Nickel Research Centre

Nickel News Roundup - Week 29

21 July, 2023

Market Overview:

Digital assets cooled off after last week’s explosive XRP-inspired growth, but several altcoins nonetheless performed strongly.
  • Bitcoin dropped below $30,000 for the first time in two weeks, amidst a combination of profit-taking from miners, and derivatives expirations around the $29,000 mark
  • Bitcoin peaked around $31,350 on Friday, before declining sharply heading into the weekend and hitting a weekly low of $29,690 on Monday
  • Ether matched Bitcoin’s momentum, with a weekly high of $2,002 on Friday and a Monday low of $1,882
  • Despite the declines in the top two assets, several altcoins—especially those previously accused of being unregistered securities by the SEC—grew on the wave of last week’s court ruling declaring Ripple’s XRP token not (intrinsically) a security
  • Overall digital asset market capitalisation dropped to $1.21tn—a figure that still indicates significant growth from $1.13tn a month ago
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week dropped to $44.3bn

Digital assets retraced some of their rapid rise from last week, but reaction to Ripple’s courtroom success against the SEC continued to show its effect. Their XRP asset experienced strong performance across several major metrics as a consequence of the ruling, and elsewhere momentum was also positive: French banking giant SocGen secured the country’s first digital asset service provider licence, multiple VCs closed nine-figure investment funds, House Republicans introduced a new crypto bill aimed at ensuring regulatory clarity, BlackRock CEO Larry Fink further praised the potential of the asset class, Ether staking reached record levels, and the countdown of the spot Bitcoin ETF approvals process officially began.

What happened: Ripple ruling reactions continue

How is this significant?

  • Following last Thursday’s landmark ruling that Ripple’s XRP digital asset “is not, in and of itself, a security”, reactions within the digital asset space continued to roll in this week
  • One of the most in-demand sources for comment was Ripple Labs CEO Brad Garlinghouse, who identified the ruling as “an unequivocal win for crypto in the US”
  • In a Bloomberg interview soon after the ruling, Garlinghouse said “I have heard from hundreds of people throughout the industry, there’s just broad enthusiasm and excitement, this is the first time the SEC lost a crypto case. The SEC has been a bully”
  • Meanwhile, the perceived head-bully-in-charge, Gary Gensler said that he was “disappointed” with the ruling, but said the SEC would “continue to try to bring firms that may not be in compliance into compliance—without prejudging any one of them—and try to ensure that we protect the investing public”
  • XRP traders were likely far from disappointed with the ruling though; enthusiasm over judge Analisa Torres’ judgement kept the token trading at more than 70% above its pre-ruling levels throughout much of the week
  • Indeed, traders sidelined by previous uncertainty concerning XRP’s security status seemed to make up for lost time; data from crypto analytics firm Kaiko revealed that XRP trading volumes exceeded Bitcoin trading volumes in the aftermath of the ruling
  • Data from another analytics provider indicated that XRP trading volumes increased 1,700% in the 24 hours following the ruling
  • This massive rally led XRP to overtake Bitcoin in year-to-date performance, and move it to 4th-largest digital asset by market capitalisation
  • XRP’s price hit a 15-month high, aptly bringing it back above levels at which the SEC filed its lawsuit
  • CNBC reported on Monday that Ripple “expects to start talks with American financial firms about using its On-Demand Liquidity (ODL) product, which uses XRP for money transfers, in the third quarter”
  • The company’s chief legal officer Stuart Alderoty told CNBC “we’re hopeful that this decision would give financial institution customers or potential customers comfort to at least come in and start having the conversation about what problems they are experiencing in their business”
  • Richard Galvin, co-founder at Digital Asset Capital Management stated that the judgement had market effects beyond just Ripple’s XRP token; “We’ve seen a material uplift in volume, and early signs of improving sentiment toward altcoins. That’s the first material outperformance by altcoins in some months”
  • Derivatives volume for Bitcoin also benefitted, with Bloomberg noting “volumes for CME Group Bitcoin futures were up 69% on average over July 13 and July 14 compared with the trend in the earlier part of the month”
  • Some politicians also stepped in to leverage the judgement; New York Democrat congressman Ritchie Torres was particularly scathing, saying that “In light of the SDNY’s landmark decision in the Ripple case, the SEC must reassess its reckless regulatory assault on the crypto industry”
  • Torres stated that SEC enforcement has been tenuous, and that “The endless stream of contradiction and confusion, as well as the arbitrariness of the enforcement actions themselves, is the opposite of fair notice”
  • He further proposed (in an open letter to Gary Gensler) that “the latest court decision establishes a clear rule that should bear the name of Judge Torres, who has brought long-overdue legal clarity to the chaos of crypto regulation. The Torres Doctrine, as I call it, holds that crypto assets are not securities in themselves"
  • Congressman Torres added “I hope the SEC will find itself so chastened by the court's decision that it will concentrate the Commission's enforcement energies where it belongs; on the bonafide bad actors who perpetrate serious infringements”
  • On the other side of the political aisle, Republican Glenn Thompson, chair of the House Agriculture Committee, voiced optimism that the ruling would boost support for a crypto bill he’s proposed
  • Thompson said “The Ripple decision has highlighted what we’ve been saying all along—there’s confusion about how digital assets are treated under the securities laws, and it’s up to Congress to step in and provide both certainty and clarity”

What happened: SocGen secures crypto licence in France

How is this significant?

