Nickel Research Centre

Nickel News Roundup - Week 10

10th March, 2022 

Market Overview:

Digital assets shed some of last week’s gains amidst macroeconomic uncertainties, but bounced back slightly with positive regulatory recognition.

  • Bitcoin declined over the weekend as military conflict in Ukraine and resultant sanctions against Russia continued to cast a global shadow
  • Bitcoin dropped to a weekly low of $37,290 on Monday, but rallied sharply on Tuesday evening as news about a benign Biden administration executive order on crypto assets was leaked via the Treasury department website
  • Bitcoin’s recovery took it up to a high of $42,370 early on Wednesday, before slipping below $40,000 on Thursday morning, with current prices of $39,020 marking a 10.4% drop from last week’s strong growth
  • Despite falling in dollar value over the weekend, Bitcoin reached a new all-time high against the Ruble, soon after  Visa and Mastercard suspended operations in Russia
  • Trade volumes against the Ruble fell however, undermining concerns that crypto assets might be used as an avenue to evade sanctions
  • Coinbase released a blog post on crypto technology enhancing sanctions efforts, blocking “over 25,000 addresses related to Russian individuals or entities” 
  • Ether once again performed in tandem with Bitcoin, hitting a low of $2,458 on Monday, before recovering to $2,762 on Tuesday
  • Ether is currently priced at $2,583; an 11.3% decline from last week
  • Total market capitalisation dropped to $1.75tn 
  • Total value locked in DeFi remained steady, with only minor losses to $74bn, according to industry analytics platform DeFi Pulse

War in Ukraine continued to influence markets this week, as growing sanctions and military conflict led to investor skittishness. However, a broadly positive executive order from the White House returned some confidence to digital asset investors, alongside a raft of positive news featuring names like Bain Capital, Goldman Sachs, Santander, Credit Suisse, Tencent, and Temasek Holdings.


What happened: Bain Capital launches $560m Crypto Fund

How is this significant?
  • Bain Capital Ventures ($105bn AUM) announced the launch of Bain Capital Crypto this week, a division dedicated to investment in the digital asset space
  • Their BCV Fund I actually closed in December, raised $560m, and has thus far invested around $100m into 12 projects, although Bain Capital representatives declined to comment how and where they allocated
  • The fund is being run by managing partner Stefan Cohen, who commented “We have high conviction we are at the beginning of a multi-decade technology shift…We really needed a dedicated team and a dedicated fund structure. That’s really what led to the addition of Bain Capital Crypto”
  • Another managing partner commented that they see themselves as “long-term believers” with a decade-long investment horizon
  • Additionally, their strategy features multiple means of exposure, including equity, token allocations, liquidity contributions, and even governance participation in so-called DAO (Decentralised Autonomous Organisation) projects common in the world of DeFi

What happened: Biden administration issues innovation-friendly executive order on crypto

How is this significant?
  • On Wednesday, the White House released an executive order on digital assets, hailed as “historic” by Treasury Secretary Janet Yellen, and warmly received within the digital asset industry too, with industry media calling it “fairly benign”
  • Yellen said in a statement on the Treasury website that the order strikes a balance between the importance of supporting innovation, and the need to ensure rigorous consumer protection
  • Alongside confirmation of digital dollar development efforts proceeding with “great urgency”, the executive order focused on six key areas; consumer protection, financial stability, illicit activity, U.S. competitiveness, financial inclusion and responsible innovation
  • Of particular note is perhaps the Department of Commerce’s task in “establishing a framework to drive U.S. competitiveness and leadership in, and leveraging of digital asset technologies”
  • White House National Economic Council director Brian Dees stated that the order will “reinforce U.S. leadership in the global financial system and safeguard the long-term efficacy of critical national security tools like sanctions and anti-money laundering frameworks… [and] identifies the Administration’s policy priorities, both for cryptocurrencies and any future U.S. central bank digital currency, to help guide the evolution of the digital asset ecosystem in a way that is consistent with our values”
  • The order requires federal agencies to run studies—varying in duration from three months to a year, depending on the subject—on a variety of factors from consumer protection to climate impact, but stopped short on providing any absolute clarity on forthcoming regulation
  • Although there was some criticism that the order was vague in areas, it was nonetheless recognised as “the kind of signal that the Washington, D.C., establishment is becoming more comfortable with cryptos and that is bullish”
  • Jeremy Allaire, CEO of Circle (issuers of the USDC stablecoin) spoke favourably about the order, dubbing it “a watershed moment for crypto and Web3, akin to when the government in the 90s realized the commercial power of the internet”

What happened: Goldman Sachs offers clients Ether exposure

How is this significant?
  • According to regulatory filings on Tuesday, Goldman Sachs are expanding their clients’ potential digital asset exposure by offering them access to Galaxy Digital’s Institutional Ethereum Fund
  • They are one of several institutional entities offering exposure to this fund, with the filing noting that “Goldman Sachs & Co. LLC will receive an introduction fee” for any clients who use the investment vehicle
  • This builds on previous access to Bitcoin exposure, which Goldman introduced last year
  • The fund comes with a minimum investment of $250,000, and has thus far attracted $50m investment from 28 clients, although it cannot be ascertained from the documents how many invested via Goldman Sachs

What happened: Nickel Digital releases new report on Professional Investors in digital assets

