Nickel Research Centre

Nickel News Roundup - Week 17

26th April, 2024

Market Overview:

Digital assets mounted a modest recovery from last week’s losses as the market returned to growth.
  • After suffering amidst multiple macroeconomic and geopolitical challenges last week, Bitcoin returned to growth following its long-awaited supply issuance “halving” event
  • Bitcoin rallied as high as $67,220 on Tuesday, up from a Friday low of $61,920
  • Bitcoin spent the majority of the week trading in a relatively narrow range, between $64,200 and $65,100
  • Ether also bounced back, from a Friday low of $2,994 to a Wednesday high of $3,291
  • Overall digital asset market capitalisation recovered to $2.37tn
  • The crypto industry fear/greed index remained in “neutral” territory, at 60/100
  • According to industry monitoring site DeFi Llama, total value locked in DeFi increased to $93.6bn

Digital assets experienced slight growth following last week’s significant drop, as calm returned to the market after the shock of macro headwinds and rising geopolitical tensions. More news emerged regarding Hong Kong ETFs, Franklin Templeton improved DeFi accessibility for its tokenised funds, numerous payment processors moved forward with digital asset adoption, Korea continued its crypto momentum, and Bitcoin successfully completed its quadrennial “halving” event, cutting the supply of new Bitcoin entering the market going forwards.

What happened: ETF News

How is this significant?

  • Following recent news of Hong Kong’s in-principle approval for crypto ETFs, more details emerged this week
  • The funds will begin trading on April 30th, as per a spokesperson from one of the approved issuers, HashKey
  • HashKey will offer spot Bitcoin and Ether products in partnership with Bosera International; the other successful applicants were ChinaAMC, and Harvest Global— Hong Kong units of major mainland China asset managers
  • This has led some analysts to speculate that “Chinese wealth parked in the city” could be a source of demand for the ETFs, since crypto trading (and thus acquiring crypto exposure) remains officially banned in mainland China
  • In total, six funds are expected to start trading; spot Bitcoin and Ether ETFs from each of the three approved issuers
  • One key differentiator of the forthcoming ETFs is their in-kind redemption mechanism, removing the need to immediately sell for fiat
  • Evgeny Gaevoy of market makers Wintermute notes in-kind mechanisms are “particularly appealing to crypto natives, market makers and digital-asset exchanges” thanks to greater efficiency and arbitrage
  • Additionally, the announced management fees all came in lower than initially predicted, with Harvest Global waiving all fees for the first six months, before raising them to 0.3%
  • Bloomberg ETF analyst James Seyffart dubbed this situation “a potential fee war”, with the other announced fees currently standing at 0.6% and 0.99%
  • However, a host of analysts have urged investors to manage expectations on the impact of Hong Kong ETFs, vs US spot Bitcoin products
  • A key factor is the relative size of the issuers; as local crypto analysts Roger Li told Bloomberg “Hong Kong doesn’t have the ‘BlackRock’ effect to call on”
  • The overall size of the Hong Kong ETF market is also dwarfed by the US market, leading to current inflow estimates of around $1bn within the first year
  • In the US, ETF momentum cooled off, with analysts CoinShares hypothesising higher-for-longer rates signals as the main culprit
  • Bloomberg Intelligence forecast BlackRock’s IBIT to overtake Grayscale’s converted GBTC by the end of April, following a sustained run of inflows from the former and outflows from the latter
  • Grayscale may attempt to mitigate the outflows caused by GBTC’s 1.5% management fee with a 0.15% fee (the lowest among US issuers) on its new “Mini Bitcoin Trust”, which will receive 10% of GBTC’s assets
  • However, IBIT’s record-breaking run of post-launch inflows was finally halted at 71 days when it experienced zero flows, outlasting Fidelity’s FBTC run by eight days
  • Nonetheless, Bloomberg senior ETF analyst Eric Balchunas insists that IBIT’s performance (the 10th-longest inflow streak ever) should be lauded as nothing short of remarkable
  • He provided context by calling IBIT’s run “one for the ages and utterly smashing the record for a new launch. For context, $GLD had awesome launch and its 'out of the gate' inflow streak was 3 days”
  • Additionally, he wrote that “While $IBIT's daily inflow streak is over at 71 days, it is not done setting records [in assets post-launch]... The league of own-ness of IBIT, FBTC et al shows how overheated it all was, a breather was overdue… Also try and wrap your head around this one: out of all the 10,698 registered funds in the US (incl ETFs, mutual funds, CEFs) $IBIT currently ranks 2nd in YTD flows”
  • According to sources speaking to Advisorhub, “Morgan Stanley is exploring expanding sales of Bitcoin exchange-traded funds by allowing its roughly 15,000 brokers to solicit customer purchases”
  • An executive told the publication that the finance giant intends to include “guardrails” in their offering “We’re going to make sure that we’re very careful about it. We are going to make sure everybody has access to it. We just want to do it in a controlled way”
  • Meanwhile, Reuters reported this week that the SEC is likely to reject proposals for spot Ether ETFs next week, as industry sources described SEC meetings as one-sided and unsubstantive
  • However, some believed there may be cause for optimism from requested public comments on BlackRock’s filing, the first real engagement shown by the SEC thus far