  • French banking giant Societe Generale secured the first licence issued under new national crypto rules, through its Forge subsidiary unit
  • Their designation as a Digital Asset Service Provider (DASP) “will enable Forge to meet demand from institutional clients for digital assets”, allowing Forge to provide custodian and trading services, including both fiat-to-crypto and crypto-to-crypto trades
  • The licencing positions SocGen further towards the vanguard of French institutional digital asset efforts
  • It also ensures the bank’s compliance with upcoming EU-wide MiCA regulations, which require all crypto providers to hold a full licence obtained in an EU member state
  • DASP certification is more stringent than general registration for crypto asset firms in France, which are limited to basically fulfilling AML requirements

What happened: Coinfund raises $158m for Web3 investment

How is this significant?

  • Digital asset venture capital firm CoinfFund defied this year’s downturn in VC funding within the industry, announcing the successful conclusion of an oversubscribed $158m raise for a new Web3 fund
  • The CoinFund Seed IV Fund exceeded its initial $125m funding goal, and is almost twice as large as its previous industry fund, which raised $83m
  • Noting that “2022 was an exceptionally difficult year”, CoinFund CEO Jake Brukhman believed that recent hype around A.I. would benefit digital assets by creating opportunities at the confluence of both industries
  • Brukhman also disclosed that about 90% of CoinFund’s deals involve token investments, which may be buoyed by the recent Ripple ruling

What happened: Polychain Capital raises $200m in first close of new fund

How is this significant?

  • Not to be outdone by CoinFund, industry VC Polychain Capital also registered a significant funding milestone this week, reaching $200m in contributions towards their fourth crypto VC fund
  • Sources speaking to Forbes disclosed that this figure represented the “first close” of their new fund, which still aims to raise $400m in total
  • Polychain can now begin deploying capital even as it continues to raise the remainder; a welcome boost for digital asset venture capital, which raised $1.7bn in the first two quarters of 2023, compared with $22.5bn throughout 2022
  • According to Pitchbook data, Polychain currently boasts around $2.6bn in assets under management from their previous three funds
  • The new fund also signals a change in investment methodology, “looking in particular at Ethereum-based projects similar to its investments in Arbitrum and Scroll, both layer-2 networks on Ethereum, and EigenLayer, an Ethereum re-staking protocol”
  • On Wednesday, reports emerged that Polychain led a $25m Series A round in privacy infrastructure project Manta Network
  • CoinFund was amongst other backers in the round
  • The capital injection valued Manta at $500m, and will be used to drive adoption of the Zero-knowledge (ZK) proof privacy protocol in key Asian markets
  • Another ZK-proof infrastructure project, RISC Zero, also completed a major funding round this week, raising $40m in a Series A led by Blockchain Capital

What happened: Regulatory news

How is this significant?

