Nickel Research Centre

Nickel News Roundup - Week 41

13th October, 2022

Market Overview:

Digital assets surrendered most of their gain from the previous few weeks, as global recessionary fears intensified.

  • Bitcoin experienced a steady decline throughout the week, as global financial markets grew broadly pessimistic in anticipation of new United States CPI figures set for release on Thursday
  • Bitcoin declined from a high of $20,390 on Thursday to a weekly low of $18,940 on Tuesday
  • Bitcoin’s current price of $19,000 represents a 6% weekly decrease 
  • Ether experienced a similar price trajectory, gradually dropping from a weekly high of $1,378 on Thursday to a low of $1,272 on Tuesday
  • Ether’s current price of $1,278 equates to a 6.4% weekly decline
  • Since the 8th of October, total supply of Ether has actually decreased, due to high network usage increasing the burn rate above the issuance rate; potentially turning the overall supply deflationary if current burn rates continue
  • Overall market capitalisation decreased to a current total of $914bn 
  • Total value locked in DeFi dropped by $1bn to $27.2bn according to industry monitor DeFi Pulse

Digital assets suffered in price performance, but experienced many positive developments in terms of adoption. America’s oldest bank—and the world’s largest custody bank—started safeguarding Bitcoin and Ether for customers, Google partnered with Coinbase to accept digital assets as payment, Citigroup made their first direct seed investment in the sector, a physically-backed Bitcoin ETP launched in Dubai, and Visa added yet another partnership to their growing list of crypto products and services.

What happened: BNY Mellon launches crypto asset custody

How is this significant?
  • On Tuesday BNY Mellon officially moved into digital asset custody services for their clients, becoming “the first large US bank to safeguard digital assets alongside traditional investments on the same platform, according to Wall Street Journal reports
  • The move came after New York regulators gave America’s oldest bank the green light to roll out the service to select customers
  • Considering their position as the world’s largest custodian bank ($43tn in assets under custody), the service represents another milestone in the adoption of digital assets within traditional finance
  • In a press release, BNY Mellon CEO Robin Vince gave his vote of confidence to the sector, saying “BNY Mellon has the scale to reimagine financial markets through blockchain technology and digital assets… We are excited to help drive the financial industry forward as we begin the next chapter in our innovation journey”
  • A recent digital assets survey conducted by BNY identified a significant appetite for digital assets amongst institutional investors; “almost all institutional investors (91%) are interested in investing in tokenized products. Additionally, 41% of institutional investors hold cryptocurrency in their portfolio today, with an additional 15% planning to hold digital assets in their portfolios within the next two to five years”
  • Currently, crypto custody at the bank is limited to Bitcoin and Ether—according to Caroline Butler, BNY’s CEO of Custody Services, SEC guidelines requiring companies holding crypto assets for clients to list them as liabilities makes the act of custody more expensive, and is “something we see as restricting our ability to scale our offering fully”

What happened:  Google partners with Coinbase to accept digital asset payments

How is this significant?
  • Google and Coinbase announced a major partnership this week, enabling Google to receive digital asset payment for its cloud services, whilst Coinbase will leverage Google’s cloud infrastructure for their business
  • Crypto payments will go live in early 2023, according to the announcement at Google’s Cloud Next conference
  • Though it only represents a portion of their business, cloud services are a key growth area for Google’s parent company, Alphabet
  • Cloud business currently represents 9% of Alphabet’s annual revenue, and is growing at a faster rate than the company itself
  • Initially, payments will be limited to Web3 businesses via Coinbase Commerce, but Google Cloud VP Amit Zavery says they plan to roll out access to many more business in the future
  • Zavery also noted that the crypto-native Coinbase offering was deemed superior to alternatives from existing payment firms that added crypto capabilities, such as PayPal
  • Coinbase Commerce takes a percentage of payments as a transaction fee, and currently allows customers to pay with ten different digital assets, including Bitcoin, Ether, and Litecoin
  • CNBC reported that “Google is also exploring how it can use Coinbase Prime, a service that securely stores organisations’ crypto assets and allows them to execute trades”