What happened: Multiple blockchain organisations sue SEC

How is this significant?

  • In somewhat of a role reversal, the SEC found itself on the receiving end of numerous lawsuits from the digital asset industry this week, following a prolonged period of regulatory hostility under Gary Gensler’s stewardship
  • Consensys, a developer active within the Ethereum ecosystem (and creators of the popular browser-based Metamask crypto wallet) sued the SEC on Thursday over the commission’s perceived “campaign to seize control over the future of crypto”
  • The lawsuit filed in Texas posits that if the SEC classifies Ether as a security, it would have the effect of “crippling one of the internet’s greatest innovations”
  • In a statement, Consensys co-founder Joseph Lubin referred to the SEC’s investigation of the Ethereum Foundation, but indicated his company weren’t concerned over censure themselves “They’ve made extensive requests for documents and testimony regarding our involvement with the code and the asset… Absent any indication from the SEC otherwise, we have no reason but to believe an action against Consensys regarding Ether to be imminent”
  • On Wednesday, industry groups the Blockchain Association and the Crypto Freedom Alliance of Texas filed a complaint in federal court that the SEC’s recent expansion of “dealer” definitions “threatens to bulldoze innovations” and “exceeded its authority and approved a rule that was arbitrary and capricious”
  • This re-definition was identified as “particularly problematic” for the DeFi sector according to a Blockchain Association spokesperson, who noted that the SEC ignored the crypto industry during the comment-making process
  • This follows testimony from the CFTC in March, when chair Rostin Behnam indicated that SEC categorisation of Ether as a security would cause conflict with the CFTC, which already allows Ether futures products
  • The SEC also faced consequences for its recent censure for “gross abuse of power” in a case against a Utah-based digital asset firm
  • Two lawyers resigned this week following a federal judge’s belief that the SEC’s case against Debt BOX was “marred by false statements and misrepresentations, as well as a lack of evidence”
  • According to sources, the lead attorneys were essentially told to leave of their own volition, rather than force the agency to terminate them

What happened: Binance founder Changpeng Zhao receives broad support before sentencing

How is this significant?

  • After the recent 25-year sentence for disgraced FTX founder Sam Bankman-Fried, another former exchange CEO now faces sentencing; previous Binance head Changpeng “CZ” Zhao
  • Zhao stepped down as CEO in November after Binance agreed a $4.3bn settlement with the DOJ over sanctions violations, and Zhao himself pled guilty on an AML charge
  • “CZ” however presents a very different picture to “SBF”, having voluntarily stepped down and pleaded guilty, whilst Bankman-Fried denied all charges over a lengthy trial process; in a letter accompanying his resignation, Zhao stated “I know it is the right thing to do. I made mistakes, and I must take responsibility”
  • More than 160 colleagues, family members, friends, and customers submitted 350 pages worth of letters of support for Zhao ahead of his sentencing, including “Fosun International co-founder Xinjun Liang, two members of ruling families in the United Arab Emirates, senior leaders at crypto miner Bitfury, the founder of venture capital firm Antler and former US ambassador to China Max Baucus”
  • The impact of that support (and Zhao’s conduct) will likely be measured by the difference between the DOJ’s recommended sentence (three years) and Zhao’s desired outcome (probation)
  • DOJ officials wrote that three years behind bars “will not just send a message to Zhao but also to the world”, whilst Zhao’s legal team argued that there is no precedent for incarceration in similar cases
  • In other sentencing news, the SEC proposed a $5.3bn fine for Terraform Labs and developer Do Kwon, creators of the failed Terra Luna blockchain ecosystem
  • Both were found liable for fraud in April, and if approved the fine would eclipse Binance’s as the largest paid by a digital asset firm

What happened: Franklin Templeton opens up peer-to-peer transfers of tokenised fund

How is this significant?