  • On Thursday, a group of US House Republicans introduced a new bill seeking to define the specific roles of the CFTC and SEC within the industry
  • The Financial Innovation and Technology for the 21st Century act (aka the FIT for the 21st Century act) also clarifies the classification of digital assets
  • Co-sponsors include House Agriculture Committee Chair Glenn Thompson, Representative French Hill (lead of the inaugural Subcommittee on Digital Assets, Financial Technology and Inclusion), and Dusty Johnson (lead of Subcommittee on Commodity Markets, and Digital Assets), alongside noted congressional crypto advocates Tom Emmer and Warren Davidson
  • A “Myth vs Fact” sheet provided alongside the bill referenced last week’s Ripple ruling and opined that “Legislation is needed to give the CFTC regulatory authority over the digital commodity spot markets. Given the SEC is unwilling to prioritise comprehensive rulemaking, Congress must legislate to fill the regulatory gaps between the SEC and CFTC”
  • Glenn Thompson released a statement calling the bill a “a significant milestone in the House Committees on Agriculture and Financial Services efforts to establish a much-needed regulatory framework… ensuring U.S. leadership in financial and technological innovation”
  • Multiple sources told industry publication TheBlock that the SEC was perceived as “slow-walking” requests for assistance in drafting the bill, which proposed greater authority and larger remit for the CFTC
  • Several of the bill’s sponsors directly addressed Gensler, requesting “productive engagement”
  • Sources summarised the SEC’s reaction as “The general message was this bill is not fixable and we’re not giving you technical assistance to try to fix it”
  • One staffer told TheBlock that the CFTC had been much more responsive to requests than its sister agency; “It’s been almost six weeks. We have not received what I would characterise as the typical technical assistance [from the SEC]”
  • Despite the recent court ruling undermining previous statements on the scope of crypto securities, Gensler requested an additional $109m for the SEC’s industry enforcement budget this week, alongside a $393m request for “technological costs”
  • CFTC commissioner Caroline Pham spoke to Bloomberg earlier in the week outlining a desire to regulate the digital asset market in a “holistic way”
  • She said that “what institutions, central banks, and asset managers have known since at least 2017 is that there’s a real opportunity to modernise financial market infrastructure through tokenisation of real assets”
  • Pham added “last year I said that we’re going to see regulatory clarity first in the courts… and I think you’ve seen that, with some very big court opinions that have been released”
  • On the other side of the aisle from this week’s new bill, sources told Bloomberg that Coinbase CEO Brian Armstrong was meeting House Democrats behind closed doors on Wednesday to discuss digital asset regulation
  • Specifically, the meeting concerned the centre-left New Democrat Coalition faction seeking to secure bipartisan compromises on a variety of issues
  • Armstrong is believed to have championed the above bill, designed to “fix the situation” of regulatory ambiguity across government agencies
  • A new bipartisan bill seeks to hold VC firms accountable for any proven sanctions violations occurring on DeFi platforms which they invested in
  • The potential liability will be applicable to “investors who have funnelled more than $25 million into a [DeFi] project”
  • Potential Democratic presidential candidate Robert F Kennedy Jr. pledged to eliminate Bitcoin from capital gains tax if elected, and also announced intentions to “begin to back the U.S. dollar with real finite assets, such as gold, silver, platinum and Bitcoin… to strengthen the U.S. dollar and continue to guarantee its success as a world reserve currency”
  • Reuters reported that the UK government pushed back on previous Treasury Committee recommendations to regulate the crypto asset industry akin to the gambling industry
  • Financial Services minister Andrew Griffith stated that such a policy “would put Britain at odds with global and EU regulators and fail to mitigate risks from the sector”
  • On Thursday, the Finance Ministry “firmly disagreed” with the Treasury Committee in a response report, saying “The Committee’s proposed approach would risk creating misalignment with international standards and approaches from other major jurisdictions”
  • This aligns with Rishi Sunak’s ambitions to make the UK a global digital asset hub, stating “We must embrace new innovations like web3, powered by blockchain technology, which will enable start-ups to flourish here and grow the economy”

What happened: BlackRock CEO Larry Fink praises crypto in new interview

How is this significant?

  • Following a recent FOX Business interview where he recognised crypto’s role in tokenising gold, BlackRock CEO Larry Fink expanded on his views for the asset class in a CNBC interview
  • Fink told interviewers that “A lot of crypto is, it's an international asset. It has a differentiating value versus other asset classes... more importantly, because it’s so international it’s going to transcend any one currency and currency valuation... if you just look at the value of our dollar, the depreciation over the last two months... an international crypto product can really transcend that”
  • He enforced the value proposition provided by code-based issuance, noting “in December 2020, about $18tn of bonds had negative interest rates in the world. Today, 80% of the market has a 4% interest rate or higher!”
  • Fink outlined his own shift from crypto sceptic, agreeing that "it's here to stay" and revealing "over the last 5 years, more and more global investors have asked us about the role of crypto... we believe there's great opportunities, there's more and more interest; broad-based, world-wide"
  • Now, with BlackRock’s ETF filing, Fink wants to increase accessibility to the asset class for traditional investors, saying “We believe we have a responsibility to democratise investing. We’ve done a great job, and the role of ETFs in the world is transforming investing... as in any new market, if BlackRock’s name is going to be on it, we’re going to make sure that it’s safe and sound and protected”

What happened: Binance feels bite of crypto winter

How is this significant?

  • Leading global exchange Binance fortunes haven’t mirrored the overall digital asset market this year, as SEC enforcement actions have led traders to seek out other platforms
  • The Wall Street Journal noted headcount reductions and cutbacks on certain employee benefits since last month, with internal memos citing “the current market environment and regulatory climate that has unfortunately led to a decline in profit”
  • The Journal claimed around 1,000 layoffs in recent weeks, but Binance CEO Changpeng “CZ” Zhao disputed this figure as “way off”, writing “This is not a case of rightsizing, but rather, reevaluating whether we have the right talent and expertise in critical roles”
  • Industry analytics firm Kaiko noted declining market share for the company, with other “offshore” exchanges gaining at Binance’s expense
  • However, Binance’s market share still dwarfs competitors, accounting for around 73% of the offshore market, down from 90% at the turn of the year following FTX’s collapse in November
  • Kaiko research director Clara Medalie cited Hong Kong’s regulatory opening as a boon to other trading platforms; “Ever since Hong Kong loosened digital asset restrictions, the exchanges have taken advantage of the friendlier regulatory environment”
  • Globally, Bloomberg noted that despite overall market growth, Binance’s proprietary BNB token is virtually-unmoved year-to-date, and perpetual swap markets for BNB turned negative over the weekend, indicating bearish trader sentiment

What happened: Contagion latest

How is this significant?

