Nickel Research Centre

Nickel News Roundup - Week 22

31st May, 2024

Market Overview:

Digital assets exhibited steady performance following last week’s Ether ETF-approval euphoria, bolstered by several reports concerning US regulatory positivity.
  • Bitcoin hit a weekly peak of $70,500 on Monday thanks to strong sustained ETF inflows, up from a Friday low of $66,690
  • Bitcoin did experience a sharp pullback on Tuesday after news of significant funds moving from Mt Gox wallets, but prices subsequently recovered somewhat
  • The bulk of trading occurred in the $68,000 to $69,500 range, with only brief forays beyond those boundaries
  • Ether cooled off after last week’s explosive growth, but remained well in excess of its value just a fortnight ago
  • Ether’s movements echoed Bitcoin’s, with a Friday low of $3,655 and a Monday high worth $3,964
  • Overall digital asset market capitalisation remained unchanged at $2.55tn, as the slight Bitcoin appreciation cancelled out Ether’s minor pullback
  • According to industry monitoring site DeFi Llama, total value locked in DeFi was worth $106bn

Digital assets performed solidly this week, despite Ether losing momentum as more details emerged around expected timelines before such products can actually launch for trading. Positive political and regulatory developments occurred in the United States, as the tone on crypto shifted ahead of elections, BlackRock hit a new record with its ETF, banks promoted blockchain, firms adopted Bitcoin as a treasury asset, VC activity gathered steam, and crypto continued demonstrating global appeal.

What happened: Ether ETF news

How is this significant?

  • Following last week’s late-breaking news that the United States SEC had—unexpectedly—approved spot Ether ETFs in a “major crypto victory”, further reporting on the story flooded in this week
  • It’s worth remembering that the SEC’s approval was based on 19b-4 filings; allowing proposed listing exchanges to amend their rules in order to add spot Ether products, but wasn’t an approval for the specific ETFs proposed by issuers
  • These have to go through approval in the SEC’s S-1 form filing process now—and following the exchange approval, potential issuers moved quickly
  • BlackRock filed an updated version of its S-1 filing on Wednesday
  • Within the filing, it also emerged that BlackRock had already seeded the fund with $10m worth of Ether, for 400,000 shares priced at $25 each, to trade under the ticker “ETHA”
  • Bloomberg senior ETF analyst Eric Balchunas identified this as a “good sign”, and theorised that in terms of timelines, “probably one more round of fine-tune comments from Staff. End of June launch a legit possibility although keeping my over/under date as July 4th”
  • His colleague James Seyffart commented that BlackRock’s swift S-1 filing was “almost certainly the engagement we were looking for on the S-1’s following the 19b-4 approvals. Issuers and SEC are working towards spot Ethereum ETF launches”
  • The proposed spot Ether ETF of rivals Fidelity was spotted on the DTCC website under the ticker FETH, alongside similar products from BlackRock, Franklin Templeton, and VanEck
  • Another major applicant is ARK Invest—its CEO Cathie Wood spoke at the recent Consensus conference, where she outlined a belief that Ether ETF approval was a political issue, spurred by recent shifts in digital asset support by Democrats
  • Wood said “The read was it was not going to be approved. It was absolutely not going to be approved… If it were to have been approved the regular way, we would have been getting questions from the SEC. No one was getting questions from the SEC beforehand”
  • Meanwhile, Duke University Financial Economics Center policy director Lee Reiners pointed out that the exchange listing applications were predicated on the concept of Ether classified as a commodity, indicating that the SEC may have reversed its recent reported stance considering Ether a security
  • 21Shares co-founder Ophelia Snyder said that SEC approval for Ether ETFs showcased “global momentum around crypto”, noting spot Ether ETN approvals within the UK alongside the recent US approvals
  • Other analysts have already begun looking forward to the next potential ETFs, with altcoins Solana and Ripple suggested as the most likely candidates (although other industry observers remain sceptical of any assets beyond Ether seeing approval)
  • A new report by Kaiko Research this week sought to quantify the potential “Grayscale effect” of Grayscale’s existing Ethereum Trust (ETHE) being converted into an ETF, as was the case with its Bitcoin-based GBTC fund
  • ETHE currently holds around $11bn worth of Ether, and thus at similar outflows to GBTC (assuming the firm would once again leverage its existing liquidity by charging far higher fees than competitors) could bleed around $110m of Ether per day
  • According to the report, this is equivalent to around “30% of Ether’s average daily volume on Coinbase”, and it would be “reasonable to expect” outflows and redemptions, as ETHE has previously traded at discounts of more than 25% to NAV
  • This discount has significantly narrowed since news of ETF approvals broke, but remains at around 1.3%
  • The week of the ETF (exchange) approvals, Ether experienced its best week since 2021, although its performance was somewhat tempered the week after as expectations around overall launch timeframes settled some early enthusiasm
  • Balchunas cautioned against lofty expectations on eventual spot ETF launches, using the relative performance of Bitcoin and Ether Futures ETFs to forecast approximately 1/5th of Bitcoin’s spot product volume for Ether
  • Nonetheless, he added “grabbing 20% of what they [spot Bitcoin ETFs] got would be huge win/successful launch by normal ETF standards”
  • ETF Store’s Nate Geraci confirmed that Vanguard was maintaining its policy of crypto ETF avoidance, with no planned Ether access for customers

