Nickel Research Centre

Nickel News Roundup - Week 39

30th September, 2021 

Market Overview:

Digital assets declined slightly this week, following news on Friday of a full national crackdown on digital asset mining and trading in China, although there was some recovery alongside news that Chinese traders continued to buy and sell Bitcoin after the announcement
  • Bitcoin spent the majority of the week trading between $42,000 and $44,000, bouncing off lows around $40,900 three times, with current a current price of $43,250
  • Ether spent the majority of the week below $3,000, twice bouncing off a low around $2,750, and currently trades at $2,996
  • The total value of all digital assets briefly broke above $2tn before it declined after the news of further Chinese restrictions—but remains above last week’s lows, with a current overall market capitalisation of $1.92tn
  • Total value locked in DeFi declined slightly following the week’s trend in Bitcoin and Ether prices, to $92bn

Following last week’s Evergrande concerns, China once again negatively influenced the market, announcing a final national crackdown and ban on digital assets. In the rest of the world, enthusiasm for digital assets continues to grow, with JP Morgan highlighting Ether’s potential, BNY Mellon hiring leadership for their digital asset division, and Morgan Stanley championing crypto bank Silvergate. Swiss regulators made several moves towards establishing crypto funds, amidst continued global institutional appetite for this dynamic new asset class.


What happened: JP Morgan reports increased institutional appetite for Ether

How is this significant?
  • According to an investor note by JP Morgan last Wednesday, the firm’s analysts see a “strong divergence in demand” recently compared to Bitcoin futures
  • Unlike Bitcoin, which gains value from its protocol remaining immutable and undergoing only minor changes, Ethereum has recently experienced changes in issuance with EIP-1559, the rise of DeFi, and an ongoing transition towards proof-of-stake
  • JP Morgan cited the price of 21-day Ether futures rising 1% above the Ether spot price as evidence increased institutional appeal, noting “This points to much healthier demand for ethereum vs. bitcoin by institutional investors”

What happened: BNY Mellon makes senior hires to boost digital asset capabilities

How is this significant?
  • BNY Mellon, one of the oldest and largest banks in America, further increased their commitment towards digital assets this week with three new executive hires to help service the asset class
  • The hires were Hadley Stern, David Schwed, and Benjamin Duve, who will be responsible for overseeing the bank’s digital asset technology, digital custody and blockchain services respectively
  • Based in Frankfurt, Duve will be responsible for the company’s digital asset strategy in Europe and the MENA region, as well as “helping clients in the German and broader European markets navigate the exciting and emerging field of digital assets and related technical and regulatory considerations”
  • Roman Regelman, CEO of asset servicing and head of digital at BNY Mellon, said: “Their expertise will allow us to further advance our digital strategy and deliver on our promise of being a trusted and innovative provider of industry-leading solutions. The growth of our global team and its capabilities are top priorities in the evolution of our digital asset business.”

What happened: Morgan Stanley endorses crypto-focused Silvergate Bank

How is this significant?
  • In a research note this week, Morgan Stanley made a bullish recommendation on the stock of Silvergate Bank, one of the few federally-regulated banking institutions specialised for servicing companies in the digital asset sector
  • In the note, Morgan Stanley analyst Ken Zerbe wrote “We see a 3:1 bull:bear skew, but recognize that SI [Silvergate] has the widest risk-reward of any bank we cover as it growth is tied directly to the health and growth of the cryptocurrency industry”
  • Zerbe believed that the bank’s ties to the rising asset class could give investors “a nearly pure-play way to participate in the rapid growth of the nascent cryptocurrency industry”
  • Morgan Stanley see potential for companies specialising in the digital asset industry, as Zerbe noted Silvergate “should be valued based on its earnings growth (similar to other faster-growing financials), rather than being compared against more traditional and slower-growing banks”

What happened: Institutional investors participate in DeFi via early-stage funding round

How is this significant?
  • Institutional investment into digital asset startups continued this week, with Norway’s Nahmii securing $8m of seed capital from DARMA Capital, Aligned Capital, Quantstamp, and Delta Fund
  • Nahmii aims to build DeFi pathways for institutional investors, enabling developers to comply with AML, KYC, and other regulatory requirements, with the benefit of predictable fees through a Layer-2 scaling solution built on top of Ethereum
  • Although DeFi has seen great growth over the last year, it can still struggle with investments and transactions on an institutional scale due to restrictions inherent in Ethereum’s current proof-of-work protocol

