Nickel Research Centre

Nickel News Roundup - Week 9

4th March, 2021

Market Overview:

The digital assets market returned to growth this week, after a short period of consolidation in late February.

  • Bitcoin rose significantly in value during the week, crossing $50,000 on Wednesday en route to a weekly high of $53,400. Bitcoin is valued at $49,330 at the time of writing
  • Ethereum also recovered, with a weekly high of $1,670 and a current value of $1,555
  • There was strong performance amongst altcoins as well; the four best performers in the top 100 by market cap were all NFT-based projects, demonstrating the increased appeal and awareness around non-fungible tokens. Enjin Coin, the leading NFT project, increased by over 140% during the week
  • Overall market cap grew to a high of $1.56tn, up from $1.5tn the week before
  • The DeFi sector recovered to new highs of just under $49.9bn during the week with a current Total Value Locked of $48.8bn across Bitcoin and Ethereum, up almost $3bn over 7 days

Digital assets bounced back after a week of correction and consolidation, spurred by recognition from Citi, Fidelity, and prominent hedge fund managers, alongside moves from major investment banks including JP Morgan and Goldman Sachs. We witnessed extensive industry developments, more regulatory clarity, and increasing end user adoption.

What happened: CitiGroup publishes report stating Bitcoin is at a “tipping point” as a currency of international trade

How is this significant?

  • On Monday, Citi’s Global Perspectives and Solutions arm published a 108 page report about Bitcoin, concluding that it has reached a “tipping point” thanks to increasingly widespread adoption and institutional recognition
  • The report notes that due to several of the key properties of blockchain technology (decentralisation, transparency, speed and cost of value transfer, lack of foreign exchange exposure), “Bitcoin’s global reach and neutrality could spur it to become the currency of choice for international trade”
  • The economic design theory behind Bitcoin proves compelling to Citi analysts; “the biggest change with Bitcoin is the shift from it being primarily a retail-focused endeavor to something that looks attractive for institutional investors. In a search for yield and alternative assets, investors are drawn to Bitcoin’s inflation hedging properties and it is recognized as a source of ‘digital gold’ due to its finite supply”
  • Bitcoin is pinpointed as “the North Star” of the digital asset space and is “a compass for the evolution of a broader ecosystem of crypto commerce”, whilst the success of digital assets is spurring more central banks into the development of digital currencies
  • Based on data showcasing increased adoption, improved exchange services, and better custody options for institutional investors, Citi’s report remarks that the progression of Bitcoin within a decade has been “remarkable”, and that in terms of wider understanding and acceptance of digital assets “All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident.”
  • In conclusion, Citi state “Large institutional investors and organizations are choosing to participate in and support Bitcoin. Regulators are beginning to lay the groundwork for the asset to potentially enter the mainstream. Governments themselves are being pressured and many are re-considering their own currency offerings. The vision of Bitcoin as a force that will transform the world may seem self-evident in just a few more years”

What happened: SEC Chair nominee Gary Gensler speaks positively about digital assets in congressional hearing

How is this significant?

  • As Biden’s nominee for chair of the SEC, Gary Gensler this week underwent the largely-routine process of a confirmation hearing before the Senate Committee on Banking, Housing and Urban Affairs
  • If (as appears likely) Gensler is confirmed to the role, he will have enormous influence in terms of regulation of crypto assets within American markets
  • Speaking about digital assets, Gensler referred to his learnings as professor of blockchain at MIT; “these innovations have been a catalyst for change. Bitcoin and other cryptocurrencies have brought new thinking to payments and financial inclusion, but also they’ve also raised new issues of investor protection that we still need to attend to“
  • When asked what Congress and the SEC can do to promote “a more forward-thinking environment” for the digital asset space, Gensler said “if confirmed at the SEC, I’d work with fellow commissioners to both promote the new innovation but also at the core ensure for investor protection”

What happened: Goldman Sachs (re)opens crypto trading desk

How is this significant?

  • According to a report from Reuters this week, Goldman Sachs has opened a crypto asset trading desk, with the intent to deal in “bitcoin futures and non-deliverable forwards” for customers from next week onwards
  • Technically, this actually represents a re-opening of this trading desk, having previously opened one during 2018, when a market decline dampened investor enthusiasm
  • Since then, the market has matured, amidst far greater institutional interest than the speculation-driven run-up of late 2017/early 2018. 
  • Reuters note that digital assets rising legitimacy has made “coin and related derivatives attractive for investors willing to take riskier long or short positions as they hunt for yield in a record-low interest rate environment”
  • According to Reuters’ source, this may just be the first step in a wider move towards digital assets from Goldman; “The team will sit within the U.S. bank’s Global Markets division… As part of this work, the bank is also exploring the potential for a Bitcoin exchange traded fund and has issued a request for information to explore digital asset custody”

What happened: PayPal to bid $500m for acquisition of crypto asset custody firm Curv 

How is this significant?