What happened: Political and regulatory news

How is this significant?

  • Following recent House passage of FIT21 crypto market structure legislation with strong Democrat support, party lines on digital asset policy in the United States have rapidly shifted
  • Industry publication TheBlock reported on Thursday that President Biden’s re-election campaign “has begun reaching out to crypto industry players over the past two weeks for guidance on crypto community and policy”
  • Sources speaking to TheBlock noted a substantial “shift” in administration tone and attitudes towards the industry, noting “Biden's camp increasingly recognises the impact crypto-related issues could have on a presidential race that is likely to be close”
  • Meanwhile, his likely opponent Donald Trump pledged to ban CBDCs, and stated “To the nation's fifty million crypto holders I say this: with your vote, I will keep [anti-crypto Democrat senator] Elizabeth Warren and her goons away from your Bitcoin”
  • Late on Thursday, reports emerged that Elon Musk is personally counselling Trump on digital asset policy “as the former president increasingly highlights Bitcoin and other digital assets on the campaign trail as a way to reach new voters”
  • Musk himself appeared to deny this in a tweet, but did sound a positive note for digital assets; “pretty sure I’ve never discussed crypto with Trump, although I am generally in favour of things that shift power from government to the people, which crypto can do”
  • On his own social media meanwhile, Republican frontrunner Trump stated (in all caps) “VERY POSITIVE AND OPEN MINDED TO CRYPTO COMPANIES, AND ALL THINGS RELATED TO THIS NEW AND BURGEONING INDUSTRY”
  • In the wake of the House’s bipartisan FIT21 passage, Financial Services Committee chair Patrick McHenry publicly pressured speaker Chuck Schumer that the vote was “a wakeup call” for the Senate to act
  • McHenry told Bloomberg that the US cannot afford to let crypto legislation languish in Senate; “They need to get on with this, they need to stay focused on getting policy here and get it done before the election”
  • Bitwise chief compliance officer Katherine Dowling stated in a Bloomberg interview that there’s been “a tectonic shift emanating from Washington around the dialogues in regards to crypto…couple that with the movement we’ve seen in both Houses of Congress”
  • She promoted bipartisan movement on market structure definitions, and added “in a presidential election year… it’s become clear that crypto…if one of them can grab that crypto brass ring, it can really help them in the swing states”
  • Meanwhile, NYSE President Lynn Martin discussed digital assets at the 2024 Consensus conference, and noted the need for clearer regulation
  • She said “If there was clear regulatory guidance [in the US], it [crypto trading on NYSE] would be an opportunity to look at… The fact that you've seen $58 billion or so come to the ETFs has been a strong sign that the market is looking for regulation in traditional structures. So, hopefully, the SEC saw the inflows and said, 'Hey, this makes a lot of sense,' considering Bitcoin ETFs have been a tremendous success”
  • Additionally, Ripple Labs announced a $25m donation to digital asset Super PAC Fairshake, to be used for funding pro-crypto politicians’ election campaigns in the upcoming political cycle
  • In a statement announcing the donation, Ripple said “The SEC’s approach of trying to regulate crypto by enforcement has failed. The time for the US to act is now. Ripple is proud to invest in this effort and contribute to shaping a positive regulatory landscape in the US”
  • CEO Brad Garlinghouse added “Ripple will not—and the crypto industry should not—keep quiet while unelected regulators actively seek to impede innovation and economic growth that millions of Americans utilise”

What happened: Bitcoin ETF News

How is this significant?

