Nickel Research Centre

Nickel News Roundup - Week 10

March 9th, 2023

Market Overview:

Digital assets declined sharply this week, following a combination of hawkish commentary from Jerome Powell, and the downfall of industry bank Silvergate.

  • Bitcoin fell significantly over the weekend as Silvergate suffered, before breaking below $22,000 amidst bearish economic commentary from Jerome Powell
  • The majority of trading occurred in the $22,000 to $22,600 range, with weekly highs and lows of $23,540 and $21,690 respectively
  • Bitcoin’s current price of $21,760 is down 7% from last week
  • Ether followed Bitcoin’s movements, hitting a $1,534 low after a $1,651 high
  • Ether’s current price of $1,540 equates to a 6.2% decline
  • Total Ether supply declined further, dropping more than 50,000 Ether below pre-Merge levels, and annual issuance rate remained steady at -0.5% yearly
  • Overall market capitalisation dropped below $1tn, to current values of $998bn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms declined to $47.3bn

Banks and banking were a key theme in the digital asset space this week; Silvergate Bank became the latest victim of FTX contagion, unsettling traders. Swiss banks were touted as an attractive alternative to US institutions operating in an uncertain regulatory environment, a Gibraltar-registered private bank integrated Bitcoin’s Lightning Network, and digital asset exchange Kraken promised the launch of its own bank. Elsewhere, new surveys revealed current attitudes, the SEC was questioned and challenged in court, Thai authorities announced tax breaks for digital assets, and Coinbase made a major acquisition in the form of an institutional hedge fund.

What happened: Crypto fund managers move to Swiss banks

How is this significant?

  • Following the recent challenges and downfall of Silvergate, a bank servicing many major companies in the digital asset industry, exchanges such as Coinbase,, and Gemini severed their ties to the bank—as have several hedge funds
  • Now, such funds are looking towards Switzerland to fulfil their banking needs
  • Switzerland has a reputation for less hostile regulatory conditions than the US, where the SEC have stepped up enforcement actions since the start of the year
  • Sygnum and SEBA are Swiss banks known to serve the digital asset industry, backed by institutions like Julius Baer
  • Richard Galvin, CEO of $400m AUM hedge fund Digital Asset Capital Management told Bloomberg that the industry lacked a wide range of institutions with industry knowledge; “It might take some time to find a banking partner. We’re speaking to some Swiss banks”
  • Switzerland boasts a developed legal framework for digital assets; this clarity has allowed banks like SEBA to offer a range of services, including staking, ETP development, and even expansion into new markets

What happened: Silvergate Bank announces intention to wind down operations

How is this significant?

  • Silvergate Bank dominated reporting, following recent news that they were under investigation for their previous links to FTX, and delayed filing their annual report
  • This week, more details and developments emerged; first they suspended their SEN program, then met with FDIC officials on Tuesday in an attempt to “salvage the bank”
  • Silvergate was a major victim of the FTX collapse, after serving as a major banking provider for the failed exchange—they reported a $1bn loss last quarter, and customer deposits as of December 31st had dropped to below half pre-FTX downfall levels
  • Over the weekend, they announced “a risk-based decision to discontinue the Silvergate Exchange Network” (SEN), a payments network widely used within the crypto industry, servicing fiat on/off-ramps to several exchanges
  • On Tuesday, reports came out revealing that regulators met with Silvergate officials to discuss the ongoing viability of the bank
  • Late on Wednesday, Silvergate issued a press release declaring that “In light of recent industry and regulatory developments… an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward. The Bank’s wind down and liquidation plan includes full repayment of all deposits”
  • Stablecoins and rival bank Signature were identified by industry observers as possible beneficiaries of Silvergate’s demise
  • New York-based Signature currently offers the only blockchain alternative to SEN, allowing real-time settlements and USD transfers to digital asset exchanges
  • BCB, the first crypto payments processor to secure FCA approval, announced plans to fill the banking gap, “accelerating plans to add U.S. dollar capabilities” according to an interview their CEO gave to industry publication Coindesk
  • BCB’s SEN equivalent, BLINC, has been running since 2020 with active support for Pound Sterling, Euros, and Swiss Francs, whilst US Dollar integration is currently in development

What happened: Regulatory news

How is this significant?

