Nickel Research Centre

Nickel News Roundup - Week 11

18th March, 2021

Market Overview:

The digital assets market performed strongly with new record highs for Bitcoin and a host of major altcoins, before some pullbacks early in the week

  • Bitcoin crossed the $60,000 threshold for the first time on Saturday, reaching a new record high of $61,680 before falling back. At the time of writing, Bitcoin is priced at $58,540, up almost 6% on the previous week
  • Ethereum rose in value in line with Bitcoin over the weekend, coming within $100 of a new record value as it hit $1,937. It then followed a similar pattern to Bitcoin, for a current valuation of $1,818; approximately a 2% weekly increase
  • Performance across altcoins was mixed, with strong weekly gains as well as declines posted by various tokens. NFTs performed strongly, with three-quarters of the top 40 projects growing over the week—many in the double digits
  • Strong weekend performances saw the overall market cap of digital assets reach a new record value of $1.84tn on Saturday—more than $100bn growth within a week
  • Growth in underlying asset prices meant another new record of value locked in decentralised applications; a total of $55.6bn across Bitcoin and Ethereum

Digital assets saw new records once again, with Bitcoin crossing another milestone figure at $60,000. More major figures in the world of finance have voiced concerns over inflation and praised the potential of digital assets, as numerous pieces of research showcased performance compared to traditional assets. Institutional adoption continues: Morgan Stanley now offers clients Bitcoin investments, JP Morgan is trying to ensure they can serve the demand they anticipate, VISA wants to benefit from transaction volume, two more major governments have outlined their plans for CBDCs, and we at Nickel have enabled seven day market access for institutional investors. 


What happened: Morgan Stanley becomes first major US bank to offer Bitcoin to clients

How is this significant?

  • On Wednesday, Morgan Stanley’s Global Investment Committee published a meme called “The Case for Cryptocurrency as an Investable Asset Class in a Diversified Portfolio”, before news broke on CNBC that they would offer their high net-worth clients access to Bitcoin funds
  • In the report, they confirmed that digital assets have become legitimised as an investment vehicle, saying that the category “has crossed the critical thresholds of market liquidity, regulatory scrutiny and institutional acceptance at a time when managing cash and achieving portfolio diversification has become ever more challenging and meaningful”
  • Taking the position that it is still very early in the institutional acceptance of digital assets, they say it’s “important to keep in mind that we are only in the top of the first inning”, and only encourage a 2.5% portfolio allocation for qualified investors
  • Despite the asset class being new and carrying some uncertainties, they are bullish overall, stating that “crypto’s unique attributes are unassailable and its value proposition must be acknowledged”
  • Identifying the four key drivers of institutional adoption, the bank cited 2020 as the year of an expanding regulatory framework and need for portfolio diversifiers, whilst 2021 has been marked by the release of new products, and a deeper liquidity pool to enable trading at institutional volumes
  • Even with timeframes specifically selected to exclude Bitcoin’s “recent exponential surge in price”, Morgan Stanley’s modelling found that the addition of a 2.5% Bitcoin allocation to a traditional 60/40 equities/bonds portfolio “improved annualized returns by 164 basis points without significantly increasing volatility”
  • The memo also cited a recent CFA Institute study (again excluding the recent appreciation in Bitcoin’s price), which found “the impact of a median 2.5% allocation to the 60%/40% portfolio over a rolling three-year window (between January 2014 and September 2020) increased total portfolio returns by 15% cumulatively, while improving the portfolio’s Sharpe ratio by 41% on average, adding 0.48 to the risk-adjusted return”
  • Morgan Stanley will offer their clients access to three different Bitcoin funds; two from Galaxy Digital, and one from NYDIG—the company responsible for MassMutual’s Bitcoin purchase, and recipient of a recent $200m funding round that included Morgan Stanley
  • Only qualified investors will be offered access to these products; clients holding $2m or more in assets (or $5m for investment firms), with accounts more than 6 months old, and Bitcoin fund allocations limited to 2.5% of their overall net worth

What happened: Coinbase registers 114.9m shares for public listing

How is this significant?

