Nickel Research Centre

Nickel News Roundup - Week 22

June 2nd, 2023

Market Overview:

Digital assets saw a slight recovery from last week’s performance as May marked Bitcoin’s first negative monthly candle of the year.

  • Bitcoin traded in a slightly wider range than last week, peaking at $28,360 (following a weekly low of $26,370) after the US eased default fears by reaching a debt ceiling deal
  • However, these gains were gradually pared back, as interest rate concerns persist
  • The current trading price of $27,080 represents a 2.5% increase
  • Mining difficulty once again reached a new record high, indicating intense competition amongst miners to generate new blocks; necessitating more complex computation
  • Ether outperformed Bitcoin, rising from a weekly low of $1,800 to $1,910 after the debt ceiling catalyst
  • Current pricing at $1,887 equates to 4.7% weekly growth
  • Ether supply dynamics remain deflationary, but again slowed the rate of deflation, registering a current annual net issuance of -0.55%
  • Overall digital asset market capitalisation plateaued, remained at $1.13tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms remained steady around $46.5bn

Digital assets recovered some of the losses from the previous fortnight. Even after its first negative month in 2023, Bitcoin remains up more than 60% year-to-date. JP Morgan analysts published a new research note identifying Bitcoin’s issuance halving and “digital gold” status as possible catalysts for further growth, leading exchange Binance was active across a variety of products and jurisdictions, VCs registered more major deals, Hong Kong continued their crypto push (whilst Beijing might have signalled a Web3 push of their own), and interdealer-brokers TP ICAP launched a new crypto spot trading exchange designed for institutional investors.

What happened: JP Morgan analysts publish new crypto asset forecasts

How is this significant?

  • In a new research note this week, JP Morgan analysts (led by Nikolaos Panigirtzoglou) outlined their views on the possible near-to-mid-term future of leading digital assets, including Bitcoin and Ether
  • The analysts were bullish on Bitcoin’s potential, due to a variety of factors including its next “halving” event, and its perception as “digital gold”
  • Their gold-based price prediction stated “With the gold price rising above $2,000, the value of gold held for investment purposes outside central banks is currently valued at around [$3 trillion]... In turn, this implies a $45,000 price for bitcoin under the assumption that Bitcoin equalises gold in private investors' portfolios in risk capital or [volume]-adjusted terms”
  • Although this $45,000 remains below levels seen during 2021’s bull run, it would still represent a rise of more than 50% from current levels, and bring the total market capitalisation of Bitcoin to around $900bn
  • However, this isn’t the only factor they believe is working in Bitcoin’s favour; However, this isn’t the only factor they believe is working in Bitcoin’s favour. In the first four months of next year, the next Bitcoin halving will occur. This is a quadrennial event in which block rewards are halved, reducing the amount of new Bitcoin being issued and entering supply
  • Miner rewards will thus be cut from 6.25 Bitcoins per block to 3.125 Bitcoins; effectively doubling the mining cost (to a forecast $40,000)—and thus, according to JP Morgan analysts, raising the asset’s price floor
  • In the note, they claimed “Bitcoin's production cost has historically acted as an effective lower bound… Indeed, the previous halving events of 2016 and 2020 were accompanied by a bullish trajectory for Bitcoin prices that had accelerated post the halving event”
  • Regarding Ether however, they predicted a relevant underperformance, with no digital gold or impending halving narratives to support it
  • Due to the Ethereum network’s recent Shanghai upgrade, validator nodes staking Ether are free to withdraw at any time, which they believe could cause increased sell pressure; “We thus expect Ethereum to somewhat underperform Bitcoin over the near term”

What happened: Binance considers allowing trading collateral stored in bank accounts

How is this significant?

  • Binance is the leading digital asset exchange platform in the world, but has seen its market share slip significantly to below 50% over the last few months; although Binance executives claim “We've got a lot of market share right now. We don't feel the need to capture more market share... In fact, we want more competition. Competition is good for the marketplace. It's good for the industry”
  • However, the exchange is clearly not resting on its laurels, as indicated by several news items this week
  • Bloomberg reported that Binance may allow institutional clients to keep their trading collateral at a bank (rather than on-exchange) in a bid to allay concerns and reduce counterparty risk following last year’s FTX collapse
  • According to sources, two of the institutions considered for such a service are from traditional banking powerhouses; Switzerland’s FlowBank, and Liechtenstein’s Bank Frick
  • The sources told Bloomberg “clients’ cash at the bank would be locked up through a tri-party agreement while the exchange lends them stablecoins to serve as collateral for margin trading… The cash kept with the bank could then be invested in money-market funds to earn interest, helping to compensate for the cost of borrowing crypto from Binance”
  • Outside of alpine banking institutions, Binance also announced plans for their operations in Japan
  • In a blog post, they revealed the launch of a new platform in summer, designed specifically for the frameworks of Japanese regulation
  • It could be built upon Sakura, a local exchange which they acquired last November with an eye towards regulatory compliance
  • As part of the plan, Japanese residents will be geo-blocked from Binance’s global website from November onwards
  • Regulatory compliance was also evident in token delistings; on Wednesday Binance removed all privacy coins (crypto tokens with an emphasis on address obfuscation) from trading in four European countries; France, Italy, Poland, and Spain
  • The company also promoted Richard Teng (formerly Singapore division CEO) to head all regional markets outside the US, building on his current role that already included responsibility for Asia, Europe, and the MENA region

