Nickel Research Centre

Nickel News Roundup - Week 18

5th May, 2022 

Market Overview:

Digital assets traded in a narrow range for the majority of the week, with nervous and volatile global markets ahead of FOMC news on Wednesday.

  • Bitcoin’s weekly high came on Thursday night, at $40,220, before dropping below $40,000 and spending the majority of the week ranging between $37,900 and $39,000
  • Bitcoin hit a weekly low around $37,600, before bouncing back strongly following news that interest rate rises were in line with expectations, and 75 basis-point rises aren’t under consideration
  • Current Bitcoin prices of $39,790 represent 1.7% weekly growth
  • Ether again mirrored Bitcoin’s movements, with a high of $2,970 on Thursday, before dropping and trading mainly between $2,770 and $2,850
  • A post-FOMC recovery put Ether’s current value of $2,948; a 2.7% increase 
  • Total market capitalisation remained steady at $1.8tn
  • Total value locked in DeFi dropped slightly to $73.7bn, according to industry analytics platform DeFi Pulse

Digital assets dropped early in the week as global markets anticipated the exact form of the Federal Reserve’s new monetary policy, before rebounding as interest rates remained in line with expectations. News poured in globally as digital asset adoption continues apace; from Wall Street titans Goldman Sachs and Jane Street, to Dubai and Panama regulators, banks in Liechtenstein, Switzerland, and Argentina, pension funds in Virginia, to Japanese game development giants and even coffee conglomerate Starbucks.


What happened: Goldman Sachs issues first Bitcoin-backed loan

How is this significant?
  • Goldman Sachs approved their first loan backed by Bitcoin as collateral this week, lending, echoing similar recent moves by Silvergate Bank
  • A Goldman spokesperson told industry publication Coindesk “We recently extended a secured lending facility where we lent fiat collateralized on BTC; BTC being owned by the borrower… The interesting piece for us was the structure and the 24-7-365 day risk management”
  • The recipient of the loan was later revealed as the digital asset exchange Coinbase, with Brett Tejpaul, head of Coinbase Institutional saying “Coinbase’s work with Goldman is a first step in the recognition of crypto as collateral which deepens the bridge between the fiat and crypto economies”
  • Some analysts believe this move should be seen as a proof of concept for more companies and clients watching on the sidelines; crypto hedge fund Arca commented “These types of bilateral agreements are rarely done in a vacuum… It is far more likely that Goldman is seeing a lot of demand for this type of transaction and is just testing the waters before making a bigger splash”
  • Matthew Ballensweig, managing director of crypto prime brokerage Genesis believes the demand is already there, telling Bloomberg “We are exploring similar structures with large investment banks that want exposure to the space”
  • Goldman continue to deepen their involvement in the digital asset space; at the Financial Times Crypto and Digital Assets summit last week, they confirmed an intention to leverage NFT technology for “tokenisation of real assets”
  • Mathew McDermott, Goldman’s head of digital assets, told conference attendees “We are actually exploring NFTs in the context of financial instruments, and actually there the power is actually quite powerful. So we work on a number of things”
  • In other loan-collateralisation news, digital asset lender Nexo issued a loan worth $3.3m in Ether, backed by several rare and valuable NFTs as collateral, identifying it in a press release as a “merge between traditional, decentralised and crypto finance”

What happened: Jane Street moves into crypto via $25m DeFi loan

How is this significant?
  • Wall Street trading giants Jane Street made their first move into decentralised finance (DeFi) this week, taking out an initial $25m loan issued in the Ethereum-based USDC stablecoin
  • The company plans to scale up the loan to $50m, borrowing from crypto firm BlockTower, executing the loan through DeFi marketplace Clearpool, which provides uncollateralised liquidity from a network of lenders at an institutional level
  • Clearpool has backing from VC giants like Sequoia and Arrington capital, and their CEO claims “high single-digits of traditional financial institutions that are almost ready to go” in using their services
  • Clearpool CEO Robert Alcorn believes the move puts Jane Street on the cutting edge of institutional involvement; “This is the first traditional financial institution on Wall Street that has made this step—this almost opens the floodgates... Others are going to go from watching this space to considering it seriously”
  • BlockTower Capital general partner Sanat Rao agreed about potential growth for this new institutional exposure platform; “One of the new things we started doing is what we call real-world lending… We are basically taking crypto capital and lending it to someone who is not directly in the crypto space. It’s a brand-new use case”
  • In January, Jane Street identified the digital asset industry as “a clear growth area” and noted an all-time high in employees dedicated to the space