  • After several weeks of trading on NASDAQ private markets, leading American exchange Coinbase officially filed with the SEC this week for their public listing
  • According to the filing, Coinbase will trade under the NASDAQ Global Select Market, under the ticker COIN
  • Coinbase will list 114,850,769 Class A common stocks, for a proposed maximum offering price of $943,218,155
  • Although no specific date was disclosed in the filing, the listing is expected to happen within weeks according to observers
  • According to the average quarterly share price recorded in the S-1 filing, Coinbase’s implied valuation has reached $68bn

What happened: Oaktree Capital’s Howard Marks speaks in favour of Bitcoin

How is this significant?

  • Howard Marks, the founder of asset management firm Oaktree Capital (managing $148bn in assets as of December 2020) has become the latest high-profile billionaire to speak out in favour of Bitcoin, reversing his previous stance from 2017
  • In a video interview with Korea Economic Daily, he admitted that his statements at the time were “a knee-jerk reaction without information”, and 
  • Speaking about the economic value of Bitcoin, he said “the supply is fixed by the software …so it can’t expand much, unlike the dollar which can be printed in infinite amounts. And the demand is growing because more people are interested in it”
  • In a recent memo to investors, Marks also noted that whilst he himself had initially been skeptical about the value of digital assets, his son Andrew “thankfully owns a meaningful amount for our family... The nature of innovation generally is such that, in the beginning, only a few believe in something that seems absurd when compared to the deeply entrenched status quo”

What happened: Visa CEO Al Kelly outlines company’s crypto asset strategy

How is this significant?

  • On a “Leadership Next” podcast interview with Fortune CEO Alan Murray, Visa CEO Al Kelly spoke at length about Visa’s position and plans regarding crypto assets
  • Although he couldn’t claim to definitively forecast the future of crypto assets, Murray said that Visa wants to ensure that they’re exposed to the asset class: “ it gonna be extremely mainstream? I’m not smart enough to know, but what I’m smart enough to do is make sure that our company is in the middle of it today”
  • Instead of just focusing on payments, Murray positions Visa as a company about value transfer, “If it takes off and we can get our fair share or more of the volume because we anticipate that possibly could take off and become a big deal, we certainly wanna be prepared for that, and I think we are off to a very good start”
  • Kelly reaffirmed previous statements that Visa categorise crypto assets into stablecoins(such as USDC, which they integrated into their network)—used for payments, and digital assets like Bitcoin or Ether, used as a store of value
  • Regarding digital assets treated as investments, he clarified; “we are trying to do two things: enable the purchase of Bitcoin on VISA credentials. And, secondly, working with some Bitcoin wallets to allow Bitcoin to be translated into a fiat currency and therefore immediately be able to be used at any of the 70 million places around the world where Visa is accepted”

What happened: JP Morgan looks for crypto asset clearinghouse

How is this significant?

  • On Monday, Forbes cited a senior JP Morgan executive in reporting that they were searching for a clearinghouse to help with efficient transacting on institutional volumes
  • According to the executive “We will fundamentally need a crypto clearinghouse to see that liquidity. Once that exists, banks will move their liquidity to it”
  • Acknowledging recent issues around imbalances of supply and demand in the world of traditional trading, the executive added “Cryptocurrency brokers and exchanges need to avoid the kind of liquidity problems that trading app Robinhood ran into [when they blocked users from purchasing Gamestop shares due to cash flow concerns]”
  • This represents the latest of several moves JP Morgan have made into digital assets, from the launch of their own JPM coin digital currency to establishing a dedicated blockchain division with over 100 staff to their recent filing for a “cryptocurrency exposure basket” investment product

What happened: Ray Dalio cautions against dollar-based investments, acknowledges Bitcoin as an inflation hedge

How is this significant?

  • Bridgewater’s Ray Dalio recently increased his bearish stance on the US dollar and bonds, publishing an essay saying we’re in the late stage of a long-term debt cycle, calling “being short on bonds a relatively low-risk bet”
  • Whilst not outright endorsing Bitcoin, Dalio does acknowledge it as a hedge against a weakening dollar, writing that “If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other storehold of wealth assets... so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations”
  • Ultimately, Dalio concludes that “a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars”
  • Microstrategy CEO and Bitcoin Bull Michael Saylor responded to Dalio’s essay on Linkedin; “Respectfully, Bitcoin is the obvious solution, and much more practical than ‘a well-diversified portfolio of non-debt and non-dollar assets”

What happened: Record Bitcoin options expiry looms

How is this significant?