What happened: Contagion latest—Revelations and Regulations

How is this significant?
  • Recently-resigned Celsius executives Alex Mashinsky and Daniel Leon, alongside Chief Technology Officer Nuke Goldstein, faced scrutiny this week after court filings revealed that they withdrew a cumulative $30m in digital assets from the platform in May, the month before shutting off customer withdrawals
  • Neither Celsius representatives nor the former executives responded to any Bloomberg requests for comment, although it was noted that some transactions marked as “withdrawals” may have just represented the movement of funds from one Celsius account type to another
  • Michael Hsu, acting director of the US Office of the Comptroller of Currency voiced a desire for more regulation within the asset class
  • Speaking at Washington DC Fintech Week, he said “The largest crypto players today want to provide an increasingly broad range of services seamlessly under one roof for their customers… While commingling these activities may offer convenience for consumers and cost savings for crypto firms, conflicts abound and the riskiest activity threatens the whole bundle”
  • Speaking to Harvard Law School, he also expressed a desire for more cooperation across government agencies; “Sharing information with peer agencies and seeking a common understanding of the risks and opportunities in the space can help ensure that regulatory standards remain high and the playing field stays level”
  • South Korean authorities announced that fugitive developer Do Kwon—architect of the imploded Terra Luna blockchain ecosystem—will have his passport revoked if he doesn’t hand it in within two weeks
  • Binance suffered a hack on one of the cross-chain bridges of their BNB blockchain, leading to the loss of $100m—but no user funds were affected
  • DeFi platform Mango was also involved in a $100m exploit
  • The co-founders of digital asset lender Nexo meanwhile publicly refuted any suggestions they could face bankruptcy like their contemporaries Celsius and Voyager, whilst participating in a YouTube Q&A session
  • Kalin Metodiev stated that “Insolvency, bankruptcy are nowhere in Nexo’s reality… We work very hard that we deliver a very strong and sustainable future for our users for many years to come, enriched with a number of additional services and products through integration of technology and disruption of existing services”
  • Antonin Trenchev added that the firm had “no exposure to the Terra and Luna debacle”, nor any interactions with collapsed hedge fund 3 Arrows Capital
  • The Financial Stability Board (FSB) released a 77-page report with recommendations for digital asset regulation to G20 ministers, stating; “While most of these individual functions exist in traditional finance, typically regulations require that such activities be conducted by different entities and, in some cases subject them to different sectoral standards”

What happened: Citigroup makes first digital asset seed investment

How is this significant?
  • Citi Ventures—the VC arm of Citigroup—made their first direct foray into the world of digital asset venture capital this week
  • They co-led a $6m seed funding round for Xalts, a digital asset fund product developer founded by HSBC and Meta alumni
  • Citi Ventures MD Luis Valdich stated the firm remains optimistic on the future of the asset class; “The world has changed a lot, you know with the macro environments and obviously markets have been suffering as a result… Obviously we are very prudent in terms of where to and how to deploy capital, but we’re absolutely active with lots of opportunities not only outside of digital assets, but also within the digital asset space, which we believe is here to stay”
  • Xalts co-founder Ashutosh Goel said the funding would help the startup to expand operations across Asia, including Dubai, New Delhi, and Singapore

What happened: Morgan Stanley report declares decentralisation is declining

How is this significant?
  • A new report from Morgan Stanley analysts this week suggested that the digital asset industry is becoming less decentralised; but this is “a natural evolution of the financialization of cryptocurrency markets”
  • Morgan Stanley’s head of crypto asset research, Sheena Shah, wrote that although digital assets themselves are decentralised, the growth in scale of the sector increased the presence of large centralised infrastructure providers for aspects like web hosting
  • Ethereum’s recent transition to proof-of-stake intensified this trend; almost two-thirds of Ethereum nodes are currently cloud-hosted, and around half of those use Amazon Web Services
  • In total, 60% of Ethereum nodes are hosted by only four companies, according to the report
  • As a result, issues could arise if certain service providers experience significant downtime, or decide to censor certain participants or products
  • Shah stated “The crypto ecosystem has evolved over recent years with many applications, code, services and companies feeding into the underlying decentralised blockchains, which we would argue is causing parts of the broader crypto ecosystem to become less decentralised and more dependent on individual services”
  • Additionally, the report cited the entry of more traditional finance powerhouses into the industry, and the development of more regulation-friendly crypto investment products as further reasons why it’s “starting to look more like the centralised banking world”
  • In a Bloomberg interview, high-frequency trader Michael Safai of Dexterity Capital agreed that institutional presence within digital assets is growing ever larger and more influential
  • Safai said that recent range-bound trading by Bitcoin is indicative of institutional presence “retail has fled the market. So what’s happened in recent months is we’re seeing a lot more institutional flow than we did over the course of the past five years. Now, institutional players are smart… things tighten up and these guys are keeping things in the same range while we do price discovery, but still try to make a good profit”