  • On Tuesday, Thailand’s finance minister Arkhom Termpittayapaisith announced a tax waiver on “investment tokens”; a classification given to most digital assets in Thailand, where they are legal to buy, sell, and trade, but forbidden to use as legal tender
  • The minister said according to their calculations, the move “could see the government forgo revenue of up to 35 billion baht ($1 billion) in the next two years”
  • Previous relaxations of crypto-specific tax rules were promoted as a means of attracting greater industry presence to the country, which this move appears to supplement
  • Meanwhile, Bloomberg released a podcast on Tuesday, outlining current regulatory efforts in Europe and the UK
  • UK efforts remain in the proposals and consultations stage, whereas Europe’s MiCA directive is at a more advanced stage, and may have had a beneficial effect on crypto funding, which has “more than doubled year-on-year” in Europe
  • Despite being close to final approval, MiCA will likely be revised and supplemented in future, as current legislation doesn’t consider certain digital asset classes like NFTs
  • Coinbase CEO Brian Armstrong claimed there were currently “two camps” in US regulatory efforts; “One camp is saying, ‘Hey, in the wake of FTX, I'm afraid of being associated with crypto and I'm just going to kind of wait and see what happens because it's too dicey to even go near it’. The other half of the folks I speak with are saying, ‘You know what? This is an opportunity. I want to be the one of the people who helps bring this within the regulatory perimeter”

What happened: New surveys reveal current attitudes towards crypto assets

How is this significant?

  • Several surveys released recently revealed the current reputation for digital assets amongst investors—and whilst exposure may have tapered since the height of the bull market, attitudes remain broadly positive
  • The Bitwise/VettaFi 2023 Benchmark Survey of Financial Advisor Attitudes Toward Crypto Assets concluded that advisors need to “learn crypto, or your clients will”
  • 37% of advisors responding to the questionnaire were currently invested in digital assets, but their client base appeared to demonstrate continued interest in the asset class; “upwards of 83% of clients either have crypto or the advisor isn’t aware if they do”
  • However, only around a quarter of advisors indicated they would advise clients to invest in digital assets now, reflecting ongoing bear market conditions
  • Meanwhile, a recent American survey by Coinbase revealed that “76% of Americans believe that cryptocurrency and blockchain are the future”, 20% of respondents currently own digital assets, and two-thirds believe that “the current financial system needs major changes or a complete overhaul”
  • This last sentiment forms the basis of a new campaign by Coinbase, calling out flaws in current financial infrastructure and practices, advocating for crypto assets as a way to “update the system”

What happened: Coinbase acquires hedge fund to diversify income streams

How is this significant?

  • Publicly traded US exchange Coinbase took action against declining trading fee revenues this week, announcing the acquisition of institutional-focused hedge fund One River Digital
  • As an exchange, trading fees have historically provided the vast majority of Coinbase’s income—but bear markets bring declining trade volumes, and thus declining fees
  • Coinbase have already recognised this and moved to make themselves “an all-weather company” via additional products; according to their new shareholder letter “subscription and services revenue grew 34% Q/Q to $283 million”
  • Now, they’ve moved to further diversify their income streams, acquiring hedge fund One River Digital in a bid to secure more predictable returns less linked to market cycles
  • One River Digital is noted for its institutional pedigree; former SEC chairman Jay Clayton acts as an advisor, hedge fund billionaire Alan Howard was an early investor, and they positioned themselves as one of the top holders of Bitcoin before the last bull market
  • Unlike the more volatile returns associated with active trading, they built a reputation for long-term capital, money management, and an exclusively-institutional client list, including pension funds
  • Alongside the backing of Alan Howard, One River’s venture funding also featured institutional powerhouses like Goldman Sachs and Liberty Mutual, alongside Coinbase themselves
  • Greg Tusar, Coinbase’s head of institutional product said “This is about wanting to bring more institutional capital into the world of crypto. We expect to build—on the other side of this crypto winter—an awesome asset-management business”.

What happened: Contagion latest—Binance.US beats SEC objections on acquisition

How is this significant?

