Nickel Research Centre

Nickel News Roundup - Week 30

28th July, 2022

Market Overview:

The digital asset market experienced a steady week, with a Eurozone inflation dip counteracted by a post-FOMC rally.

  • Bitcoin trended gradually downwards throughout the week, from a weekly high of $23,670 on Thursday
  • The steepest drop occurred late on Tuesday, as additional news emerged about conflicts between Coinbase and the SEC
  • However, markets subsequently rallied late on Wednesday, after the latest FOMC interest rate rise of 75 basis points was lower than some 100 basis point predictions
  • Bitcoin’s current price of $22,940 represents parity with last week
  • Ether performed solidly throughout the week, trading predominantly in the $1,480 to $1,620 range
  • Ether achieved a weekly high of $1,667 on Thursday morning—eclipsing the previous week’s high—with a weekly low of $1,363 on Wednesday
  • Current prices of $1,629 represent a 9.1% increase from last week—just missing out on consecutive weeks of double-digit growth
  • Overall market capitalisation dropped below the $1tn mark once more following Bitcoin’s Tuesday pullback, but surged above it once again after the post-FOMC rally, for a current value of $1.05tn
  • Total value locked in DeFi dropped to $40bn, according to industry monitor DeFi Pulse

Digital assets couldn’t sustain last week’s explosive momentum but ended the week on a high after a late rally. There were several more examples of major VC raises and investors this week, more clarity on the recent industry contagion as the co-founders of failed hedge fund Three Arrows Capital finally broke their silence, and big names like JP Morgan and Ernst & Young all sounded optimistic notes. However, regulatory opacity in the USA continues to cast a shadow, as tensions between leading exchange Coinbase and the SEC increased.

What happened: JP Morgan analysts forecast end of “deleveraging” phase

How is this significant?
  • According to a JP Morgan report published on Thursday, the most intense phase of digital asset deleveraging may have concluded
  • Analysts wrote that “The extreme phase of backwardation seen in May and June, the most extreme since 2018, appears to be behind us”
  • They also theorised that retail investors were driving the recent industry recovery, as spot prices have increased for many major assets, but funds and futures haven’t seen an equivalent movement; “smaller wallets have seen an increase in ether or bitcoin balances since the end of June at the expense of larger holders”
  • JP Morgan also cited the recovery of the derivative staked Ether (stETH) tokens as an indicator of retail sentiment improving, with a recovery close to parity with Ether after more precise timelines regarding the upcoming Ethereum “Merge” phase of the blockchain’s transition towards proof-of-stake consensus

What happened: Contagion latest - Three Arrows Capital founders speak, new takeover bids, and liquidation

How is this significant?
  • Zhu Su and Kyle Davies—co-founders of collapsed digital asset hedge fund 3 Arrows Capital (3AC)—finally broke their recent silence this week, in an exclusive interview with Bloomberg
  • Speaking from an undisclosed location (but outlining plans to relocate to Dubai), Zhu and Davies denied personally pulling money out of the hedge fund before it collapsed
  • Saying that death threats had forced them into hiding, Zhu nonetheless claimed they were cooperating with authorities “from day one” (although liquidators say otherwise
  • As of Thursday, liquidators have only seized $40m worth of assets, a fraction of the firm’s total holdings
  • The former Credit Suisse traders dubbed the collapse of the fund as “regrettable”, claiming that their unadulterated bullishness was to blame; “in the good times we did the best. And then in the bad times we lost the most”
  • They said the current contagion in the industry could be no surprise as they shared many similar investments with lenders like Celsius and Voyager, and pinpointed the collapse of the Terra Luna blockchain as the catalyst for their own demise
  • Their investment in Terra was complicated by personal friendships with the blockchain’s outspoken founder, Do Kwon
  • Zhu told Bloomberg “What we failed to realise was that Luna was capable of falling to effective zero in a matter of days and that this would catalyse a credit squeeze across the industry that would put significant pressure on all of our illiquid positions”
  • Following Terra Luna’s collapse, the fund’s precarious position was further exacerbated by the imbalance between the price of Ether, and the DeFi derivative token stETH; “Because Luna just happened, it, it was very much a contagion where people were like, OK, are there people who are also leveraged long staked Ether versus Ether who will get liquidated as the market goes down… So the whole industry kind of effectively hunted these positions”
  • Speaking of Terra Luna, South Korean authorities amplified their investigative efforts against the leaders of the project this week, raiding co-founder Daniel Shin’s home
  • Zipmex, an exchange focused on the ASEAN region, paused withdrawals last week after exposure to beleaguered lenders Celsius and Babel, and this week announced “conversations with several interested parties” aimed at filling a $50m hole in their balance sheet
  • Last Friday, Sam Bankman-Fried proposed a deal to acquire bankrupt lender Voyager through his companies Alameda and FTX, but Voyager dismissed the offer, calling it a “low-ball bid dressed up as a white knight rescue” this week
  • FTX’s recent acquisition efforts also allegedly include South Korean exchange Bithumb, which averages over $550m in daily trading volume