What happened: VC news—Binance bets big in 2022

How is this significant?
  • Binance CEO Changpeng “CZ” Zhao told Bloomberg that the company may hit $1bn in acquisitions and investments this year, despite inclement market conditions
  • Thus far, Binance have committed $325m to 67 projects in 2022; a steep increase on the $140m for 73 projects in 2021
  • Additionally, Zhao has earmarked a potential $200m for media firm Forbes, and $500m financing towards Elon Musk’s long-running Twitter acquisition saga
  • He also identified the possibility of acquiring stakes in traditional gaming and e-commerce firms, diversifying their $7bn investment fund
  • Step, a digital banking service geared towards younger demographics announced the addition of crypto asset investment services, and a $300m debt financing led by TriplePoint Capital and Evolve Bank & Trust
  • CEO and founder CJ MacDonald told TechCrunch that they would launch their crypto investments with Bitcoin, but quickly scale to another 40 digital assets by the end of the month
  • McDonald also noted that there weren’t any portfolio allocation limits built into their crypto investing feature, and that they chose to add digital assets before integrating stock investing
  • Web3 wallet developer Zerion raised $12.3m in a Series B round to fund development of interoperable cross-chain identity
  • Blockchain development platform Tatum raised over $41m from investors including Octopus Ventures, USDC issuers Circle, and Leadblock Fund
  • Paradigm led a $40m Series A round for blockchain data firm nxyz, alongside other investors such as Sequoia Capital, Greylock Partners, and Coinbase Ventures
  • Bitcoin mining firms have taken advantage of the current crypto winter to expand operations by purchasing hardware and operations from distressed rivals
  • Crusoe—a company utilising oil industry waste product flared gas to power their operations—bought out rival Great American Mining, increasing their capacity by 9%
  • Grayscale Investments, creators of the Grayscale Bitcoin Trust, also announced diversification plans centred on buying mining hardware at discount prices
  • The new Grayscale Digital Infrastructure Opportunities LLC will allow accredited investors to contribute towards mining-related purchases, from a minimum $25,000 commitment
  • Grayscale CEO Michael Sonnenschein state “We ultimately believe that there is some level of financial distress on mining hardware as the result of the lower pricing environment, which makes it a opportune time for investors to think about leaning into this exposure”

What happened: Dubai stock exchange debuts physically-backed Bitcoin ETP

How is this significant?
  • Exchange traded product developers 21Shares announced the launch of the first physically-backed Bitcoin ETP in the Middle East on Wednesday, listing the 21Shares Bitcoin ETP on Nasdaq Dubai
  • 21Shares CEO and co-founder Hany Rashwan said in a press release “as a company, we are committed to providing regional investors with safe and secure access to cryptocurrency-backed products...21Shares will continue to support the Middle East’s ambitions to become a global crypto hub”
  • In other ETP news, Grayscale released the opening brief of their lawsuit against the United States SEC, arguing their Bitcoin ETF filing was unfairly rejected
  • The brief argues that the approval of Bitcoin futures ETFs makes the rejection of spot ETFs “capricious” and “discriminatory”; “the test the SEC has applied to Bitcoin-related ETFs, and only Bitcoin-related ETFs, is flawed and has been inconsistently applied with a ‘special harshness’ to spot Bitcoin ETFs”

What happened: Brazilian businesses exhibit record digital asset exposure

How is this significant?
  • According to Brazilian tax authorities Receita Federal, more Brazilian companies than ever before bought digital assets in the month of August
  • Filings revealed that “12,053 companies declared crypto purchases in August, surpassing the previous record in June when 11,797 firms bought digital assets”
  • The August 2022 figures represent a five-fold increase from the number of companies making such purchases in August 2017, when firms first began reporting their crypto asset interactions to authorities
  • Receita Federal reported that Brazilian firms currently hold around $2.1bn in digital assets

What happened: Visa partners with FTX for digital asset debit cards

How is this significant?
  • Payments giant Visa expanded their exposure to digital assets this week, partnering with leading exchange FTX to create a new series of debit cards
  • The debit cards will link directly to the an individual user’s FTX account, allowing them to directly spend their digital asset funds without first withdrawing them from the exchange
  • Visa CFO Vasant Prabhu told CNBC “Even though values have come down there’s still steady interest in crypto… We don’t have a position as a company on what the value of cryptocurrency should be, or whether it’s a good thing in the long run—as long as people have things they want to buy, we want to facilitate it”
  • The cards will be available in 40 countries across Latin America, Asia, and Europe, and represent just the latest of more than 70 crypto industry partnerships for Visa—including deals with rival exchanges Binance and Coinbase
  • Meanwhile, FTX CEO Sam Bankman Fried applauded the forward-looking nature of payment processors like Visa and Mastercard, saying “It’s a technology that we absolutely see disrupting traditional payment networks… There’s a decision you have to make as a traditional payments company: do you want to lean into this or do you want to fight against it? I respect the fact that many of them are leaning into it”
News Roundups