  • More details emerged around Alex Mashinksy this week, former CEO of bankrupt lender Celsius, currently being sued by the SEC for a variety of charges including wire fraud
  • In a 46 page indictment document, prosecutors claim that he was withdrawing millions of assets from Celsius whilst telling users that he was, like them, still locked in as a regular user
  • The DOJ alleges a long-running habit of fraud from Mashinsky, including inflating their initial funding round from an actual $32m to a claimed $50m
  • On Tuesday, Celsius gained court approval to pay a $25m settlement to preferred shareholders, sparing the company a potential cost of $600m if they had lost a legal battle with said shareholders
  • On Thursday, Reuters reported that FTX is suing Sam Bankman-Fried and other former executives, seeking to recover almost $1bn allegedly misappropriated before the exchange’s downfall
  • According to the court complaint, “fraudulent transfers included more than $725 million of equity that FTX and West Realm Shires, an entity that Bankman-Fried controlled, awarded without receiving any value in exchange”
  • Among the more bizarre accusations to emerge was a memo alleging a conversation in which Bankman-Fried proposed purchasing the sovereign island nation of Nauru
  • Additionally, they claim that part of Bankman-Fried’s legal defence is being funded by a $10m “gift” previously given to his father
  • Troubled crypto custodian Prime Trust officially entered receivership, after the firm lost access to tens of millions worth of assets
  • Following the downfall of Silicon Valley Bank and Signature Bank in the US banking contagion event earlier this year, many digital asset firms found themselves unbanked; but a new banking partner appears to have emerged for the industry
  • Philadelphia-based Customers Bank has now partnered “with hundreds of digital-asset firms, including major exchanges, market makers and stablecoin issuers, according to people with knowledge of the matter”, thanks to their 24/7/365 payments platform
  • Cross-blockchain bridging project Multichain shut down this week, amidst claims that its CEO has been detained by authorities
  • Nasdaq stepped back from their previous goal of becoming an accredited crypto custodian, citing the challenging US regulatory environment
  • The company CEO Adena Friedman told Bloomberg “We remain committed to supporting the evolution of the digital asset ecosystem in a variety of ways”
  • She revealed that the company has completed the construction of their crypto custodial technology, and is “now productising them to be able to sell to other market operators”

What happened: Ethereum staking reaches record levels

How is this significant?

  • New data from institutional analytics firm Nansen reveals that the Ethereum blockchain is currently experiencing record levels of validator participation through staking
  • This trend appears to have been spurred by two events; FTX’s collapse last November, and Ethereum’s “Shanghai” network upgrade in April, which allowed network validators to stake and unstake their Ether at will, rather than being locked into specific timeframes
  • Nansen reports that since November 2022, ETH balances on exchanges have declined by nearly a third—meanwhile, the amount of ETH staked recently passed 24.4m, accounting for over a fifth of all Ether in circulation
  • The firm also noted that network decentralisation and geographic distribution appears to be increasing; “2023 has shown growth in all regions with APAC being the fastest-growing region with a 74% increase in address count”

What happened: SEC acknowledges updated Bitcoin ETF filings

How is this significant?

  • The SEC officially acknowledged and registered the raft of recent spot Bitcoin ETF filings after their previous objections which cited a lack of clarity on surveillance-sharing
  • On Wednesday, the initial 45 day countdown on the SEC’s approval process officially began when the filings entered the Federal Register (after opening public consultations on the ETFs last week)
  • This deadline can however be extended to a maximum of 240 days; a timeline frequently seen during the previous bull run, when the SEC ultimately denied every spot Bitcoin application
  • Heightened interest around ETFs continues to benefit existing exchange products on the market; K33 Research analyst Vetle Lunde notes that “From June 16th to July 16th, BTC ETPs saw monthly net inflows of 25,202 BTC”
  • This is the second-largest monthly inflow ever, second only to the month that the first-ever Bitcoin (futures) ETFs were actually launched
  • Additionally, data from analytics firm CoinShares revealed that the last four weeks have seen almost $750m of inflows into digital asset investment products—the majority thereof tied to Bitcoin and located in the US, indicating the movement has been driven by the spot Bitcoin ETF filings
  • This represents the largest run of inflows since Q4 2021, and more than erased 9 consecutive weeks of outflows prior to the current runf
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