What happened: Coinbase faces SEC insider trading charges

How is this significant?
  • Coinbase experienced a tough week in relation to the Securities and Exchange Commission, exposing the fractious and opaque relationship between industry firms and regulators in the United States
  • Last Thursday, Coinbase filed a petition with the SEC, criticising them for the lack of regulatory clarity provided to industry participants
  • That same day, federal prosecutors arrested a former Coinbase product manager, accusing him of insider trading violations by leaking details of soon-to-be-listed tokens to friends and family before any announcements of those listings were made public
  • This was followed by news on Wednesday that the SEC were investigating Coinbase over unregistered securities listings
  • In particular, they cited 9 out of 25 listed tokens identified in the aforementioned insider-trading accusation as unlisted securities
  • Coinbase chief legal officer Paul Grewal seemed to accuse the commission of overreach on Twitter, pointing out that they have been privy to listing mechanisms; “We are confident that our rigorous diligence process—a process the SEC has already reviewed —keeps securities off our platform, and we look forward to engaging with the SEC on the matter”
  • Noted investor Cathie Wood sold off 1.4 million Coinbase (COIN) shares following this announcement, coinciding with a 21% drop in value
  • This does not represent a full divestment however; the Wood’s ARK Investments were the third-biggest Coinbase shareholder as of late June with 8.95m shares, and this was their first sell
  • However, there was still some positive news in the American regulatory sphere; a new bipartisan bill proposing all crypto asset transactions and profits below $50 be tax-free, encouraging the adoption of digital assets as an everyday payment mechanism
  • The bill’s co-sponsor Suzan DelBene said “Antiquated regulations around virtual currency do not take into account its potential for use in our daily lives, instead treating it more like a stock or ETF… This commonsense bill cuts the red tape and opens the door to further innovations, ultimately growing our digital economy”

What happened: Japanese crypto groups lobby for tax cuts to stem brain drain

How is this significant?
  • Two of Japan’s top digital asset industry groups—the Japan Cryptoasset Business Association and the Japan Virtual and Crypto assets Exchange Association—are lobbying for tax reductions, according to a memo seen by Bloomberg
  • The groups argue that digital assets held for reasons beyond short-term trading should be exempted from the taxation of unrealised gains, occurring at a 30% corporate tax 
  • This taxation practice makes it prohibitively expensive to launch and run digital asset projects within Japan; many new projects fund themselves not just through the sale of tokens, but by holding them in their own corporate treasury—thus taxing unrealised gains only incentivises them to sell their treasury tokens as quickly as possible
  • Additionally, the memo requests a flat 20% income tax rate for digital asset sales, rather than the current variable system which can tax traders up to 55%
  • Last month, Japanese Prime Minister Fumio Kishida announced an increased economic focus on Web3 going forward, so this proposal to the Financial Services Agency could be viewed as an attempt to gauge the actual legislative enthusiasm for Web3 businesses
  • Several Japanese Web3 firms have already relocated due to the restrictive taxation environment; Sota Watanabe, CEO of Stake Technologies, told Bloomberg that under the current system “Japan is an impossible place to do business… The global battle for a Web 3.0 hegemony is under way, and yet, Japan isn’t even at the start line”

What happened: Barclays seeks stake in Copper, a major crypto custodian

How is this significant?
  • British bank Barclays demonstrated its long-term faith in the digital asset industry this week, by purchasing a stake in crypto custodian Copper, according to reporting by Sky News
  • Former UK chancellor Philip Hammond is an advisor to the firm, and Sky reported on Sunday that the fundraising could be “finalised within days” for the £2bn-valued firm
  • Barclays and Copper both declined to comment, but City sources told Sky that Barclays would likely invest a sum in the “millions”
  • The investment from Barclays comes despite an increased focus beyond the UK by Copper—in May they were granted regulatory approval in Switzerland, after growing frustrated at the speed of regulatory processes in the UK

