Nickel Research Centre

Nickel News Roundup - Week 27

8th July, 2021 

Market Overview:

Digital assets performed strongly this week before a pullback early on Thursday reduced most gains, with steady performance by Bitcoin supplemented by bullish performance across many major altcoins.

  • Bitcoin exhibited less volatility than in recent weeks, primarily trading within a relatively tight range between $33,000 and $35,000, but unable to break past $36,000, with a high of $35,910. After a dip on Thursday morning, Bitcoin is currently trading at $32,400
  • Ether posted an approximate weekly growth of 1.3%, recovering from lows of $2,026 on Friday to highs of $2,390 on Wednesday, before pulling back on Thursday to current levels around $2,170
  • The overall market capitalisation of digital assets grew slightly in line with the positive altcoin momentum, to $1.5tn, before correcting to the previous week’s levels on Thursday
  • The total value locked in the DeFi sector grew to $64.4bn driven by the appreciation of Ether’s value

Digital assets recovered from last week’s declines, with growth from Ethereum offsetting a generally-steady week for Bitcoin. Adoption, investment, and development continued globally, including long-term bullishness from institutional investors, hundreds of millions in funding from traditional finance, moves into the space by major hedge funds, and increased integration of digital assets into banking infrastructure.


What happened: $55bn hedge fund moves into digital assets

How is this significant?
  • This week, the Financial Times reported that UK-based hedge fund Marshall Wace ($55bn AUM) is moving into the digital asset space
  • According to sources consulted by the FT, the fund has several key areas of focus for their investments; “blockchain technology, digital currency payment systems, and stablecoins”
  • Sources also reported that the firm’s strategy would be based around investments in digital asset companies towards the latter end of the development process
  • This isn’t Marshall Wace’s first foray into crypto asset investment; in May they were part of a $440m financing round for leading stablecoin developer Circle, alongside other major institutions like Fidelity, Breyer Capital, and the Digital Currency Group
  • Although the amount they plan to allocate towards digital asset investment hasn’t been publicly disclosed, Marshall Wace’s moves into the space provide further evidence of the potential seen by hedge funds; following other major firms like Brevan Howard and Skybridge Capital

What happened: Goldman Sachs praises Ether’s potential as a Store of Value

How is this significant?
  • On Tuesday, Goldman Sachs issued a note to clients predicting that Ethereum has the greatest chance of any digital asset to overtake Bitcoin
  • Goldman analysts believe that Ethereum has the most potential in terms of use-cases, due to its status as the most popular smart contract platform for developers and users
  • The network effects of enterprises and projects building on top of Ethereum (particularly with its forthcoming ETH 2.0 upgrade) could thus drive enough demand for Ether to elevate it above Bitcoin as a store of value, according to the note
  • The note also outlined Goldman Sachs’ current position on the gold versus digital assets debate, stating that “We view gold as a defensive inflation hedge and crypto as a risk-on inflation hedge”

What happened: Institutional investors expect to increase digital asset exposure within 2 years

How is this significant?
  • A new survey commissioned by Nickel Digital this week revealed that the vast majority of respondents plan to increase their exposure to crypto assets by 2023
  • The survey of institutional investors and wealth managers across the UK, France, Germany, USA, and UAE found that 82% planned to increase their digital asset holdings in the near future
  • When asked why they planned to increase their portfolio allocations, 58% of respondents cited the “long-term capital growth prospects of cryptocurrencies and digital assets”, whilst 34% said that “an improving regulatory environment” gave them more confidence in the asset class
  • Nickel co-founder and CEO Anatoly Crachilov said that the survey results confirmed a wider trend amongst informed investors; “The number of institutional investors and corporates holding bitcoin and other crypto assets is growing and their confidence in the asset class is also increasing”
  • In another survey released this week, a majority (56%) of respondents questioned by CNBC believed that Bitcoin would close the year above current levels

What happened: Crypto-friendly platforms in line for big investment from traditional finance

How is this significant?
  • This week saw several pieces of news regarding incoming investments for digital asset exchanges and crypto-friendly banking platforms
  • Brazilian digital asset exchange Mercado Bitcoin became the country’s first crypto unicorn, securing a $200m investment from Softbank, on a $2.1bn valuation
  • This marked Japanese banking giant Softbank’s “largest Series B investment in the cryptocurrency segment and the largest in the sector in Latin America”, according to a release by Mercado Bitcoin
  • This year, Mercado Bitcoin expanded its userbase to over 2.8m, more than a threefold increase since the 2017 digital asset bull market
  • A few days later, Sky News revealed that Softbank could break their new digital asset investment record, with their Vision 2 fund reported to be in talks with UK-based online bank (and digital asset platform) Revolut, for investment between $750m and $1bn
  • Revolut has been at the vanguard of digital asset services by banks, offering purchase and storage since 2017, and regularly adding new coins and tokens to their roster

What happened: Largest-ever Bitcoin mining difficulty drop sees increased revenues for miners 

