by the hedge funds in question
  • The report compared focused on the calendar year 2020, meaning that several of the trends highlighted have only accelerated with the further growth of DeFi and the sector in general
  • In 2019, crypto hedge funds managed a total of $2bn in assets, which nearly doubled to $3.8bn in 2020 (and the digital asset market itself has approximately doubled since the start of 2021)
  • PwC noted increased usage of DeFi platforms and protocols, as 31% of funds traded via decentralised exchanges (DEXes)
  • In terms of demographics, they noted that the vast majority of investors in crypto hedge funds were HNWIs and Family Offices, with the latter group experiencing significant growth in 2020 compared with 2019

What happened: NFT adoption and development continues

How is this significant?

What happened: Commerzbank pilots blockchain-based supply chain for chemical industry

How is this significant?
  • In a press release on Friday, Commerzbank announced that, in association with Evonik and BASF, they were using blockchain to both provide supply chain tracing, and test automated payments of “programmable money”—an equivalent to a digital Euro
  • Bringing blockchain technology into the supply chain process would not only increase efficiency by making ordering and payments automatic, but improve transparency by ensuring that data is visible and tamper-proof
  • Commerzbank stated that they had “successfully tested a shared blockchain platform to efficiently handle bilateral supply chain processes between companies in a live environment”, and that both pilot partners had agreed to further test further applications of the technology
  • Heinz-Günter Lux, Senior Digital Strategist at Evonik Digital GmbH was enthusiastic about the project’s potential; “The payment process via blockchain and by means of programmable money along our existing process chains is definitely more transparent, quicker and more reliable. It is an important building block towards the development of fully autonomous supply chains”
News Roundups