  • On the 26th of March, a record $6.1bn in Bitcoin options are going to expire
  • Over the last two months, open interest in Bitcoin options has increased 60% to $13.5bn as Bitcoin’s value has grown in 2021
  • The previous largest expiry of options on record was $3.5bn in January
  • Due to the recent appreciation of Bitcoin’s value, CoinTelegraph’s analysis deems the expiries favour bulls, as “data leaves $1.13 billion worth of call options from $32,000 to $64,000 strikes for the aggregate options expiry on March 26. Meanwhile, the more bearish put options down to $47,000 amount to $462 million. Therefore, there's a $668 million imbalance favoring the more bullish call options”

What happened: More institutions file for digital asset ETFs

How is this significant?

  • Institutional appetite for digital asset ETFs continues to grow, as two more institutions, WisdomTree and VanEck submitted filings with the SEC
  • WisdomTree’s filing reveals that their ETF would be linked to the CF Bitcoin US Settlement Price (a mechanism calculating the price based on trade flow from major Bitcoin spot exchanges)
  • One day after WisdomTree’s filing on Thursday, Valkyrie Digital Assets filed for a new ETF based on the value of companies that hold Bitcoin on their balance sheets
  • Branded as the “Valkyrie Innovative Balance Sheet ETF”, it is similar to JP Morgan’s recent filing for a basket of companies related to crypto assets, involving "directly or indirectly invest in, transact in, or otherwise have exposure to Bitcoin or operate in the Bitcoin ecosystem"

What happened: Non-Fungible Tokens capture investor and retail interest

How is this significant?

  • Christie’s first foray into the world of digital assets exceeded expectations, as on Thursday the Non-Fungible Token digital artwork they listed sold for over $69m
  • Sotheby’s, another auction house with a long and storied history, have followed Christie’s into the world of blockchain and NFTs
  • Sotheby’s CEO Charles Stewart finds the concept of digital scarcity and value compelling, saying in a CNBC interview that; "There's a lot here that's really exciting and, we think, has staying power"
  • Interest in NFTs has increased heavily since Christie’s originally announced their auction, as more public figures (including Elon Musk) have commented on the technology; Google Search trends for “NFT” are at record levels, and market aggregators such as CoinMarketCap have added specific pages for NFT projects

What happened: Korean crypto asset exchange volume exceeds stock markets

How is this significant?

  • The volume of digital asset trading in South Korea has exceeded the volume of trading on the Korean stock exchange, according to reporting in Korean publication
  • South Korea exists as a unique market in the digital asset space, with legislation restricting Korean traders to Korea-based exchanges; making it easier to track local trading volumes
  • On Monday, the four biggest Korean exchanges accounted for $14.75bn, compared with an average daily volume of $10bn on the KOSDAQ
  • The last time this happened was in the retail-driven speculation of late 2017—at the time Korean trading volumes accounted for nearly 50% of global volume, whereas now Korean trade reflects 9% of global volumes, indicating just how much global appetite for digital assets has grown

What happened: BTC recorded as best-performing asset class of the last decade

How is this significant?

  • Compound Capital Advisors CEO tweeted on Saturday about the returns of various asset class ETFs over the last decade
  • The data showed that Bitcoin has significantly outperformed other assets over the time period, with annualised returns of 230%—more than 11 times the returns of the next-best performing asset, which was the NASDAQ 100 with 20% annualised returns
  • Bitcoin only posted annualised losses in 2 years of the decade, in the 2014 and 2018 crypto winters
  • The weakest-performing ETFs in the 2011-2021 timeframe were Gold (GLD), US Dollars (BIL), and Commodities (DBC), which recorded annualised returns of 1.5%, 0.5%, and -4.1% respectively

What happened: Nickel Digital brings daily access to institutional digital asset investing

How is this significant?