  • On Thursday, Franklin Templeton announced that its tokenised US Treasuries fund, BENJI, can now be transferred peer-to-peer on Ethereum Layer-2 Polygon and the Stellar blockchain
  • Franklin was the first US firm to tokenise a fund back in 2021, and currently leads the market for tokenised US Treasuries, at around $384m of a $1.2bn market
  • This follows from a recent initiative by Circle and BlackRock, which enable smart contract redemption’s of BlackRock’s tokenised money market fund BUIDL for Circle’s USDC stablecoin, reducing friction between TradFi funds and DeFi transfers
  • BUIDL’s aggressive growth—securing 25% of the tokenised government securities market within a month of launch—may have catalysed Franklin’s decision to simplify movement of the fund’s tokens for holders
  • Head of digital assets Roger Bayston stated “We are excited that BENJI token holders will have the ability to transfer shares amongst each other. Eventually, we hope for assets built on blockchain rails, such as the Franklin OnChain US Government Money Fund, to work seamlessly with the rest of the digital asset ecosystem”
  • Jason Chlipala, chief business officer of Stellar Development Foundation, told Coindesk “Allowing fund shares to be transferred peer-to-peer puts Franklin Templeton on the cutting edge of the financial sector where tokenized real-world assets are an industry staple and more open, transparent, and accessible”
  • In other tokenisation news, digital asset exchange Woo X became the first to offer retail customers access to tokenised US Treasury bills, via a partnership with London-based institutional tokenisation firm OpenTrade
  • Woo X CEO Willy Chuang told industry publication Coindesk “For the first time, retail users on a centralised exchange can invest in USDC real-world asset vaults, with U.S Treasury Bills as the underlying assets. This initiative bridges a crucial gap between traditional financial securities and the dynamic world of crypto”

What happened: Payment processor Stripe (re-)accepts crypto assets for transactions

How is this significant?

  • Fintech firm Stripe, a major payment processor within the US, announced integration of crypto payments within its merchant network again—over six years after initially suspending support
  • According to co-founder John Collison, the decision to reintegrate crypto payments was made as the asset class demonstrates “real utility”, and “there’s been a lot of technical improvements happening in crypto” improving issues like transaction speed and cost
  • However, integration will—at least initially—be limited to stablecoins, particularly USDC
  • Stripe previously enabled payouts via USDC back in 2022, but at the time didn’t accept payments via blockchain
  • The USDC payments will however be enabled on multiple blockchains; Ethereum, Solana, and Polygon
  • Meanwhile, the similarly-named Bitcoin payments app Strike expanded services into Europe this week, after operating in the US since 2020
  • In other news of payments processors, Jack Dorsey’s Block (formerly Square) announced a new feature allowing merchants to automatically convert between one and ten percent of their daily sales into Bitcoin via the firm’s Cash App
  • The firm stated “Block believes that Bitcoin is an instrument of economic empowerment and provides a way for people around the world, including business owners, to participate in a global monetary system. According to direct feedback from Square sellers, many are interested in Bitcoin and believe it presents a wide range of use cases, such as long-term savings and diversifying their businesses’ holdings”

What happened: Messaging app Telegram increases digital asset integration

How is this significant?

  • Telegram, a major messaging app with over 900 million users, announced an expansion of the closely-associated TON blockchain ecosystem this week
  • Speaking at the Token2049 crypto conference in Dubai, CEO Pavel Durov revealed his intention to “create the first real power app that can both serve as a communication system, but also as a bank account”
  • This includes a recent integration of Tether’s USDT stablecoin (and its gold-backed XAUT coin) onto the blockchain, allowing users to transfer the asset directly via the app
  • Tether CEO Paolo Ardoino stated “The launch of USDT and XAUT on TON will allow seamless value transfer, increasing activity and liquidity while offering users a financial experience that can match those found in the traditional financial system. This furthers our mission of powering open financial infrastructure across the blockchain space”
  • Additionally, Telegram recently enabled profit-sharing from advertising for channel owners, processed via the TON blockchain and its native TON token
  • The TON Foundation explained that “The move will mean channel owners can distribute Toncoin in giveaways to their audiences, growing awareness of TON's ecosystem even further, and decentralising the token supply to Telegram's best and brightest creators”
  • TON was initially developed internally by Telegram developers, but subsequently spun off as a separate independent entity following SEC fines over an ICO

What happened: Korean digital asset activity increases amidst wider Asian enthusiasm

How is this significant?