  • Bitcoin ETFs continued their recent positive run, including a new record by BlackRock’s IBIT
  • In the week up to last Friday, digital asset investment product inflows exceeded $1bn, according to data from CoinShares
  • These $1.05bn flows were dominated by Bitcoin ETPs, accounting for $1.01bn
  • Cumulative yearly flows hit $14.9bn; already an annual record before the end of May
  • On Wednesday, Bitcoin ETFs experienced their 11th consecutive (trading) day of inflows
  • Over those 11 days, the 11 spot Bitcoin ETFs experienced net inflows of over $2bn
  • In the process, following $102.5m of daily flows, IBIT overtook GBTC as the largest ETF by AUM, reflecting both BlackRock’s record-breaking run of post-launch inflows, and Grayscale’s steady flow of fee-driven investor flight
  • BlackRock experienced 71 consecutive days of inflows from launch, and overtook GBTC’s headstart after 96 trading days
  • As of Wednesday, IBIT held $19.68bn of Bitcoin to GBTC’s $19.65bn, with Fidelity’s FBTC in a distant third place at $11.1bn
  • Bloomberg senior ETF analyst Eric Balchunas celebrated the milestone, tweeting “It’s official now. $IBIT is king of the category and probably will be for decades. The low fee + big boy liquidity + iShares brand name is just too powerful (although there’s plenty of food for everyone)”
  • A BlackRock spokesperson stated “The success of IBIT underscores investors’ preference to access Bitcoin through the convenience of the ETF vehicle in an institutional-grade product. We remain focused on education for investors and providing access to Bitcoin with convenience and transparency”
  • A new report by analytics firm Glassnode on Wednesday also noted a return to long-term accumulation patterns, revealing that the previous week’s average daily ETF inflow was $242m; “Considering the natural daily sell pressure by miners since the halving of $32 million per day, ETF buy pressure is almost eight times larger, which highlights the size and scale of the ETF impact”
  • K33 Research senior analyst Vetle Lunde pointed out that “Bitcoin holdings of BTC investment vehicles reached a new all-time high, surpassing 1.1m BTC” [out of a current overall 19.7m BTC supply]
  • In a Wednesday press release, the New York Stock Exchange revealed intentions to list index options tracking Bitcoin prices, settling derivatives in cash and referencing the CoinDesk Bitcoin Price Index
  • NYSE Chief Product Officer Jon Herrick stated “As traditional institutions and everyday investors are demonstrating their wide-ranging enthusiasm for the recent approval of spot bitcoin ETFs, the New York Stock Exchange is excited to announce its collaboration with CoinDesk Indices

What happened: Chinese raids reveal continued crypto trading despite official ban

How is this significant?

  • Recent Chinese state raids on forex firms have revealed an interesting fact; despite the official ban on digital asset trading, it remains a popular form of value transfer amongst mainland netizens
  • Chainalysis APAC policy head Chengyi Ong told Bloomberg that official bans were easy to proclaim, but hard to enforce; “A significant amount of crypto activity remains in China. This may be in part because the ban is porous or loosely enforced, but is also attributable to the decentralised and often peer-to-peer nature of crypto activity”
  • According to Chainalysis data, around $86bn of digital asset value flowed into mainland China in the year to June 2023; down from pre-ban levels, but still significant in a global market context
  • Due to the official ban, a lot of trading occurs over-the-counter in China, with stablecoins such as Tether cited as a favoured mechanism for overseas value transfer
  • Ong commented “What we’ve seen over the years is that bans are generally not effective in stamping out crypto activity, but may conversely create informal grey markets that are harder to track and ring fence against illicit activity”

What happened: Deutsche Bank promotes blockchain as solution to margin pressure

How is this significant?