What happened: Virginia pension fund considers earning yield from DeFi platforms

How is this significant?
  • After last week’s news about Fort Worth Texas mining Bitcoin, more municipal potential emerged this week, as Katherine Molnar, Chief Investment Officer for Fairfax County’s police retirement fund in the US State of Virginia, revealed that they have earmarked pension funds for use on DeFi protocols
  • If approved, funds will provide liquidity on decentralised crypto exchanges, where Molnar estimates they should earn an annual yield of around 9%
  • Fairfax County has been progressive in their exposure to digital asset investment thus far—about 8% of their total assets are currently tied to crypto, after their police and county employee retirement funds last year invested a cumulative $50m into a fund buying digital tokens and crypto asset derivatives
  • Molnar identified the area as “a growth investment” for the retirement funds

What happened: VanEck and Starbucks both announce utility-driven NFT launches

How is this significant?
  • Investment manager VanEck, and global caffeination behemoth Starbucks may not share much in common at first glance, but this week they both revealed the creation of NFT creations aimed at delivering benefits and utility to their communities
  • VanEck was slightly more forthcoming in terms of details, announcing a collection of 1,000 NFTs “designed to showcase the real-world utility inherent in the NFT structure”
  • These NFTs will launch on the Ethereum blockchain, tell the story of a character exploring “the past, present and future of monetary policy” and exist in three rarity tiers; common (750 NFTs), rare (230 NFTs), and legendary (20 NFTs)
  • The NFTs will “function like a digital membership card”, offering a variety of opportunities according to their rarity tier, providing holders with benefits like early access to research, and in-person invitations to live events
  • This marks the first issuance of NFTs by a global asset manager
  • Starbucks meanwhile spoke about the role of NFTs in creating “the digital third space”, replicating the role of their bricks-and-mortar outlets as a “third space” between work and home
  • Starbucks NFTs will also grant special perks to customers, with their official blog writing “we are fascinated by how NFTs allow people to own a programmable, brandable digital asset, that also doubles as an access pass. We believe NFTs have broad potential to create an expanded, shared-ownership model for loyalty, the offering of unique experiences, community building, storytelling, and customer engagement”
  • On their fiscal Q2 2022 call, CMO Brady Brewer told investors “Emerging technologies associated with Web3, and specifically NFTs, now enable this aspiration and allow us to extend who Starbucks has always been at our core”

What happened: More major executives make leap into digital asset space

How is this significant?
  • As has become commonplace recently, major talent from traditional finance institutions were recruited into roles with digital asset companies this week, showcasing the dynamic allure of the new asset class
  • Private equity giant Apollo ($498bn AUM) recruited JP Morgan’s former head of digital assets, Christine Moy, to head up their newly-created digital assets strategy
  • The role will involve the application of blockchain technology to the firm’s own practices, as well as “investing in some of the most innovative digital asset companies and founders, with a specific focus on those transforming the financial services sector where Apollo can serve as a validator and enabler of new technologies”
  • Apollo are looking “beyond Bitcoin”, with deputy Chief Investment Officer John Zito telling the publication the firm are “huge believers in the digital-asset ecosystem, its potential to transform the financial-services industry broadly”
  • Their investment thesis will involve heavily backing “specific companies, specific founders, all those who have interesting digital asset ideas”, investing between $50m to $250m depending on the project
  • Industry publication TheBlock reported that Christine Sandler, a former crypto division executive at Fidelity, has left the company to take up a new role as general partner at crypto asset investment firm Walden Bridge Capital
  • Sandler noted that in her time at Fidelity, the company’s digital asset division grew by over 400% in 2020, saying “Our overall account growth was absolutely phenomenal… We saw participation across all segments… corporations adopting it and putting assets on their balance sheet, or hedge funds beginning to approach this from a strategic perspective, registered investment advisors, family offices, ultra-high net worth individuals”

What happened: Square Enix sells off $300m of IP and studios to fund blockchain gaming

How is this significant?
  • In a press release this week, triple-A Japanese video game developers Square Enix announced some major asset sales to enable “the launch of new businesses by moving forward with investments in fields including blockchain”
  • The company struck a deal worth $300m with Sweden’s Embracer corp, including the transfer of the popular Tomb Raider and Deus Ex video game franchises (above 100 million units sold worldwide)
  • Despite a fair amount of scepticism from dedicated gamers and the gaming press, Square Enix chairman Yosuke Matsuda is a strong supporter for the potential of NFTs to increase gameplay possibilities in video games, identifying them as an area of particular interest in the company’s traditional New Year’s letter