  • PayPal is one of the largest payment processors online, and news of their digital asset integration back in October (when Bitcoin was valued at $12,000) was seen by many as a milestone in institutional adoption
  • Now, reports have emerged that PayPal are in the process of acquiring Israel-based crypto custody specialists Curv, in a deal worth as much as $500m according to sources
  • Acquiring Curv will give PayPal more expertise in ultra-secure storage of crypto assets, after an alleged $750m cash offer late last year to crypto trading and custody company BitGo was rejected
  • According to a source speaking to industry news platform Coindesk, “PayPal has made some great acquisitions in the past such as Vemno, and now they want to own something in crypto”

What happened: Fidelity’s global head of Macro publishes “Understanding Bitcoin” note to investors 

How is this significant?

  • This week, Fidelity’s Jurrien Timmer joined the institutional voices identifying Bitcoin as “digital gold”, saying “In my view, Bitcoin has gone mainstream” noting that “Among an increasing number of investors and portfolio managers, Bitcoin is considered a legitimate and distinct asset class”
  • Bitcoin’s finite supply and issuance rate is a key part of its value proposition according to Timmer, with demand continuing to increase “exponentially”
  • The note also stated that although it has some risks form volatility, “In my view, some investors may wish to consider Bitcoin, alongside other alternatives, as one component of the bond side of a 60/40 stock/bond portfolio”
  • Timmer also acknowledges the “Stock to Flow” valuation model of Bitcoin, writing “S2F is a popular valuation approach among Bitcoin’s most vocal proponents. The model simply measures the number of years (flow) needed to replace the current supply (stock). A high S2F is deemed bullish, as it indicates scarcity, and vice versa”

What happened: JP Morgan analysts endorse Bitcoin as a hedge in portfolio allocations

How is this significant?

  • Strategists at JP Morgan officially endorsed Bitcoin in a client note this week—albeit in conservative amounts
  • According to JP Morgan strategists Joyce Chang and Amy Ho, “In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio”
  • JP Morgan further added that crypto assets should generally be treated as investment vehicles, rather than funding currencies like Euros, Dollars, or Yen
  • This advice adds to a growing consensus around digital assets such as Bitcoin performing well as a portfolio hedge option against fluctuations in traditional asset classes like bonds and commodities 

What happened: Data shows level of institutional investment in digital assets is creating a supply shortage

How is this significant?

  • According to the weekly newsletter of crypto analytics firm Glassnode, Bitcoin’s “liquid supply change” (the amount by which the number of coins in circulation on exchanges, rather than in private wallets, has changed over the last 30 days) could have an impact on available supply for investors
  • Glassnode write that a negative liquid supply change “has never happened before for such an extended period of time, and as mentioned many times before could lead to a massive supply squeeze soon”
  • They also note that the recent correction didn’t cause a scramble to secure profits, as more investors seem to exhibit a long-term horizon; “Long term holders seem to be less worried about this pullback than the previous one from $42k down to $29k, as they are not reducing their positions nor taking profits as aggressively as in January”
  • They also wrote that shifting levels of liquid supply reflect a greater maturity in the market than before: “this time short term holders are fundamentally different than in the 2017 bull run. Institutions that are accumulating strategic positions for the long run, will likely not be flooding the market with supply at the later stages this year. So in part, the new short term holders are also long term holders”

What happened: Hedge Fund manager Dan Loeb’s announces “deep dive” on digital assetshires pro-crypto Goldman Sachs analyst

How is this significant?

  • On Monday, Third Point CEO Loeb announced in a series of tweets that he was exploring crypto assets, writing that “I’ve been doing a deep dive into crypto lately. It is a real test of being intellectually open to new and controversial ideas”
  • He also tweeted that “Another conflict to overcome is the idea that being late to the crypto party will inevitably lead to one taking the sucker seat at a high stakes poker table versus this still being early days in what is just now being adopted in the mainstream”
  • A day later, it was announced that Third Point had hired Heath Terry, the technology unit leader for Global Investment Research at Goldman Sachs
  • Terry has a history of positive commentary towards crypto assets, noting as far back as 2015 that Bitcoin was “going to mature and see new use cases”, calling it ”hard to see a world where blockchain technology doesn't change the way we think about asset ownership ”
  • Loeb’s New York-based fund could be a significant new entry into the digital asset space, with a current $14bn in assets under management

What happened: Digital Yuan to feature on agenda of China’s “Two Sessions” meeting of lawmakers

How is this significant?