What happened: e-Bank Revolut developing proprietary digital assets

How is this significant?
  • Speaking to industry publication Coindesk this week, sources within $33bn-valued neobank Revolut revealed that the bank are developing their own cryptographic token
  • Acknowledging that any such move would be subject to the UK’s FCA regulatory approval first, the sources did disclose that launch plans for the token currently concentrate on Europe and the UK, rather than the US
  • Plans for the token appear to position it as an exchange token, similar to Binance’s BNB, or decentralised exchange Uniswap’s UNI, which can provide exchange users with benefits ranging from discounted transaction fees to shares of transaction fees or participation in platform governance
  • “It’s a ‘Revolut users earn a token’ type of thing, similar to Wirex and Nexo” said the source, citing tokens by the card issuer and lending platform that reward use of their services

What happened: Coinbase streamlines crypto deposits and highlights institutional growth

How is this significant?
  • In a blog this week, Coinbase revealed that users will now be able to deposit directly from their paycheques onto the exchange
  • This process streamlines previous customer usage of Coinbase services, allowing for payments directly from company payrolls, at levels determined by the customer
  • Additionally, Coinbase also revealed that they’re streamlining the process of companies paying their employees directly in crypto, with participants thus far including “Fortress Investment Group, M31 Capital, Nansen, and SuperRare Labs”
  • Citing a commitment to “make it easier for more businesses to pay employees in crypto”, the Coinbase also teased further upcoming announcements on the matter
  • The company’s 2021 Global Fund Management Report noted the growth of institutional appetite for digital assets, with AUM of crypto funds doubling year-on-year from 2019-2020, and counting over 360 active hedge funds in Q1 2021
  • Coinbase also expects more regulation to catalyse institutional inflows; “We believe Canada’s approval of bitcoin ETFs will nudge along regulators elsewhere as part of the initiatives to bring crypto into the financial landscape fully. It will impose market surveillance, custody, and auditing requirements on the industry, offering a safer route into the space for retail and institutional investors”

What happened: More major brands and institutions move into NFTs

How is this significant?
  • Non-fungible tokens continue to capture the attention of the art world and luxury brands, who leverage the technology’s ability to give provable provenance and rarity to digitally-created works
  • Luxury retailer Coach teamed up with GQ China for the creation of their first NFT collection, dubbed “a unique interactive NFT experience” allowing users in China to collaborate with the fashion house on the designs of 6 unique pieces
  • TIME Magazine launched the TIMEpieces collection, a series of 4,676 works commissioned from 40 global artists around a common theme. The collection sold out within a minute of launch, with over 8,600 Ether of trading on the secondary market platform Opensea
  • NFTs as a category made their debut at an Art Festival with a widespread presence at this year’s Art Basel, the first since the coronavirus pandemic

What happened: Mining pools move out of China after regulatory changes

How is this significant?
  • In light of China extending previous regional bans on digital asset mining into a national ban, several of the largest Ether mining pools (collections of miners who proportionally share hashpower and mining rewards) have begun to move out of China or shut down altogether 
  • Sparkpool, the second-largest Ether mining pool, announced a suspension of all services as “an effort to be maximally compliant with regulatory requirements”
  • BeePool, another major mining pool soon followed suit
  • The effects have extended to both mining hardware manufacturers and digital asset exchanges as well. Mining manufacturer Bitmain has frozen sales of its machines within China, and Chinese-based exchange Huobi disabled new registrations from Mainland China customers
  • Although this will likely lead to short-term reductions in overall hashpower, in the long-term it can have the benefit of greater decentralisation and greener energy usage. US Senator (and digital asset advocate) Pat Toomey was keen to classify China’s latest crackdown as “a big opportunity for the US” to extend their involvement and influence in digital assets

What happened: Report forecasts digital assets adding $184bn to India’s economy by 2030

How is this significant?
  • A new report by India’s National Association of Software and Services Companies (NASSCOM) this week revealed large-scale potential for growth of the asset class within the next decade
  • Although the report expects the size of India’s crypto tech industry (defined in the report as companies involved in payments, remittances, retail, and trading) to reach $241m in 2030, the ancillary benefits could be much greater
  • The report believed that the growth of the digital asset industry in India could have great effects on the wider economy; “the potential to create over 800,000 jobs and an economic value-add of $184 billion by 2030 in the form of investments and cost savings”
  • Interest in the asset class is growing within India; a recent report by Chainalysis found a 612% year-on-year increase in overall investment by Indian exchange users