  • On Tuesday, a US bankruptcy judge overruled SEC opposition to Binance.US’ takeover of bankrupt platform Voyager, clearing the path for their long-running acquisition saga to finally conclude
  • Whilst federal officials are reportedly considering an appeal to the decision, judge Michael Wiles actively criticised the SEC for attacking the takeover (which would return about 73% of assets owed to creditors) without providing any evidence for claims on illegal aspects thereof
  • Said Wiles; “I cannot put the entire case into indeterminate deep freeze while regulators figure out whether they believe there are problems with the transaction and plan”
  • He also indicated “it would be impossible to resolve any bankruptcy case if the people involved could be sued for following a plan that had been approved by a federal judge”
  • In other contagion news, Jerome Powell advised banks to be cautious about any exposure to digital assets, claiming “what we see is quite a lot of turmoil”
  • In the UK, Nationwide and HSBC applied new limits to customer purchase of digital assets, capping daily debit card deposits to popular exchanges like Binance at £5,000, and disabling purchases via credit card entirely
  • Singaporean police kicked off investigations into Terraform Labs, the company of fugitive developer Do Kwon, designer of the failed Terra Luna blockchain ecosystem

What happened: Gibraltar bank integrates Bitcoin’s Lightning Network

How is this significant?

  • Gibraltar-licenced private bank Xapo added support for Bitcoin’s Lightning Network scaling solution this week, allowing easier utilisation of the asset as a payment method
  • In partnership with Lightspark, a project helmed by Facebook’s former crypto lead, Xapo now enables instant payment via Bitcoin amongst participating vendors
  • Xapo operates as a licenced bank with protected deposits, SWIFT membership, and crypto custodian services, offering interest on both USD and Bitcoin deposits
  • CEO Seamus Rocca told industry publication Coindesk that the global appeal of digital assets was a key consideration in their decision to offer access; “in places like Argentina, Venezuela, Lebanon, Nigeria, where currencies devalue and you can have hyperinflation, Bitcoin can change people’s lives”
  • The Lightning Network itself is a key focus for Bitcoin advocates wishing to broaden its appeal by speeding up transactions and driving down transaction fees; noted Bitcoin supporter Jack Dorsey announced that his payment firm Block (formerly Square) would use their own Bitcoin reserves as liquidity on the Lightning Network, enabling larger transactions

What happened: Kraken exchange reveals plans to launch bank

How is this significant?

  • In yet more banking-related news this week, digital asset exchange Kraken—recently fined by the SEC and ordered to stop offering staking services to Americans—is set to launch their own bank imminently, according to chief legal officer Marco Santori
  • Santori also questioned the wisdom of the current US regulatory crackdown, claiming it could lead to company’s repeating FTX’s modus operandi of moving to less-regulated jurisdictions; “It does of course affect pretty dramatically our product mix in the U.S. It's really indicative of a pretty unfortunate situation here stateside. We've got a regulatory environment that is essentially forcing users off to use offshore exchanges that will gladly accept their business with so little as a VPN”
  • According to reports, Kraken has already secured regulatory approval in Wyoming, under the state’s special-purpose depository institution law

What happened: Grayscale argues against SEC spot Bitcoin ETF denial in court

How is this significant?

  • Grayscale’s objection to repeated SEC rejections of spot Bitcoin ETFs—including the proposed conversion of Grayscale’s GBTC fund—were heard by a panel of US judges this week
  • A repeated argument of the SEC has been that spot Bitcoin ETFs would allegedly be more open to manipulation than futures Bitcoin ETFs, despite both relying on the same price for the same underlying asset
  • SEC lawyers claimed that the CME Group “performs extensive surveillance of the trading activity on its market”, but judge Sri Srinivasan posited that any manipulation in spot markets should be echoed in futures markets; “It is just going to follow like the night follows the day”
  • Judge Neomi Rao indicated that claims regarding manipulation were perhaps overblown; "One is essentially a derivative of the other. They move together 99.9% of the time… It seems like it's fine for an agency to say ‘okay, we need some more information’, but it seems there's quite a bit of information here on how these markets work together, and the SEC has not offered any explanation... that the petitioners here are wrong,"
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