  • The recent surge in South Korean digital asset activity was further illustrated this week, as local crypto exchange Upbit grew to become a top-5 global exchange
  • Its local position was already unassailed, accounting for approximately 80% of Korean trading volume
  • A localised exchange like Upbit growing to be a global player is perhaps not surprising when one considers that the Korean Won overtook the US Dollar as the most popular (direct) fiat trading pair in digital assets during Q1
  • New legislation, requiring demonstrable reserves and investor protection insurance, will likely increase Upbit’s dominance, as compliance necessitates significant “capital and manpower” as per a spokesperson for another leading exchange
  • for instance delayed a planned entry into the market this week, citing a desire for more regulatory conversation
  • The firm stated “Korea is a difficult market for international exchanges to enter, but we are committed to working with regulators to advance the industry responsibly for Koreans. We will postpone our launch and take this opportunity to make sure Korean regulators understand our thorough policies, procedures, systems and controls”
  • According to official statistics, more than a tenth of the Korean population traded crypto via regulated centralised exchanges last year; and altcoin trading dominates with around 80% of Korea’s total volume
  • Meanwhile, as the US continues to grapple with regulatory uncertainty (as evidenced by firms actively suing regulators for clarity), talk at the recent Token2049 conference in Dubai indicated that Asia is in the ascendancy
  • Sergey Nazarov, founder of blockchain oracle project Chainlink, stated “Between UAE, Singapore and Hong Kong, those are the hubs I’m seeing emerge as the places where people generate their entities and have legal standing”

What happened: Bitcoin halving news

How is this significant?
  • Bitcoin completed its quadrennial halving event this week, although the actual effects from the changes in supply dynamics will likely take a while to manifest
  • The amount of new Bitcoin mined as block rewards (and thus entering supply) has now dropped from 6.25 Bitcoin per block to 3.125 Bitcoin
  • As the event was highly-anticipated, it was effectively “priced in” and did not lead to any wide swings in Bitcoin pricing
  • Bitcoin miners earned a record $109m in fees on halving day, including $82m in transaction fees following interest around Rune, a new fungible token protocol built on top of Bitcoin
  • It was a long-awaited event for Bitcoin enthusiasts, with the first satoshi (the smallest denomination unit of a Bitcoin, also known as a “sat”) under the new issuance paradigm selling for $2.13m in a post-halving auction
  • As this was the fourth-ever Bitcoin halving, there are only four of these so-called “epic sats” in existence, and there won’t be another for four years
  • This trade was only made possible by the advent of Ordinals, an NFT system that allows for the identification and trading of specific “sats”
  • In other post-halving auction news, a legal pad which snuck a “Buy Bitcoin” message into a televised testimony of federal reserve chair Janet Yellen during a 2017 congressional hearing sold for over $1m, with its owner Christian Langalis saying he plans to fund Bitcoin software development with the proceeds
  • Following the halving, the weighted average cost of Bitcoin production is estimated to hit $53,000, leading to an expected exodus of smaller miners
  • CoinShares head of research James Butterfill believes miners in “energy secure” locations may increasingly divert their hashpower towards A.I. projects, rather than Bitcoin production
  • JP Morgan analysts believe that “Publicly-listed Bitcoin miners are well positioned to take advantage of the new environment, mainly due to greater access to funding and in particular equity financing [helping] them to scale their operations and invest into more efficient equipment”
  • Payment processor Block revealed the development of a new Bitcoin mining chip on Tuesday, indicating a desire to become a significant player in a post-halving landscape
  • This marks the culmination of a year’s development for Block, which first announced Bitcoin mining intentions in April 2023
  • In a statement, the firm announced “This marks an important milestone in our Bitcoin mining project. With our chip design complete, we are excited to share that we are developing a full Bitcoin mining system… Our mining chip will utilise the most advanced semiconductor process currently available and will deliver the performance required for mining operators of all types to survive and thrive in the fifth mining epoch (the period following the recent 4th halving of the block subsidy) and beyond”
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