What happened: SEBA bank secures regulator approval to bring digital assets into Swiss funds

How is this significant?
  • SEBA became the first Swiss custodian bank to be granted a CISA license to provide digital asset custodial services to Swiss collective investment schemes
  • This allows SEBA to extend “its institutional-grade digital asset custody services to Swiss domiciled mutual funds in the digital asset space”
  • CEO Guido Buehler stated the license was part of a wider institutional move towards the asset class; “Two years ago SEBA Bank received a Swiss banking and securities firm license and is now enjoying excellent business momentum as institutional adoption of crypto & digital assets accelerate globally… Asset Managers can now offer strategies based on crypto or other digital assets underlying to a broader audience utilizing Swiss-based mutual fund structures secured by SEBA Bank as the custodian”
  • Buehler also told Coindesk “It means there is now the opportunity for institutions to establish their fund structures for crypto as a liquid asset, so people can subscribe today and can sell tomorrow…Institutional adoption is only at the beginning since a lot of institutional capabilities are still lagging the market demand ”

What happened: Survey finds 62% of institutional investors plan to enter digital assets by 2023

How is this significant?
  • Nickel Digital released a new survey this week about institutional investor attitudes towards digital assets, with findings suggesting a rising enthusiasm for the new asset class
  • Conducted amongst 100 wealth managers and institutional investors across the US, Europe, and UAE, the survey found that 62% of investors without any current exposure to digital assets plan to enter the market in the next 12 months
  • 47% of respondents were motivated by long-term capital appreciation, whilst 44% cited “growing confidence in crypto as an asset class with corporates and fund managers increasingly investing in cryptocurrencies”
  • Henry Howell, Nickel’s head of business development outlined performance of digital assets throughout the challenging conditions of the coronavirus pandemic, as well as improving regulatory clarity as drivers of this growth; “There is no doubt that the crypto assets market is becoming more mainstream in the institutional and wealth management sectors”
  • Another recent study by Nickel found that one-third of professional investors with current allocations towards Bitcoin plan to add altcoins to their portfolios within the next year

What happened: First Swiss crypto fund approved by country’s financial regulators

How is this significant?
  • FINMA approved Switzerland’s first crypto fund this week, created by Swiss asset manager Crypto Finance, administered by PvB Pernet von Ballmoos AG, and custodied by regulated custodian SEBA Bank AG
  • The “Crypto Market Index Fund” is only available to qualified investors, and will track the performance of the SIX-traded “Crypto Market Index 10” 
  • A release by FINMA announcing their approval of the fund noted that they aim to be industry agnostic in their regulatory efforts; “In order to facilitate serious innovation, FINMA applies the existing provisions of financial market laws in a consistently technology-neutral way, i.e. in keeping with the ‘same risks, same rules’ principle”

What happened: Private equity billionaire Orlando Bravo is “very bullish” on Bitcoin

How is this significant?
  • Speaking at CNBC’s “Delivering Alpha” conference, the billionaire co-founder of the Thoma Bravo private equity fund became the latest high profile name to voice his support for the asset class
  • Bravo believes that demographic factors work in favour of Bitcoin, noting “How could you not love crypto? Crypto is just a great system. It’s frictionless. It’s decentralized. And young people want their own financial system. So it is here to stay”
  • He also believes that there will be a rising tide of institutional investment in digital assets; “For me, it’s pretty simple. More people are going to use it in the future than today, and it’s going to be more established. Institutions are just beginning to go there, and once that happens, I think it will increase significantly over the years. I’m very bullish”

What happened: Californian hedge fund adds actively-managed Bitcoin and Ether funds

How is this significant?
  • Cambrian Asset Management, a California-based hedge fund with $200m AUM, launched a new suite of products this week, aiming to reduce exposure to market volatility by actively managing the funds
  • They now have “Systematic Trusts” for both Bitcoin and Ether, which could serve as the basis for similar future funds dedicated to other digital assets
  • Martin Green, Cambrian’s CEO said “Investors have asked us many times if they can use our systems to actively manage their Bitcoin or Ethereum exposure to protect against the material drawdowns that are endemic to digital assets markets”
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