Nickel Research Centre

Nickel News Roundup - Week 1

5th January, 2024

Market Overview:

Digital assets started 2024 strongly, as Bitcoin breached the $45,000 mark for the first time since April 2022.
  • Bitcoin bounced back from end-of-year profit taking, albeit experiencing some volatility as it traded across a broad range
  • 15 years after its first block was mined on January 3rd, Bitcoin swung between $45,430 and a weekly low $40,810, following a flash crash as some hedged against Bitcoin ETF approval
  • Bitcoin reached a peak of $45,850 on Tuesday, its highest value since April 2022
  • Overall digital asset market capitalisation grew to $1.69tn, having peaked around $1.76tn prior to Wednesday’s pullback
  • According to industry monitoring site DeFi Llama, total value locked in DeFi pulled back slightly to $52.2bn
  • Looking back on 2023, digital assets posted commendable performances and significant recoveries after 2022’s crypto contagion crash
  • Bitcoin closed 2023 at $42,280 (following widespread end-of-year profit-taking), equalling a 156% yearly profit
  • Overall industry market capitalisation handily crossed the trillion-dollar mark once more, growing from $795bn to $1.67tn; a 110% annual appreciation
  • Compared with the annual returns of the Nasdaq Composite (44%), S&P500 (24%) and traditional inflation hedge gold (13%), crypto allocations managed significant outperformance, even more so in the case of several lower-cap (and riskier) altcoins

Digital assets continued 2024 where they left off in 2023, with strong performance led by Bitcoin. Impending decision deadlines on long-awaited spot Bitcoin ETFs dominated market attention this week, leading to both Bitcoin appreciation and a flash-crash of cautious traders hedging their bets. Elsewhere, former Citi executives created another Bitcoin exposure vehicle, options trading reached record levels, Binance grew its userbase despite a challenging 2023, Puma voiced its support for Web3, a major Bitcoin miner announced plans to open a trading desk, and much more.

What happened: Spot Bitcoin ETF news as decision deadline looms

How is this significant?

  • Anticipation around—and concerns over—the possibility of spot Bitcoin ETF approval mounted this week, as the SEC’s 10th of January decision deadline for the first filed ETF (by Cathie Wood’s ARK Investment) rapidly approaches
  • It’s widely anticipated that the SEC will finally approve a spot Bitcoin ETF before that date, more than a decade after the first such product application was filed
  • Investment bank TD Cowen believes approval is “a political necessity” for several reasons; “the SEC needs to cement its role as a crypto regulator before Congress consider broader crypto legislation… We also believe the agency does not want to lose a legal challenge to its refusal to approve Bitcoin ETFs”
  • However others, such as market maker Matrixport, theorise the SEC could yet reject spot Bitcoin ETFs, as “SEC Chair Gensler is not embracing crypto in the US, and it might even be a very long shot to expect that he would vote to approve Bitcoin Spot ETFs”
  • To alleviate these concerns however, Bloomberg Intelligence ETF analyst Eric Balchunas posted that “this is as close to ‘done’ as we’ve been”, noting a slew of updated filings were a positive sign; “when we see updated (final) 19b-4s roll in that is sign approval imminent as SEC has been doing back and forth w issuers offline to perfect their 19b-4s vs doing numerous refilings a la S-1s”
  • Despite some initial resistance, all issuers now appear to have conceded on filing for ETFs with cash redemption mechanisms, at least initially
  • A Grayscale spokesperson commented “At Grayscale, we continue to work collaboratively with the SEC to uplist GBTC to NYSE Arca as a spot bitcoin ETF”
  • Several major TradFi firms were also named as authorised participants [APs] for proposed ETFs during the week; Fidelity selected Jane Street as an authorised participant, as did BlackRock (who also named JP Morgan securities), followed by Grayscale selecting JP Morgan and Goldman Sachs as authorised participants (able to create and redeem shares), according to Bloomberg sources
  • According to some sources, Goldman Sachs is also seeking an authorised participant role within BlackRock and Grayscale’s ETFs
  • Nate Geraci of the ETF Store promoted these moves; “Lining up APs won’t exactly be a layup for every prospective issuer, so this was an important step. Based on everything we know at this point, BlackRock is the first issuer to complete the SEC’s requirements in order to be considered for inclusion in the first wave of spot-Bitcoin ETF approvals”
  • CBOE and FOX Business, however, anticipated a positive response to any approval news; CBOE Digital president John Palmer stated that “approval is going to pave the way for pension funds and RIA-based funds to be able invest in assets in a spot Bitcoin ETF”, whilst FOX Business host Charles Payne opined that approval would likely “drive markets higher”

What happened: Former Citi executives plan Bitcoin depositary receipts

How is this significant?

  • Meanwhile, as Bitcoin ETFs and the wait for SEC approval dominated headlines, a group of former Citi execs announced Bitcoin-backed securities—exempt from SEC approval requirements
  • These products, called “Bitcoin depositary receipts” act like American depositary receipts representing foreign stocks, and according to the new firm issuing them (RDC), they offer access to Bitcoin securities via regulated market infrastructure, but are exempt from registration under the Securities Act of 1933
  • RDC was co-founded by former Citigroup executives Ankit Mehta, Bryant Kim, and Ishaan Narain
  • The depositary receipts can be sold to qualified global institutional investors, and will be cleared via the Depository Trust Co.
  • Mehta commented “We are really a conversion tool for asset owners today, whether they are hedge funds, family offices, corporations, large institutional investors, that want to take their Bitcoin and convert it into a DTC-eligible security and enjoy direct ownership in the US clearances”
  • According to their press release, RDC are backed by “investors including Franklin Templeton, BTIG, and Broadhaven Ventures”, and the Bitcoin will be custodied by Anchorage Digital Bank
  • This segregation of services may make their offering more attractive to institutions, according to Narain, and Anchorage Digital CEO Diogo Mónica; “Bringing market standards from traditional finance—like depositary receipts—to the digital-asset ecosystem will be a major theme in 2024. The majority of traditional institutions want direct exposure to Bitcoin, but some are on the sidelines due to regulatory uncertainty. For them, Bitcoin depositary receipt unlocks the best of both worlds”
  • Interestingly, the depositary receipts offer direct Bitcoin ownership for institutions, compared with cash redemption that the SEC pushed all potential ETF issuers towards

What happened: Binance grew user base in 2023 despite US legal woes

How is this significant?