  • Deutsche Bank is the latest major financial institution to promote the potential of blockchain technology this week, citing its ability to lower margin pressure through increased efficiencies
  • Anand Rengarajan, Deutsche’s global head of sales told Bloomberg that blockchain “will help us stay relevant, because with the kind of margin compression impacting the overall financial services industry, the only way one can survive is by innovating”
  • The key innovations lie in improved efficiency available through blockchain’s 24/7/365 nature, the automated execution of smart contracts, and faster transaction times
  • He added “The investment that we will make over the next two to three years and what we made in the last two to three years should pave the way for a good commercial future”
  • Deutsche recently joined the Monetary Authority of Singapore’s Project Guardian program of digital asset pilots and research, with a particular focus on “the feasibility of asset tokenisation applications in regulated financial markets”
  • The bank’s proof-of-concept platform will be interoperable across blockchains, and help issuers of tokenised funds track their investors
  • Other Project Guardian participants include institutional heavyweights like JPMorgan Chase, DBS, Ant International, Standard Chartered and T. Rowe Price
  • In a press release, Rengarajan stated “We are committed to being a leader in driving the development and adoption of digital assets in Singapore and Asia Pacific”
  • In other banking news, Goldman Sachs’ digital asset lead Mathew McDermott spoke on a variety of subjects during the Consensus 2024 conference, calling Bitcoin ETFs “an astonishing success”, and forecasting future growth in adoption for tokenisation
  • He said “If you can actually create a product that you can fractionalise and offer up to a much broader universe of investors that not only broadens the distribution channel but also concentrates more secondary liquidity—that is very powerful”

What happened: Semler Scientific adopts Bitcoin as main treasury asset

How is this significant?

  • Medical science firm Semler Scientific experienced a boon to its share price this week upon announcing a strategic shift towards Bitcoin as its major treasury asset
  • This makes them one of the few public firms (alongside the likes of Block, MicroStrategy, and Tesla) to publicly promote Bitcoin as their store of value
  • When Semler revealed it decision on Tuesday, share prices increased by as much as 37%, a strong reversal of its -50% year-to-date performance
  • Chairman Eric Semler stated “Our Bitcoin treasury strategy and purchase of Bitcoin underscore our belief that Bitcoin is a reliable store of value and a compelling investment…After studying various alternatives, we decided that holding Bitcoin would be the best use of our excess cash”
  • Semler spent $40m to acquire 581 Bitcoins
  • He explained the firm’s rationale further, saying “We believe it has unique characteristics as a scarce and finite asset that can serve as a reasonable inflation hedge and safe haven amid global instability. Given the gap in value between gold and Bitcoin, we believe that Bitcoin has the potential to generate outsize returns as it gains increasing acceptance as digital gold”
  • By comparison, the share price of Bitcoin Balance Sheet innovator MicroStrategy is up around 160% year-to-date

What happened: Bitcoin miner attempts hostile takeover of rival mining firm

How is this significant?

  • Bitcoin miner Riot Blockchain disclosed an offer this week to buy out competing firm Bitfarm; a deal which, if successful, would create the largest crypto mining firm in the world
  • The $950m offer of $2.30 per share was rebuffed, and reflects the first major attempted consolidation following the recent Bitcoin “halving” event where new block rewards for miners were reduced from 6.25 Bitcoin to 3.125 Bitcoin
  • Riot may be leveraging instability at Bitfarm, after its interim CEO was fired earlier this month
  • Bitfarm is currently expanding operations in South America, whilst Riot owns the largest North American mining facility, based in Texas
  • Berstein analysts Gautam Chhugani and Mahika Sapra believe Riot will ultimately be successful in its takeover efforts, expecting US mining to consolidate into around fiver major players “The Bitcoin mining business is becoming tougher for smaller players, with limited capital to ramp up on the global hash power race… If power becomes the biggest constraint to scale up artificial intelligence (AI) computation, we see bitcoin miners as a strategic asset controlling power, land and with significant operating capabilities in running data centres”
  • In other mining news, Marathon Digital successfully concluded a deal with the Kenyan government, investing over $80m to help develop national energy infrastructure

What happened: Movement of Mt Gox Bitcoins sparks brief market concern

How is this significant?

