Nickel Research Centre

Nickel News Roundup - Week 22

3rd June, 2021 

Market Overview:

Digital assets rallied slightly from recent corrections, remaining well above previous week’s lows, but not experiencing major bullish momentum 

  • Bitcoin’s experienced moderate upside and downside volatility this week, briefly hitting a high just above $40,100 on Thursday, before twice bouncing off lows around $33,500 on Saturday, gradually recovering to a current value of $38,730
  • Ethereum broadly followed Bitcoin’s movements, with a Thursday high of $2850 declining to a Saturday low of $2,190, before rebounding to a current price of $2,834
  • The overall market capitalisation of digital assets grew slightly, to a current value of $1.75tn
  • The total value locked in the DeFi sector grew by around $5bn over the last week, to $76.9bn

Digital assets appear to have started on the road to recovery after a couple of red weeks. There was positive news across the globe, from European ETPs, to Asian CBDCs, to American billionaires. The Ethereum blockchain experienced record revenues, Coinbase and PayPal increased the utility of digital assets for their customers, and Fidelity revealed 9-figure investments into their Bitcoin fund within 9 months of launch.


What happened: Standard Chartered plans to launch crypto exchange in Europe

How is this significant?
  • Standard Chartered, the Britain-based multinational bank, is set to launch an institutional digital asset exchange aimed at the UK and Europe, according to reporting in Reuters this week
  • The exchange will be set up as a collaboration between the bank’s SC Ventures innovation arm, and Hong Kong-based exchange owner BC Technology Group
  • Standard Chartered’s move is influenced by a growing acceptance of this new asset class; in a statement to Reuters, SC Ventures head Alex Manson said “We have a strong conviction that digital assets are here to stay and will be adopted by the institutional market as a highly relevant asset class”

What happened: Goldman Sachs commodities boss proposes Bitcoin as “Digital Copper” theory

How is this significant?
  • Jeff Currie, global head of commodities research at Goldman Sachs, elucidated a new theory this week on how to view Bitcoin; he sees it not as the widespread “digital gold” equivalent, but as “digital copper” instead
  • According to Currie, “You look at the correlation between Bitcoin and copper, or a measure of risk appetite and bitcoin, and we’ve got 10 years of trading history on Bitcoin—it is definitely a risk-on asset”
  • He further explained “There is good inflation and there is bad inflation. Good inflation is when demand pulls it, and that is what bitcoin hedges, that is what copper hedges, that is what oil hedges”
  • Currie noted that Bitcoin and gold “can co-exist”, but he believes it is still “too early” for Bitcoin to compete with gold in terms of safe-haven demand

What happened: Billionaire Carl Icahn announces intent to invest “in a big way” in digital assets

How is this significant?
  • Speaking to Bloomberg, 85-year old billionaire Carl Icahn became the latest major name from the world of traditional finance to announce an interest in digital assets
  • Outlining his thoughts on Bitcoin’s function as a store of value in response to inflation, he told interviewers “What's the value of a cryptocurrency?' Well, what's the value of a dollar? The only value of a dollar, really, is because you can use it to pay taxes”
  • Reversing a previous critical stance from 2018, Icahn is now more confident in the staying power of the asset class; “I'm just looking at the whole business and how I might get involved in it with Icahn Enterprises in a relatively big way, because I do think it's here to stay in one form or another"
  • Although he didn’t provide an exact figure, he did note that in the context of Icahn Enterprises “a relatively big way” could constitute “a billion dollars, a billion and a half dollars, something like that”

What happened: Wide range of digital asset ETPs launch on European exchanges

How is this significant?
  • Whilst the SEC in America is undergoing the process of extensively reviewing a slew of Bitcoin ETF submissions before granting any listings, this week saw several ETPs for numerous different digital assets launching across multiple European exchanges
  • In Sweden, the Nordic Growth Market launched a Polkadot ETP created by Valour, representing the 8th-largest crypto asset by market cap
  • Swiss-based provider 21Shares (whose board ARK Investment’s Cathy Wood recently joined) listed three separate ETPs on the Euronext Paris exchange; providing investors with exposure to Bitcoin, Ethereum, and “Short Bitcoin”
  • VanEck, a firm with an ETF application under review in the US, listed Bitcoin and Ether ETNs (exchange-traded notes) on both the Euronext Paris and Amsterdam exchanges, custodied by Liechtenstein’s Bank Frick
  • The UK saw its first ETP announced this week, with the ETC Group launching its physically-backed Bitcoin ETPs via Aquis Exchange MTFs in London and Paris