What happened: More digital asset VCs complete funding raises

How is this significant?
  • After Dragonfly Capital successfully raised $650m for a new digital asset VC fund in late April, several more VC raises were announced this week
  • Archetype closed a $150m funding round on May 2nd, concentrated on early-stage investments
  • General partner Ash Regan confirmed the fund would allocate funds towards both equity investments, and direct token purchases
  • Pangea Fund Management confirmed their launch with an $85m fund, backed by Bain Capital, Alameda Research, and Union Square Ventures
  • Founded by a couple of industry veterans, Pangea will take a unique approach of setting up “long-only” positions in between three and seven established tokens, eschewing a lot of the current VC enthusiasm for early-stage investment
  • Co-founder Ryan Watkins explains that “Our thesis is that in the long run, there’ll be very few winners in each category… So for us, we’d much rather bet on some of the early winners we’re seeing”

What happened: World’s largest family-owned private bank offers digital assets to clients

How is this significant?
  • LGT, a private bank owned by the princely house of Liechtenstein, partnered with Switzerland’s SEBA Bank this week to offer digital asset access to their clientele
  • Services will be available to LGT clients domiciled in Liechtenstein and Switzerland, provided they qualify as professional clients, or are managed by an external asset manager
  • In a press release from SEBA announcing the partnership, it was revealed that LGT would launch custody and trading services for Bitcoin and Ether, with additional digital assets to be added based on client demand
  • LGT Bank CEO Roland Matt told the press “The demand for cryptocurrencies has also increased among our clients in recent years. We are very pleased that we can now offer our client easy access to these asset class”
  • According to SEBA’s Mathias Schütz, LGT has plans to roll out access to overseas clients “over the next couple of months”; “LGT is also seeing demand from relationship managers to expand the offering to Singapore and other locations. For instance, they have a representative office in the UAE, in Dubai. So they also want to bring those locations into the play”
  • LGT currently manages over 280bn Swiss Francs in assets globally

What happened: Dubai digital asset regulators establish metaverse presence

How is this significant?
  • Following on from consumer brands like Adidas and banks like HSBC establishing a virtual presence on metaverse platforms like Decentraland and The Sandbox, a regional regulator has now joined in the movement
  • Aptly, Dubai’s Virtual Assets Regulatory Authority (VARA) will now be visible in The Sandbox, as part of the UAE’s efforts to become a global hub for the digital asset industry
  • Emirati crown prince and executive council chairman Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum spoke enthusiastically about the potential of the industry; “Dubai maintains a leading position at the forefront of technological transformation…VARA joins the Metaverse to become Dubai's—and the Metaverse's—first government authority, ushering in a new era in which Dubai Government utilises modern innovations to extend its services and regulatory power to audiences in an open technological expanse, without constraints or borders.”
  • He also stated that the Emirate has long-term plans for the industry; “VARA represents a serious effort to build a new, powerful economic sector that contributes to the nation's economy and creates new investment opportunities… Our presence in the Metaverse therefore marks the beginning of a new phase in the Dubai Government's march for the future; one that will have a positive impact in the long run”
  • Dubai’s open approach to digital assets and regulation may be having its desired effect, as Asian rival Singapore adopts a more cautious regulatory approach; Three Arrows Capital, a crypto hedge fund founded in Singapore, announced a shift of its headquarters to Dubai due to greater regulatory freedom

What happened: Argentinian banks offer digital asset investment to customers

How is this significant?
  • Two major Argentinian banks this week announced integration of digital asset services for clients, taking advantage of enthusiasm towards the asset class in a company repeatedly suffering from high inflation
  • Bloomberg reported on Tuesday that “Banco Galicia, the country’s largest private bank by market value, and digital bank Brubank SAU will allow their customers to purchase crypto including Bitcoin, Ether and USDC starting Monday”
  • The move is heavily driven by client demand; Banco Galicia representatives revealed that in a recent survey, 60% of customers requested easy access to digital assets through their banking platforms
  • According to Chanalysis data, Argentina currently ranks within the top 10 countries in the world for overall crypto asset adoption, with two-thirds of crypto investors citing protection of capital against diminishing purchasing power as their motivation
  • This functionality will initially be limited to customers who receive their salaries by direct deposit, in an attempt to ensure more white-collar access
  • In other news from Latin America, politicians in Panama approved a bill permitting and regulating a wide range of activities with digital assets, including payment of taxes, “issuance of digital securities, new payment systems and the tokenization of precious metals”
  • Allowing digital assets to be used for “for any civil or commercial operation not prohibited by law” appears to come close to granting them legal tender status, as seen in El Salvador and the Central African Republic
News Roundups