  • On Saturday (the same day that Bitcoin and the wider digital asset market reached a new record market cap), Nickel Digital undertook a multi-million pound rebalancing of their Digital Gold institutional Bitcoin fund, allowing clients to capitalise on weekend price movements
  • Anatoly Crachilov, CEO and founding partner, said this was part of a move towards “bringing 24/7 efficiency of the underlying crypto market to professional investors in traditional finance... facilitating 7 days a week access to the bitcoin market as a standard”

What happened: Russian and Japanese central banks announce digital coin plans

How is this significant?

What happened: Hardware security firm Ledger increases institutional outreach

How is this significant?

  • French company Ledger, best known for the manufacture of hardware wallets to store digital assets, are investing in capabilities to serve institutional clients, anticipating more institutional funds to flow into the asset class
  • According to Jean-Michel Pailhon, Ledger Vice President of Business Solutions, “We took the decision to create an independent business unit with around 50-60 people, aiming to grow that to about 120 people by the end of the year”
  • Developed in conjunction with Japanese bank Nomura, Ledger’s Koimanu solution recently raised $25m in funding from hedge fund billionaire Alan Howard
  • In an interview with Coindesk, Pailhon noted “Two or three years back, big banks would tell Ledger they wanted to do ‘blockchain and not bitcoin’… The good news is that it’s now time for all the banks and institutional players to enter this market. Most of them are not equipped to build this from scratch and are looking for partners”

What happened: BlackRock executive says gold’s status as an inflation hedge is slipping as inflation fears grow 

How is this significant?

  • Russ Koesterich, portfolio manager at BlackRock’s Global Allocation Fund spoke this week about the risks of inflation, saying that gold’s ability as a hedge asset has been “exaggerated” in comparison to its reputation
  • Koesterich said “Gold’s ability to hedge against inflation has been somewhat exaggerated. While it is a reasonable store of value over the very long-term—think centuries—it is less reliable across most investment horizons”
  • Over the last six months, the price of gold is down 11%, compared to Bitcoin nearly tripling in value over the last three months alone
  • Gold’s declining strength as an inflation hedge is particularly exacerbated by the fact that, according to the last monthly survey by Bank of America, inflation has displaced coronavirus as the number one concern of fund managers—the first time since February 2020
  • Meanwhile, in the same survey, “Long Bitcoin” was found to be the second-most crowded trade in the market, after “Long Tech”

What happened: Mizuho survey finds nearly $40b in US stimulus money could flow into stocks and digital assets

How is this significant?

  • On Monday, Mizuho Securities published a survey detailing the plans of Americans for their upcoming economic stimulus cheques
  • According to the survey, nearly 2/5ths of stimulus recipients plan to invest at least some of their government cash, preferring Bitcoin over stocks as an investment option
  • Mizuho MD Dan Dolev wrote that “The survey predicts that bitcoin will account for 60% of total incremental investment spend. We calculate it could add as much as 2-3% to bitcoin's current $1.1t trillion market value”
  • Ultimately, Mizuho’s survey found that 10% of the $380bn in direct stimulus cheques could be used for investment

What happened: Data suggest long-term Bitcoin holders are still accumulating

How is this significant?

  • According to research by digital assets analytics company Arcane Research, the active supply of Bitcoin held for short periods is declining, as long-term holders have been adding to their positions
  • Arcane wrote: "The bitcoin supply last being active in three to five years has grown by 1.5 million BTC since the middle of May 2020. This suggests that long-term holders [those who have held for 3-5 years] still accumulate bitcoin, not seeking to sell at these current prices”
  • Decline in active supply by short-term holders could indicate that they have realised profits on their positions

What happened: US-based exchange Kraken considering IPO next year

How is this significant?

  • According to FOX Business reporter Charles Gasparino, American digital assets exchange Kraken is planning to follow Coinbase in going public
  • Kraken haven’t determined the nature of their listing yet, considering either a special purpose acquisition company (SPAC) or an initial public offering (IPO)
  • Kraken CEO Jesse Powell has previously voiced interest in taking Kraken public, although he dismissed potential valuations of $10bn
  • On Tuesday, Kraken also announced that its users are already staking more than 500,000 Ether on their platform in anticipation of Ethereum’s full upgrade to a proof-of-stake protocol
News Roundups