What happened: Fidelity Bitcoin Fund secures $102m investment within 9 months of launch

How is this significant?
  • Fidelity’s Wise Origin Bitcoin Index Fund I, LP has secured $102m in investment since launching last August, according to recent SEC filings
  • The fund is a passively-managed vehicle only available to qualified investors, with a minimum $50,000 investment required—but the filing disclosed 83 investors, meaning the average investment was over $1.2m
  • This puts Fidelity towards the top end of Bitcoin-only funds, breaching the $100m mark alongside NYDIG, Pantera, and Galaxy Digital, although Morgan Stanley secured over $29m for their fund within two weeks of launch
  • Although the Wise Origin Bitcoin Index Fund is only open to accredited investors, Fidelity have also used the Wise Origin name for an ETF application, currently under review

What happened: Ethereum experienced record revenues in May

How is this significant?
  • Large amounts of trading (spurred by an “altcoin season” in early May), a significant new all-time high, and widespread DeFi (decentralised finance) usage led to the Ethereum blockchain once again breaking records for transaction volume and mining revenue
  • According to figures from industry analysts TheBlock, Ethereum’s mining revenue reached $2.35bn, a 42% increase from previous records in April
  • Transaction fee revenues surpassed $1bn for the first time, a 44% increase on the previous month
  • Adjusted on-chain volume reached nearly $670bn, almost doubling April’s figures with a 93% increase
  • May also represented the first time that Ethereum surpassed Bitcoin in on-chain volume, as the success of ERC-20 altcoins built on top of the Ethereum protocol drove additional trading volume
  • Despite the record volumes and revenues, improvements within Ethereum’s protocol and platforms like the Uniswap decentralised exchange, the mid-month marketwide correction meant that average transaction fees on Ethereum and Bitcoin actually both dropped to 6-month lows

What happened: CBDC development activity continues globally

How is this significant?

What happened: Coinbase increase crypto payment utility with Apple Pay and Google Pay

How is this significant?
  • On Tuesday, Coinbase announced in a blog post that their Coinbase debit card now works with major payment platforms from Apple and Google, allowing customers to spend their crypto in more real-world contexts than ever before
  • This allows Coinbase to tap into the rapidly-growing mobile payments market, which increased 29% over the last year in the United States alone
  • Customers will be able to earn between 1% cashback in Bitcoin, to 4% cashback in altcoins, incentivising them to spend their digital assets

What happened: PayPal allows customers to withdraw their digital assets

How is this significant?
  • PayPal’s entry into the digital asset space last year was seen as a key catalyst for bullish momentum; a sign that crypto was accepted as legitimate by big businesses
  • However, although customers were able to buy and sell major assets like Ethereum and Bitcoin through their PayPal wallets, they weren’t able to transfer them to any external blockchain addresses
  • Speaking at Coindesk’s Consensus summit, PayPal’s head of blockchain Jose Fernandez da Ponte announced that the company would “make it as open as possible” and allow consumers to transfer their assets to non-PayPal wallets going forward
  • Explaining the move, da Ponte said “we let them pay any way they want to pay, we want them to bring their crypto to us, so they use it in commerce, and we want them to take crypto they acquire with us and take it to the destination of their choice”

What happened: DBS issues first tokenised bond on their digital exchange

How is this significant?
  • Multinational Singaporean bank DBS extended their recent moves into digital assets, announcing on Monday that they had created their first tokenised bond
  • Priced at $15m, it represents the first security token offering on the bank’s DBS Digital Exchange
  • Group head of capital markets Eng-Kwok Seat Moey explained the bank was keen to be on the cutting edge of blockchain’s financial potential; “We expect asset tokenisation to increasingly become more mainstream as more of our clients start to embrace security token issuance as part of their capital fund raising exercise which we believe will boost Singapore's ambitions to be a digital asset hub in Asia"
  • The DBS Digital Bond has a 6 month tenor and will be tradeable in fractionalised board lots of $10,000; making it far more accessible than traditional bonds trading in multiples of $250,000 