  • Bitcoin pulled back from weekly highs this week, after a wallet belonging to executors of the hacked Mt Gox exchange moved significant amounts of Bitcoin to another address, sparking concerns that a repayment process to customers could (finally) be imminent
  • Mt Gox was the largest Bitcoin exchange during the nascent days of digital assets, before it was hacked to the tune of 750,000 Bitcoin in 2014
  • At the time of its hack, Bitcoin was valued at around $1,000; so the 130,000 Bitcoin owned by the bankruptcy estate and moved across wallets represented a significant potential sale value now for any customers who receive their long-awaited property
  • This was the first movement of the funds to another wallet since 2018, leading to expectations that disbursement could be imminent
  • However, some analysts believe the market has matured enough since Mt Gox to mitigate the effects of such sell pressure; BTC Markets CEO Caroline Bowler told Bloomberg “Mt Gox would certainly nudge the price but it won’t have an entrenched impact on Bitcoin’s price as the broader market is now focused on the bipartisan support coming from US lawmakers around crypto-friendly regulations”
  • In positively-anticipated disbursement news, crypto exchange Gemini confirmed that its Earn users will receive back their deposits in kind, more than a year after the Earn program was suspended, following partner Genesis Global’s collapse
  • Gemini says that this represents a 232% recovery vs value at suspension, due to the digital asset market’s subsequent growth
  • In other news of previous industry misdeeds, Terra Luna blockchain developer Do Kwon and Terraform Labs agreed a “settlement in principle” with the SEC over its civil case
  • The SEC itself was ordered to pay a $1.8m fine (i.e. legal fees) against Debt Box following “gross abuse of power”, but the judge also dismissed their case without prejudice, enabling it to be refiled later if the SEC wishes
  • Former FTX executive Ryan Salame was sentenced to seven and a half years prison, after pleading guilty to election fraud via illegal campaign donations

What happened: VC News

How is this significant?

  • Tokenisation platform Fortunafi raised almost $10m at a $48m valuation this week, in strategic funding and seed rounds
  • The platform aims to tokenise multiple assets, including stocks, ETFs, and equity indices
  • Singaporean firm Marketnode concluded a funding round led by HSBC and local sovereign wealth fund Temasek, although amounts were not disclosed
  • Marketnode president Rehan Ahmed said “The marriage of Marketnode’s [financial market infrastructure] operational expertise and HSBC’s market leading global platform represents a unique opportunity to shape the next generation of trusted and neutral market infrastructure”
  • The first three months of the year saw new digital asset funds launched at the fastest pace since the 2021 bull market, spurred by the success of Bitcoin ETFs
  • 25 new VCs and hedge funds joined the market in Q1, the most since Q2 2021—but still far short of the record 73 funds launched quarterly in 2017, several cycles ago
  • CCData’s Joshua de Vos commented “Given the cyclical nature of cryptocurrency, it is highly likely that new crypto-native funds will emerge to help fill the void left by these entities and take advantage of the new opportunities that arise during this cycle”
  • This includes both totally new firms, and new funds raised by existing industry players such as Pantera Capital
  • Paradigm led a $70m raise for Bitcoin DeFi project Babylon
  • Founded by Stanford engineering professor David Tse, Babylon enables Bitcoin’s use as a staking asset, functioning as a security layer for the broader Web3 ecosystem

What happened: Digital assets increase Latin American footprint

How is this significant?

  • USDC stablecoin issuers Circle increased their presence in the growing Latin American digital asset market this week, partnering with South America’s largest investment bank, BTG Pactual
  • The deal follows directly from the Brazilian Central Bank’s disclosure of a digital asset framework by the end of 2024
  • BTG's digital assets head André Portilho stated “Our partnership with Circle is a testament to our belief that blockchain technology will form the new infrastructure of the financial industry
  • Circle co-founder Jeremy Allaire commented “We are committed to making a positive impact in the Brazilian market and partnering with key stakeholders to empower businesses to participate in the global economy with greater ease and efficiency”
  • The CEO of Argentina-based exchange Ripio meanwhile outlined a greater institutional adoption on the continent
  • Sebastian Serrano told Bloomberg “In the coming years we are going to see companies start to finance themselves with crypto” through security token offerings. The capital markets of the future will be based on blockchain”
  • Ripio’s trading volume is up around 40% compared to 2023, reflecting both the broader digital asset market’s growth, and the particular appeal of the asset class in Argentina, where central bank mismanagement has created a history of hyperinflation
  • Also in Latin America, Mastercard launched the Crypto Credential Network, supporting various LatAm exchanges and enabling cross-border transactions via wallet aliases—services which allow users to manually name certain wallet addresses, rather than manually copy-pasting the lengthy randomised hexadecimal strings which represent blockchain addresses
  • LatAm/Caribbean product EVP Walter Pimenta commented “As interest in blockchain and digital assets continues to surge in Latin America and around the world, it is essential to keep delivering trusted and verifiable interactions across public blockchain networks”
News Roundups