How is this significant?
  • Due to the recent crackdown on Bitcoin mining in China, the network has lost significant amounts of hashpower as large Chinese mining farms have exited the sector—but this has brought benefits to miners elsewhere
  • According to data from monitoring resource, the steep drop in mining difficulty at the beginning of July (when the effect of Chinese farms shutting down could be realised), resulted in revenues for remaining miners jumping by approximately 50% within days
  • Blockchain analytics firm Glassnode noted that “Whilst the protocol’s now issuing the same number of coins as it regularly does, having difficulty wound down, we’re now in a situation where half the network has doubled their income and the other half of the network is essentially producing nothing”
  • Although the short-term reaction to reduced Chinese mining was painful, it could still have beneficial effects long-term, with more decentralised distribution of miners; tech billionaire Mike Novogratz commented that Bitcoin remained strong despite the drops precipitated by the Chinese restrictions; “The system worked how it was supposed to work. It is a very robust system that has been built in a small amount of time”
  • Industry publication TheBlock reported that Chinese miners are currently in the process of selling their mining hardware at wholesale prices

What happened: Regulatory efforts accelerate globally

How is this significant?
  • This week saw Binance, the world’s largest digital asset exchange, temporarily suspend several fiat on-ramps as they await and pursue regulatory clarity 
  • Binance CEO Changpeng “CZ” Zhao published an open letter, stating “clear regulations are critical for continued growth...More regulations are, in fact, positive signs that an industry is maturing, because this sets the foundation for a broader population to feel safe to participate in crypto... a well-developed legal and regulatory framework will be a solid foundation that truly makes crypto essential in everyone’s daily life”
  • Zhao also revealed that Binance have increased localisation efforts, grown their compliance team headcount by 500%, appointed eToro’s former head of compliance, and boosted AML efforts through partnerships with blockchain forensics firms like Ciphertrace
  • On the regulatory side, the American financial regulator FinCEN appointed their first-ever “chief digital currency advisor” on Tuesday, with the appointment of Michele Korver

What happened: Philippines Stock Exchange plans to enable digital asset trading

How is this significant?
  • This week, CNN reported that the Philippines Stock Exchange (PSE) is keen to add digital assets to their trading platform (pending regulatory approval)
  • PSE CEO Ramon Monzon believes they are uniquely placed within their nation to provide a secure trading environment; “If there should be any exchange for cryptos, it should be done at the PSE. Why? Number one, it's because we have the trading infrastructure. But more important, we'll be able to have investor protection safeguards especially with a product like crypto”
  • According to Monzon, the PSE are ready to roll out digital asset trading capabilities for Filipinos, as soon as they get the green light from the country’s SEC and other regulators

What happened: Visa makes strategic hires dedicated to digital assets

How is this significant?
  • Visa, the largest payments company in the world, continues to expand their recent integration of digital assets
  • According to a twitter thread by Visa’s head of digital assets, Cuy Sheffield, the company has made several major talent acquisitions recently to bolster their crypto capabilities
  • The hires and internal moves include regional heads, global go-to-market leads, and e-commerce specialists dedicated to the integration of non-fungible tokens into financial infrastructure
  • He also noted continued recruiting for a broad range of other positions, as the company continues to grow its digital asset expertise 
  • Sheffield also revealed that spending on Visa-issued crypto credit cards (converting digital assets into fiat currency at the time of purchase) exceeded $1bn in the first half of the year, telling industry publication Coindesk that “We think the first piece of this is being the bridge between the crypto wallets and our existing network of merchants. Then the next part is making it easier for our clients to issue and interact with those cards with things like being able to settle [in the dollar-pegged stablecoin] USDC”

What happened: e-bank N26 announces intention to integrate digital asset trading

How is this significant?
  • Reports in the German financial press this week revealed that Berlin-based online bank N26 (last valued at $3.5bn) are in the midst of building a crypto trading platform, to go live by the end of the year
  • Earlier this year, N26 CEO Valentin Stalf acknowledged that despite his own personal ambivalence “The customers want crypto”; and he intends to provide that service to their 7 million customers
  • According to an N26 spokesperson, the bank views digital assets as an increasingly accepted part of the financial landscape, saying “It is our aim to become the one-stop-app for our customer’s finances. We want customers to be able to access all of their financial services in one place, without having to sign-in through several different places. This will include saving products, loans, trading, taxes and crypto”
  • Speaking to industry publication TheBlock, the spokesperson further added “By observing consumer trends in crypto as well as regulatory landscape changes, we believe that we can bring great value to our customers by making crypto part of their banking experience with us”

What happened: Swiss bank becomes first to enable Ethereum 2.0 staking

How is this significant?
  • Sygnum, a Swiss bank with a focus on digital assets, announced on Tuesday that they are now the first bank to offer Ethereum 2.0 staking to their clients, allowing them to earn passive income from their digital asset holdings
  • Ethereum’s current transition to a proof-of-stake protocol has allowed investors to realise returns from their holdings without having to sell them—but as the protocol upgrade remains a gradual process, the technological expertise required to stake on the transitional Beacon Chain can make the staking process daunting or time-intensive
  • Now, Sygnum takes care of the process for clients, allowing them to generate current yields of up to 7% on their Ether holdings