How is this significant?
  • This week, Nickel Digital released the findings from a digital asset survey of 100 professional investors, managing a combined $110bn worth of assets
  • The results revealed a broad enthusiasm for involvement in the digital asset space; nearly three-quarters of respondents for example view Bitcoin as a legitimate hedge against inflation, due to its finite issuance
  • 78% believed that Bitcoin’s favourable supply-side dynamics will yield more institutional investment in the asset
  • They almost unanimously agreed the asset class has grown too big to ignore—91% of respondents believed that digital assets are becoming more mainstream
  • Covid-19 marked a turning point in institutional investors’ awareness and perception of digital assets; 78% “now have a positive or constructive view of Bitcoin”, a figure nearly mirrored at 77% saying the same for Ethereum

What happened: Santander issues tokenised commodity-backed loans

How is this significant?
  • Spanish bank Santander agreed a deal with an Argentinian company this week, on the issuance of “agrotokens” backed by a ton of soy, corn, or wheat
  • The SOYA, CORA, and WHEA agrotokens allow farmers to utilise their crops in multiple ways; “trading them on a traditional commodities exchange; trading them on a cryptocurrency exchange; using them as collateral for loans; and paying for agriculture-related goods and services at participating merchants”
  • Agrotoken recently featured as a case study for Accenture, who praised the development of “new financial options to the multi-trillion-dollar agribusiness sector by letting farmers convert tons of soybean crops into a commodity-backed stablecoin that could be spent with merchants and investors”
  • Now, in a 1,000 farmer test alongside Santander, farmers will generate tokens by selling them to grain elevators in a Proof of Grain Reserve test (thereby verifying the authenticity of the backing), allowing them to use the tokens as collateral for loans
  • In a blog post, Santander said that the agrotoken system “will allow farmers and the agro ecosystem to have easy and fluid access to a new financing system, expanding credit capacity by using tokenised grains”
  • When farmers agree a loan with Santander, the tokens (proving the farmers’ collateral) are held in escrow on a smart contract, until the credit is repaid with either government currency, or crypto assets

What happened: Credit Suisse analysts predict Bitcoin benefits from macroeconomic upheaval

How is this significant?
  • A new Credit Suisse report this week, authored by former Federal Reserve official Zoltan Pozsar, posited that current global economic conditions and supply tensions could ultimately benefit Bitcoin
  • He wrote that recent G7 sanctions against Russia illustrate a “commodities crisis” which could signal the end of the current global monetary order; “Bretton Woods II was built on inside money, and its foundations crumbled a week ago when the G7 seized Russia’s FX reserves”
  • He further argued “We are witnessing the birth of Bretton Woods III—a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West”
  • The cost of sanctions now could have very long-term geopolitical and geofinancial consequences according to Pozsar; “If you believe that the West can craft sanctions that maximise pain for Russia while minimising financial stability risks and price stability risks in the West, you could also believe in unicorns”
  • He predicts a knock-on effect in terms of dollar hegemony and rising inflation, drawing parallels to the Nixon Shock; “This crisis is not like anything we have seen since President Nixon took the U.S. dollar off gold in 1971—the end of the era of commodity-based money”
  • Pozsar concluded that “After this war is over, “money” will never be the same again…and Bitcoin (if it still exists then) will probably benefit from all this”
  • These views were somewhat echoed by Piyush Gupta, CEO of Singapore’s leading bank DBS, who this week stated that “I do think that private money (crypto) will continue to grow as a meaningful store of value, much like gold is today”

What happened: NFT developers Immutable backed by Temasek in $2.5bn valuation

How is this significant?
  • Singapore’s sovereign wealth fund Temasek followed up their recent investment in Amber Group with another major digital asset investment this week, as they led a $200m investment round into Australian NFT and Ethereum scaling startup Immutable
  • This new Series C round bestowed “unicorn” status upon Immutable, bringing their valuation to $2.5bn
  • According to reporting in Singapore’s Business Times newspaper, Immutable will use funding to more than double headcount over the next year, expand into new verticals, explore potential acquisitions, and scale their platform to meet growing demand
  • Other investors included Chinese gaming giant Tencent, and Liberty Global
  • Immutable held a $15m Series A round in 2019, followed by a $60m investment round last year

What happened: Alan Howard and Paul Tudor Jones increase crypto asset exposure

How is this significant?
  • According to a Wall Street Journal report this week, prominent hedge fund billionaires Alan Howard and Paul Tudor Jones have both been increasing their financial allocations toward the digital asset space
  • Sources told the WSJ that firms owned by both billionaires are “expanding their crypto trading”
  • The paper notes the creation of BH Digital as a crypto-specific entity of Brevan Howard with a $250m warchest to invest in digital assets, whilst Tudor Jones “has been buying cryptocurrencies to try to protect against rising inflation”
  • Institutional presence in the space is growing exponentially, according to Coinbase data cited in the article; “institutional investors as a whole traded $1.14 trillion of cryptocurrencies in 2021, up from $120 billion the year before, and more than twice the $535 billion for individual investors”
  • Mina Nguyen of Wall Street giants Jump Capital (who recently set up a crypto-specific subsidiary) believes the current trend points towards more growth; “A wider range of funds are getting in and trading more”
  • Strong growth means that “More funds see crypto as a fifth asset class”, alongside the traditional grouping of bonds, commodities, currencies, and stocks
  • Despite this massive rise in overall value and legitimacy, the WSJ writes that the space is still young enough to offer ample opportunities; “Unlike stocks, bonds and other traditional asset classes, the crypto market is relatively new with ample ‘inefficiencies’, or opportunities for big firms with access to timely and accurate information to profit… Wall Street firms haven’t established dominance, creating potential opportunities for new players”
  • Interestingly, the paper also frames the market’s oft-maligned volatility as a possible benefit, writing that “Most hedge funds are avoiding shorting cryptocurrencies… worried that these currencies might shoot up in price, leading to quick and big losses”
News Roundups