What happened: Hong Kong opens up digital asset licencing applications

How is this significant?

  • Hong Kong made a significant step towards its recent ambitions of becoming a global crypto hub, as it opened applications to run licenced trading platforms and exchanges on the 1st of June
  • This follows hot on the heels of the city’s Securities and Futures Commission concluding a consultation on crypto, in which they stated “A significant majority of respondents agreed to our proposal to allow licensed trading platform operators to serve retail investors”
  • Now, Nikkei reports authorities claim more than 80 businesses (particularly mainland Chinese firms) have expressed interest in licences, which include requirements like a minimum HK$5m capital, AML practices, and appointment of qualified managers
  • Leading digital asset exchange Huobi became the first crypto-native trading platform to announce a move into Hong Kong, confirming their application for a licence
  • Hong Kong-based qualified custodian First Digital announced the launch of a new stablecoin. It is pegged to the US Dollar but is regulated and collateralised in Asia.
  • There could even be Hong Kong proxies for Chinese businesses, where digital asset trading is officially banned, Nikkei stated that “subsidiary of Chinese state-owned property developer Greenland Group plans to apply for a licence”, citing local media
  • Speaking of mainland China, although their official ban on digital asset trading remains in place, the superpower nonetheless remains committed to Web3 and blockchain development, according to local news sources
  • Chinese news outlet ThePaper claims that Beijing’s Municipal Science & Technology Commission identified Web3 as “an inevitable trend for future Internet industry development” in a new report titled “Web3 Innovation and Development White Paper (2023)”
  • According to the report, Beijing aims to become a global digital economy hub, and will invest 100m Yuan per year to develop its local Web3 industry
  • Some industry analysts deemed the timing of the white paper—on the eve of Hong Kong’s licencing expansion—”interesting”, and a possible sign of a thawing from Beijing
  • However, other observers urge caution. Bloomberg’s Suvashree Ghosh noted, “The potential lies not so much in the local Hong Kong market but in the vast Chinese wealth, some of which flows through the city. And some investors even see the possibility of China one day lifting its mainland crypto ban and permitting citizens to do some trading through Hong Kong—both very, very big ‘ifs’ that depend on the capricious whims of regulators”

What happened: Tether moves into sustainable Bitcoin mining

How is this significant?

  • Following their recent strategy of Bitcoin acquisition funded by profits, stablecoin issuers Tether announced this week that it “is investing resources into energy production and the launch of sustainable Bitcoin mining operations in Uruguay, in collaboration with a local licensed company”
  • Sources told industry publication Coindesk that the mining facility is scheduled to launch in Q3 this year
  • 94% of Uruguayan energy production currently comes from renewable sources, addressing one of the main criticisms often levelled at Bitcoin—the energy-intensive nature of its mining process
  • Tether also announced that they’re recruiting energy experts to further bolster their mining operations; “As part of this new venture, Tether is investing in renewable energy sources to support and promote sustainable Bitcoin mining—an essential component in upholding the world's most robust and secure monetary network”
  • Additionally, Tether also revealed an investment in; a subsidiary of Binance Pay
  • As part of the deal, Tether was integrated as a payment option within 600 locations and merchants in Georgia

What happened: TP ICAP launches institutional crypto spot trading

How is this significant?