What happened: Bitcoin Mining Council releases first set of results on energy sustainability

How is this significant?
  • Formed in response to growing concerns over Bitcoin’s energy usage, the Bitcoin Mining Council (BMC) published their first insights into the leading digital asset’s energy mix this week 
  • In a press release, the Council disclosed that BMC members currently use electricity with a 67% sustainable power mix, extrapolating it to an estimate of 57% sustainable energy use globally during Q2 (including miners who aren’t associated with the BMC)
  • This actually positions Bitcoin mining towards the upper end of sustainable energy usage within industries, and could rise depending on where recently-restricted Chinese miners export their hash-power

What happened: CBDC developments continue

How is this significant?
  • Several news stories emerged about planned Central Bank Digital Currencies this week, across several continents
  • The Bank of Japan forecast more clarity on their Digital Yen CBDC design by late 2022, noting its “potential to completely reshape changes occurring in Japan's financial industry”
  • Reports from Vietnam revealed plans for pilot implementation of a national CBDC between 2021-23
  • The Bank of France confirmed a fifth CBDC trial, involving the issuance of listed and unlisted securities, and featuring the participation of Axa Investment Managers, BNP Paribas, and Euroclear, amongst others
  • The Reserve Bank of New Zealand on Wednesday confirmed plans for an extensive CBDC consultation, saying “papers will look at the potential for a Central Bank Digital Currency (CBDC) to work alongside cash as government-backed money, issues arising from new electronic money forms including crypto assets (such as BitCoin[sic]) and stable coins (such as proposed by a Facebook-led consortium), and how the cash system might need to change to continue to meet the needs of users”
  • Chancellor of the Exchequer Rishi Sunak confirmed in a speech at Mansion House that in order for the UK to increase its stature as a FinTech hub, it would be “…exploring the case for a central bank digital currency with the Bank of England…consulting on pioneering reforms to support the safe adoption of cryptoassets and stablecoins…and watching closely the key debates in finance and tech, like the opportunities of distributed ledger technology in capital markets”
What happened: Non-fungible token revenues reach $2.5bn in 2021

How is this significant?
  • Non-fungible tokens (NFTs) continue to grow in appeal, with a report by Reuters finding that NFT revenues in the first half of the year grew to $2.5bn—a near-exponential increase from around $14m in the first half of 2020
  • Revenues began surging in February and March, in line with the growth of NFTs for digital artwork accepted by major auction houses like Sotheby’s and Christie’s, and licensed collectibles (such as those issued by NBA Topshot)
  • Christie’s added another multimillion dollar sale of NFTs to their records, with an 18 year-old contemporary artist selling 5 lots for $2.16m

What happened: Major digital asset funds adjust allocations in response to market conditions

How is this significant?
  • In response to current market uncertainty, funds dedicated to digital assets have had to take a far more proactive stance on managing their investment approach
  • Nickel’s Digital Arbitrage Fund, launched in 2019, is one example of such market-led rebalances, moving largely into cash during the recent market downturn
  • It’s important for firms in the space to demonstrate responsible behaviour whatever the prevailing market momentum, as Nickel CEO Anatoly Crachilov explained to Bloomberg; “The sideways market conditions throughout the month led us to exercise financial discipline and keep powder dry until risk/reward of re-emerging market opportunities warrant efficient deployment of capital”
  • Despite the recent adjustment, the firm remains optimistic in the long run, with Crachilov noting that “interest or investment in crypto assets is no longer considered a reputational risk that it once was among institutional investors”

What happened: NYDIG expands Bitcoin accessibility through deal with Allied Payments

How is this significant?
  • On Tuesday, NYDIG revealed a partnership with digital payment service Allied Payment Network, enabling “financial institutions to offer their customers the ability to buy, sell and hold Bitcoin”
  • Allied also announced that they would be adding Bitcoin to their corporate treasury, using the services of NYDIG
  • Allied’s founder Ralph Marcuccilli said that digital asset integration would provide a key value-added service to their customers; “Providing access to bitcoin does just that, and is a game-changer for many community institutions that are struggling to compete”
  • This is the latest of several recent moves by NYDIG to expand access to Bitcoin within the United States, through partnerships with payment and fintech software providers

What happened: “Whale” holdings reach 2-month high in signs of accumulation

How is this significant?
  • According to recent data collated by blockchain analytics firm Glassnode, the amount of Bitcoin held by so-called whales (single non-exchange wallets holding more than 1,000 Bitcoin) rose by more than 80,000 last week, the highest levels since May
  • In total, the whale wallets held 4.21m Bitcoin as of last Friday
  • This metric is often interpreted as a sign that large market participants are bullish on the long-term value prospects of Bitcoin, removing it from exchanges because they have no intention to sell in the near term
  • The number of whales also reached recent highs, at 1,922 individual wallet addresses
News Roundups