What happened: Ernst & Young deploys Ethereum-based enterprise carbon monitoring solution

How is this significant?
  • Ernst & Young (EY), one of the world’s largest accountancy firms, revealed a new implementation of blockchain technology this week, built on Ethereum
  • The new OpsChain ESG carbon tracking solution is fully compatible with their existing OpsChain tech infrastructure, announced in May
  • In an interview with industry publication Coindesk, EY’s global blockchain leader Paul Brody stated that the transparent nature of an open public blockchain like Ethereum was important when data impacts a company’s image
  • “When it comes to tracking carbon outputs, companies want to show that they’re both properly tracking their carbon and properly offsetting it… They’re very comfortable letting the whole world know that they are taking into account their full carbon footprint, so we’ve made a lot of progress”
  • Brody believes that tokenisation of data allows companies and consumers alike to build an accurate picture of carbon footprints; “Blockchain tokens that represent a CPU made in Taiwan, for example, and a display from Japan can transcend boundaries allowing a sum of all the carbon footprint data and carbon offsets to be calculated including the footprint when the parts are married together… It’s a really powerful tool because almost nothing that gets to your border these days is made entirely by one company, everything is an amalgamation of other companies”

What happened:Digital asset startup founded by Meta alumni raises $150m

How is this significant?
  • Aptos Labs, a blockchain development firm, confirmed the completion of a $150m funding round this week, doubling their valuation to $2bn
  • The company’s previous raise was undertaken in March, when they raised $200m on a $1bn valuation; proving that despite market headwinds, VC opportunities still exist for promising projects
  • Co-founders Mo Shaikh and Avery Ching are both veterans of Meta’s abandoned stablecoin project Diem (formerly Libra), now owned by Silvergate Bank
  • Aptos is developing their own blockchain built on a programming language called Move, which was part of Diem’s technological architecture and allegedly allows for quicker and cheaper transactions than other major layer 1 chains
  • This makes Aptos the second group helmed by Meta alumni to build on Move, following recent news of Mysten Labs seeking a $2bn valuation for their SUI blockchain
  • Contributors to Aptos’ latest round included Andreessen Horowitz (a16z), FTX, and Coinbase Ventures, indicating interest from several crypto-native industry leaders

What happened: Swiss digital asset bank SEBA embarks on Asian expansion plans

How is this significant?
  • SEBA—a Swiss bank focused on digital assets, and backed by Julius Baer—announced plans to drastically increase headcount this week, despite the current crypto winter
  • In particular, they’re focused on enhancing their presence in Asia, aiming to grow from 7 employees in Singapore and Hong Kong to 20
  • Eugene Sun, head of corporate development for Asia, commented that the current crisis provides untapped potential; “We are finding the selloff to provide an opportunity commercially and in the war for talent, as clients and talent alike seek a more secure and more regulated platform for the promising future of digital assets”
  • SEBA are seeking licences in both Singapore and Hong Kong, as Sun commented “Private banks generally are going to start to embrace crypto”
  • Although Sun acknowledged they would seek further inroads into Asia through their partnership with Liechtenstein-based private bank LGT, he declined to comment on any exact details

What happened: Investment bank Moelis & Co. launches blockchain investment group

How is this significant?
  • Billionaire Ken Moelis became the latest financial figure to launch an increased digital asset focus during a period of market decline, launching a group focused on striking deals in the global blockchain industry
  • Moelis & Co. investment bank co-founder John Momtazee will lead the new group, and like many others, he identifies the current bear market as an opportunity for those with a long-term horizon
  • Speaking to Bloomberg, he said “We love the timing. We think that to pile in on good days and say, ‘Here we are, ready to help,’ feels less genuine than when there’s a challenge. Any disruptive technology is going to have volatility”
  • This isn’t the firm’s first contact with the digital asset field; Ken Moelis is an investor in crypto firm Paxos, they were recently recruited as advisors for Voyager Digital’s bankruptcy proceedings, count XRP issuers Ripple Labs within their client list, and a recent internal poll found 30% of their employees had crypto wallets
  • Momtazee remains optimistic because he believes widescale blockchain adoption can solve a slew of infrastructural problems; “We’re in the early ages of that revolution
News Roundups