  • The “Two Sessions” are a crucial part of China’s legislative calendar, convening the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC), involving 5,000 politicians determining national policies
  • According to the Chinese state-run newspaper, Global Times, the country’s planned CBDC “is expected to be highlighted at the forthcoming annual two sessions after being written into multiple regional governments' annual work reports”
  • Global Times characterised the development of CBDCs as a “global race” with Beijing concentrating on having a fully functional system in time for the Winter Olympics 
  • Chen Chunxing, a CPPCC member, told Global Times that “Many private companies expect the digital yuan to be introduced officially as early as possible, as it can make market competition more open and standardized”
  • Wang Peng, an assistant professor at Renmin University was quoted by the paper as saying “Against the backdrop of China's financial reform, the digital yuan will become an effective means to supervise fintech and online payment platforms”

What happened: Leading Swiss bank introduces crypto trading facilities

How is this significant?

  • Bordier and Cie, a Swiss private bank founded in 1844, announced this week that they now offer crypto asset purchase and trading to their clients
  • Bordier’s press release noted that “Total market capitalisation of cryptocurrencies increased almost four-fold in 2020, making it the best-performing asset class and a powerful tool for portfolio diversification – thus also increasing client-demand”
  • Evrard Bordier, Bordier & Cie’s Managing Partner, says the move into digital assets was driven by consumer demand; “We have seen increasing demand from our clients to diversify into alternative asset classes such as digital assets… we are providing our clients* with a one-stop, integrated solution while empowering them to invest in this new, high growth asset class with complete trust”

What happened: AON insurance introduces services for DeFi

How is this significant?

  • The world’s second-largest insurance intermediary AON was reported this week to have made its first steps into the world of decentralised finance (DeFi)
  • In collaboration with smart contract specialists Nayms and specialist insurer Relm, the pilot project with AON aims to underwrite crypto-specific risks, and “will mark the first tokenised, or blockchain-enabled, placement of insurance ever conducted with regulated, professional insurance entities”
  • Benjamin Peach, Associate Director & Digital Assets Specialist at Aon, said “Aon is committed to embracing technology and is constantly developing its offering for our growing client base in the digital asset space… we are taking the first step to creating a platform for digital asset companies to scale up their cover efficiently and cost effectively as the market continues to expand

What happened: US-based crypto exchange Kraken undertakes funding on a $10bn valuation

How is this significant?

  • Following the recent news of Coinbase having an implied valuation of $100bn based on NASDAQ private market trading, it emerged that week that another major American exchange, Kraken, is also undertaking a funding raise
  • According to reporting on Bloomberg, Kraken is in talks with investors including Fidelity, General Atlantic, and Tribe Capital
  • Whilst the intended raise would double its valuation to $10bn, depending on demand the raise could go up to $20bn according to sources
  • Recent data indicates that Kraken processes about $2bn in daily trades, compared to $3.45bn by Coinbase

What happened: Amazon managed blockchain services add support for Ethereum

How is this significant?

  • On Tuesday, Amazon announced “general availability of Ethereum on Amazon Managed Blockchain”; meaning that it’s become easier for people to host Ethereum nodes via Amazon web services
  • These services by Amazon will be hosted in various locations across North America, Asia-Pacific, and Europe, helping to maintain the wide geographic distribution and systematic separation of nodes necessary for network security
  • With Ethereum moving to a proof-of-stake consensus protocol, this service could help more entities become validators on the network, removing the need to both acquire expensive hardware, and many of the logistical complexities in creating a node

What happened: Google Finance adds tabs for cryptocurrency data

How is this significant?

  • As the internet’s foremost search engine, Google’s move towards providing crypto information on its finance site is a further indication of increased mainstream adoption for digital assets
  • At launch, it only displays data for four major crypto assets; Bitcoin, Ethereum, Litecoin, and Bitcoin Cash, displayed in local market prices
  • Alongside price data, each selected crypto asset also displays market news sourced from around the web
News Roundups