  • Despite current crypto winter climes and regulatory pressures, institutional demand for digital assets is growing; according to TP ICAP, the world’s largest interdealer-broker
  • This week, the firm announced the launch of Fusion Digital Assets, its institutional spot trading marketplace for crypto
  • Simon Forster, TP ICAP’s co-head of digital assets, told Coindesk “While the crypto-native landscape still feels a little sombre, when we look at our traditional client base and we look at the relationships we’ve been developing, it actually feels optimistic”
  • Fusion Digital Assets features a fragmented structure more familiar to institutional investors than the vertically-integrated approach of most crypto-native exchanges; TP ICAP run trading services (on a platform co-developed by digital asset firm GMEX), Fidelity provides custody, and liquidity is aggregated from multiple sources
  • The first registered trade on the platform was—as might be expected—a Bitcoin/USD trade
  • Forster’s co-head Duncan Trenholme commented “Institutional demand to trade spot cryptoassets is significant and growing… the new Fusion Digital Assets platform, is a natural evolution in market structure that will make digital assets more accessible for wholesale market clients who want to be able to trade, invest and safely access this growing area of the market”

What happened: VC news

How is this significant?

  • Several major raises, acquisitions, and funding rounds made the news this week, ranging from the mid-eight-figures to low-nine-figures
  • CleanSpark (an American Bitcoin miner using 90% renewable energy) announced the purchase of 12,500 mining rigs from hardware producers Bitmain, in a deal worth $40.5m
  • This adds to 20,000 mining rigs purchased by Cleanspark in February
  • SEC filings revealed that private markets firm StepStone Group raised $97m across two blockchain private equity funds, with around $25m raised in the Cayman Islands
  • Non-custodial blockchain wallet creation service Magic raised $52m in a strategic round led by PayPal Ventures
  • PayPal’s Alan Du said that potential future adoption drove their investment thesis; “Magic's wallet creation service allows companies to reach millions of users on their apps and onboard customers who are new to Web3. We… believe the company will help drive the growing number of Web3 use-cases amongst global brands”
  • VC firm Tribe Capital—whose previous crypto investments include exchanges like Bitfinex, Kraken, and FTX—is raising a new $100m digital asset fund, according to Coindesk sources
  • The $1.6bn AUM firm will make investments between $500,000 and $3m “to help drive the development of protocols which can provide security, scalability, liquidity and cross-chain compatibility so that the crypto ecosystem garners greater trust”
  • Mysten Labs, developers of the new Layer-1 Sui blockchain, inked a multi-year sponsorship deal with Formula 1 mainstays Red Bull Racing this week, but neither party disclosed the particulars of the deal

What happened: Regulatory news

How is this significant?

  • Although US regulatory uncertainty has dominated reporting this year, digital assets remain a fundamentally borderless—and thus international—asset class, leading regulators in other jurisdictions to comment on crypto as well
  • Gemini, the Winklevoss-led American crypto exchange is looking beyond the US as tensions between the industry and SEC continue to mount
  • The exchange announced an application for a licence in the UAE—a country that took a much more proactive and bespoke approach to digital asset regulation
  • Gemini stated “Our application is our first step towards providing customers in the UAE and beyond with a safe, secure, and easy-to-use platform to engage with crypto… another step towards making Gemini a truly global company”
  • This follows their launch of an off-shore derivatives exchange, increasingly diversifying their business portfolio outside of US borders
  • Writing in the UK’s Telegraph newspaper, Cameron Winklevoss touted an increased UK presence, saying “We’re not leaving the US, we’re going to continue to fight the good fight there… But we also understand that you can vote with your feet, and that’s our right and we will do that when faced with a hostile environment”
  • Dubai regulators meanwhile chided their global counterparts, saying watchdogs must collaborate; “as regulators we need to talk to each other a lot more in this area because there can be quite a few gaps and we have seen a lot of bad actors trying to plug some of those gaps”
  • In Norway, the central bank urged legislators to speed their development of digital asset guidelines, rather than relying on inspiration from international solutions
  • Norges Bank pledged to “contribute to such assessments and to regulation that promotes responsible innovation”

What happened: Increased digital asset taxes excluded from US debt ceiling compromise
How is this significant?

  • The recent resolution to the partisan US debt ceiling standoff created a rush of relief for markets; and perhaps also indicated that the administration views crypto more as an easily-vilified economic boogeyman than an actual economic threat
  • Prior to negotiations with Republican house speaker Kevin McCarthy, president Joe Biden stated at the G7 that he was “not going to agree to a deal that protects wealthy tax cheats and crypto traders”
  • However, the text of the 99 page debt deal indicates that digital assets are perhaps less distasteful than previously and publicly indicated
  • The initial government budget proposal included a 30% energy tax on Bitcoin miners, and application of wash trading tax rules to crypto assets (which they forecast would raise $24bn over 10 years)—but the compromise deal included neither
  • This possibly indicates that whilst crypto traders are a convenient political punching bag, they aren’t a hill worth dying on for those in high office, and their alleged existential threat to the US economy may have been exaggerated
News Roundups