  • Binance, the largest digital asset exchange in the world, grew its user base significantly last year, despite legal challenges in the US which led to a $4.3bn fine and the resignation of founder Changpeng “CZ” Zhao as CEO
  • In the company’s end-of-year report, new CEO Richard Teng revealed that Binance added 40 million new accounts, bringing the total number registered on the platform to 170 million
  • Teng wrote “net inflows have been very robust, while new users continued coming in steadily”, even after Zhao’s guilty plea (on an AML charge) and resignation
  • The exchange also spent $213m on compliance last year, a 35% increase on the same expenditure in 2022
  • Binance Pay, Binance Earn, and peer-to-peer platforms all saw growth, alongside interest from institutional investors, according to Teng
  • He sounded an optimistic note going forward, saying “This organisation is built to last—not years, but decades”

What happened: Asian economies move towards stablecoin integration

How is this significant?

  • Bloomberg reported this week that both Hong Kong and Singapore are gearing up towards recognition and integration of stablecoins into their economies
  • Late last year, Hong Kong regulators published a proposal to licence stablecoins, whilst Singapore already issued in-licence approvals to multiple stablecoin issuers during a fintech festival in November
  • This could be particularly useful in several Asian economies where electronic payment apps are popular, but often fragmented across markets and currencies; using fiat currencies could present challenges if (for example) a Chinese tourist accustomed to using Alipay+ attempts a purchase from a Singapore vendor that only accepts GrabPay
  • Asian economies and stablecoins appear more inclined than several Western economies towards “purpose-bound money”; currency that’s programmed to be spent in only certain places (which could allow Alipay users to pay with a XSGD Singapore dollar stablecoin which whitelists GrabPay as an approved recipient of funds)
  • However, there are also contrasts to approaches across economies; Hong Kong is open towards stablecoins pegged to the value of a basket of currencies, whereas Singapore’s central bank will only permit them to be pegged to the Singapore dollar or G10 currencies

What happened: Bitcoin miner Cleanspark to open trading desk

How is this significant?

  • Cleanspark, a large publicly-listed American Bitcoin miner, revealed plans this week to diversify its income streams; by opening its own trading desk
  • CEO Zachary Bradford said this would allow the company to better leverage the fruits of its labour; “We really think that doing it ourselves is the best way especially with the large Bitcoin balance we have. It just makes financial sense to do it in-house”
  • He added “I think what will happen is miners like ourselves will start having trading desks in-house. That way, you can manage it with your own risk profiles and expertise and keep a really close eye on it”
  • Cleanspark were one of several Bitcoin miners to reap the benefits of Bitcoin’s rally last year, as its share price appreciated by 440% (albeit after tumbling by 79% during 2022’s harsh crypto winter)

What happened: Nigeria lifts ban on crypto trading, rolls out banking guidelines

How is this significant?

  • In December, Nigeria lifted a national ban on digital asset trading, following it up this week with guidelines for banks dealing with crypto assets
  • The central bank published these new rules on its website on Tuesday, clarifying that “Current trends globally have shown that there is need to regulate the activities of virtual assets service providers which include cryptocurrencies and cryptoassets”
  • Banks will not be able to hold or trade digital assets themselves, but can open crypto accounts for customers, provided that they are denominated in Naira, and permit no more than two withdrawals per quarter
  • Additionally, cash withdrawals from such bank accounts will not be permitted; customers will have to transfer crypto assets to other fiat off-ramps if they wish to cash out

What happened: Digital asset options trading reaches record

How is this significant?

  • Crypto derivatives trading reached new records, as institutional investors sought ways to position themselves ahead of a potential spot Bitcoin ETF
  • Industry data source TheBlock revealed that leading derivatives exchange Deribit had its largest-ever options expiry at the end of last week
  • Options with a notional value of over $11bn expired last Friday, comprised mainly of Bitcoin ($7.7bn), with the remainder in Ether ($3.5bn)
  • Deribit chief commercial officer Luuk Strijers commented “We see clients rolling positions to 2024 expiries and expect to see more of that closer to the expiry as well as afterward. After the expiry, all eyes and trading activity will be focused on the upcoming ETF decision”
  • Ryan Kim of prime brokerage FalconX said these increases were institution-driven; “Amongst our own options volumes, we’ve seen increased participation from crossover macro accounts—large traditional asset managers who are allocating a small percentage to crypto—and crypto-focused hedge funds”

What happened: Puma reaffirms commitment to Web3 development

How is this significant?

  • German sportswear and fashion brand Puma spoke to TechCrunch this week, and confirmed that the company remains committed to investing in Web3 capabilities
  • Puma’s head of emerging technology Ivan Dashkov commented that the potential has yet to be fully realised; “Web3 is a big shift in how people use the internet… We don’t think the way the space exists today will be what it looks like in four or five years, but we want to be ready”
  • By purchasing puma.eth, the brand were one of the first to register an ENS domain; a bespoke textual address linked to the randomly-generated hexadecimal strings which represent blockchain addresses (but are impossible for most humans to remember)
  • Additionally, the company launched its own metaverse project in June last year (i.e. 2023)
News Roundups