What happened: Reserve Bank of India clarifies stance on digital assets

How is this significant?
  • On Monday, the Reserve Bank of India (RBI) issued a clarification on policies towards crypto assets, saying that banks cannot deny customers service if they find they’ve traded in digital assets
  • Previously, some banks had used a cautious 2018 RBI circular to justify withdrawal of services to customers, but the new clarification explained why this is unlawful by banks
  • “Such references to the above [2018] circular by banks/regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 4, 2020… As such, in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from”
  • This public clarification, issued by the RBI after media reports of banks questioning customers on digital asset transactions, removes a major point of ambiguity from the era of previous crypto-sceptic finance ministers

What happened: Digital asset exchanges move to stake their Ether ahead of Ethereum 2.0

How is this significant?
  • According to figures released this week, digital asset exchanges are increasingly taking advantage of the lucrative possibilities afforded by offering customers staking services
  • With Ethereum’s move from proof-of-work to proof-of-stake consensus, the network will be secured by “validator” nodes of accounts holding 32 Ether
  • Over Q1 2021, proof-of-stake blockchains saw significant growth, gaining over 150% in market capitalisation
  • As of the 1st of June, roughly 28% of current deposit on the Ethereum 2.0 beacon chain are from exchanges, with many offering staking-as-a-service for customers who want their assets to generate passive yield
  • According to Jeremy Welch of American exchange Kraken, ““Staking’s popularity is the natural outcome of an asset class growing in maturity… Whereas three years ago holders were mainly interested in securing short-term gains, many are now confident locking up tokens to earn passive income. Why? Conviction is growing in the longevity of crypto assets as a respectable new asset class.”

What happened: USDC stablecoin issuer Circle raises $440m in funding round

How is this significant?
  • On Friday, Circle (the company behind the USDC stablecoin) announced the successful conclusion of a $440m funding round to drive growth and market expansion
  • Backers in the raise included major institutions like Fidelity, Breyer Capital, and Atlas Merchant Capital, amongst many others
  • According to a press release issued by Circle, “The sustained global demand for our services powering the growth of USDC, as the most trusted and well regulated dollar digital currency, signals that we are one step closer to achieving our mission”
  • Based on Ethereum, Circle is one of the leading stablecoins in the digital asset space, and was notably recently integrated into Visa’s payment network

What happened: Federal Reserve identifies digital currencies as “attractive alternative” to cash

How is this significant?
  • On Thursday, the Richmond Federal Reserve published a paper acknowledging that in several contexts, digital currencies can provide a superior alternative to cash for companies
  • The paper was inspired by the rise of privately-issued digital currencies like Facebook’s proposed Diem stablecoin, or Alibaba’s AliPay platform 
  • Although they noted the cost of creating a digital currency could be “notable”, it can still be favourable in certain economic conditions; “when inflation is high enough that consumers prefer to minimize cash holdings, the cost of establishing and securing a new digital currency system is low, and the platform’s market share is sufficiently large, then it is optimal for the platform to issue its own currency”
  • The bank cited a number of concrete advantages for the issuance of digital currency, including seigniorage revenue, increased loyalty, data value, and decreased settlement risk 

What happened: BlackRock CEO Larry Fink says the company is “studying” digital assets

How is this significant?
  • Speaking at BlackRock’s annual meeting, CEO Larry Fink said they were “studying” the long-term potential of crypto assets, to see what role they could play within the long-term investing ethos of the $9tn asset manager
  • Although he still views the asset class as too volatile for BlackRock’s tastes, he says they are definitely keeping an eye on it; “The firm has monitored the evolution of crypto assets. We are studying what it means, the infrastructure, the regulatory landscape”
  • Ultimately, Fink said that Blackrock aims to determine whether the asset class can provide countercyclical benefits, and play a role similar to gold in long-term investing
News Roundups