Nickel Research Centre

Nickel News Roundup - Week 42

20th October, 2022

Market Overview:

Digital assets experienced a week of relatively flat performance, with strong early trading paring back by midweek.

  • Bitcoin declined sharply alongside other markets following the release of higher-than-forecast CPI figures last Thursday, but recovered swiftly to post a weekly high on Friday, before a prolonged period of range-bound trading as the market experienced its lowest volatility levels since April
  • Bitcoin rose from a low of $18,340 on Thursday to a weekly high of $19,980 on Friday
  • Bitcoin’s current price of $19,140 represents a 0.7% weekly increase 
  • Ether followed Bitcoin’s movements, rising from a Thursday low of $1,210 to a Friday high of $1,340
  • Ether’s current price of $1,292 showcases 1% weekly growth
  • Total supply of Ether has continually decreased since an increase in on-chain activity on the 8th of October, with current burn rates versus issuance rates equates to a forecast supply decline of 0.24% per year
  • Overall market capitalisation recovered by $10bn to a current total of $924bn 
  • Total value locked in DeFi remained steady at $27bn according to industry monitor DeFi Pulse

Digital assets experienced relatively flat performance after some early volatility following new CPI figures. The banking industry experienced a plethora of activity connected to crypto (including institutions like JP Morgan, Société Générale, and BNY), whilst Mastercard released yet more digital asset integrations, VCs featured in multiple major funding raises, and Japan increased its recent shift towards industry-friendly regulation.

What happened: Banking industry news—JP Morgan hires head of crypto regulatory policy

How is this significant?
  • On Wednesday, JP Morgan—despite CEO Jamie Dimon’s public scepticism towards digital assets—became the latest large bank to make a major hire for the purpose of crypto leadership
  • Aaron Iovine joined the bank as executive director of digital assets regulatory policy, following an eight-month spell in a similar role at beleaguered lender Celsius
  • As the digital asset market matures and garners additional regulatory scrutiny, institutions such as JP Morgan will be keen to ensure they stay ahead of the curve on regulatory compliance
  • Although CEO Jamie Dimon has been a vocal critic of digital assets, he has voiced support for blockchain technology, and the company’s Onyx blockchain division has not only used a proprietary digital asset—JPM Coin—for over $350bn in trading volume on their blockchain, but is actively working towards tokenisation of traditional financial instruments
  • In other news from megabanks this week, BNY Mellon CEO Robin Vince confirmed during their most recent earnings call that they view the crypto sphere as a “very long-term” play
  • He also revealed that consumer demand pushed them into custody services; “What we've heard from our clients is they want institutional grade solutions in the space”
  • In France, Société Générale subsidiary Forge gained official regulatory approval for digital asset custody and services
  • Also in France, Digital Transition minister Jean-Noël Barrot announced during a panel discussion with Binance CEO Changpeng “CZ” Zhao that the government will focus on Defi and Web3 industries
  • Additionally, Brazilian bank NuBank—which boasts over 70 million customers—confirmed the creation of their own digital asset, NuCoin, as part of their customer rewards and loyalty program
  • NuBank general manager Fernando Czapski stated “We are opening a door to the future…a new way to recognize customer loyalty and encourage engagement with Nubank products. This project is another step ahead in our belief in the transformative potential of blockchain technology”

What happened: Stablecoin issuer Tether eliminates commercial paper exposure

How is this significant?
  • Tether, the issuers of the largest stablecoin by market capitalisation, completed a recent effort to divest their backing assets of potentially-volatile commercial papers, replacing them with US Treasury Bills
  • As a stablecoin, each Tether is backed by $1 of traditionally-traded assets—but global financial instability made the company re-assess its portfolio of backing assets
  • In a blog post, the company stated “Reducing commercial papers to zero demonstrates Tether’s commitment to backing its tokens with the most secure reserves in the market”
  • The shift from commercial papers to treasury bills has been substantial, reducing commercial paper holdings from $20.1bn in May to $8.5bn in July, to $50m in early October
  • This brought Tether to its goal of zero commercial paper backing ahead of schedule; previous statements forecast it for the end of the year

What happened:Mastercard debuts bank-based crypto-trading services

How is this significant?
  • A Monday press release from Mastercard announced the creation of a “comprehensive suite of buy, hold and sell services for select crypto assets, augmented with proven identity, cyber, security and advisory services” for financial institution partners
  • The Crypto Source program will allow banks partnered with Mastercard to provide a broad range of digital asset services, backed by the technological infrastructure and security support of Mastercard
  • This builds on recent research released by the company, which found that 65% of respondents wanted their financial institutions to provide crypto-related services
  • The payments giant teamed up with digital asset trading platform Paxos to develop the new technology suite, with Paxos developing the trading and custody infrastructure, whilst Mastercard “will leverage its technology to integrate those capabilities into banks’ interfaces, resulting in a seamless experience for the consumer”
  • Ajay Bhalla, President of Cyber & Intelligence at Mastercard said “What we are announcing today is a connected approach to services that will help bring users safely and securely into the crypto ecosystem”
  • He added “[buying crypto assets] from your own bank where you have your bank account is a very big need from the market and something consumers want”
  • This new suite of services follows swiftly on from recent Mastercard releases designed for risk assessment on crypto transactions
  • Speaking to CNBC, Mastercard’s chief digital officer Jorn Lambert said that whilst customers were interested in digital assets, many don’t have the confidence to buy them directly on crypto-native platforms
  • “There’s a lot of consumers out there that are really interested in this, and intrigued by crypto, but would feel a lot more confident if those services were offered by their financial institutions”
  • Lambert also proclaimed a long-term view for the asset class; “It would be shortsighted to think that a little bit of a crypto winter heralds the end of it—we don’t see that… As regulation comes in, there is going to be a higher degree of security available to the crypto platforms and we’ll see a lot of the current issues getting resolved”

What happened: Contagion latest—Lawsuits, Severance, and Regulators

How is this significant?
  • Court filings revealed that one of the conditions of bankrupt lender Voyager’s sale to FTX is a “broad release” from lawsuits for top Voyager executives, seen as the architects of the company’s downfall
  • Predictably, this has led to some outcry amongst unsecured creditors
  • However, additional court papers indicate that two members of Voyager’s board of directors are investigating the timeline of the company’s collapse, including a loan to failed hedge fund 3 Arrows Capital (3AC) that doomed the company through contagion
  • If the board members deem that the executives responsible for those decisions could be sued, they would then be excluded from the conditional releases in the sale to FTX
  • The most recent reports suggest that they may settle internally with the concerned executives, instead of pursuing potentially lengthy and costly lawsuits
  • 3AC is now being probed by US regulators including the CFTC and SEC; people familiar with the matter told Bloomberg that a key area of concern is whether they misled investors about the strength of their finances
  • This adds to ongoing investigations from the hedge funds previous headquarters in Singapore and the British Virgin Islands
  • The 3AC co-founders’ whereabout remain unknown, leading to liquidators Teneo taking the unusual step of issuing subpoenas through their Twitter accounts and email addresses, after other methods of contact proved fruitless
  • Celsius creditors were faced with a logistical annoyance in the company’s current bankruptcy proceedings; paying at least $3m in retention bonuses to stop employees from deserting the company under a “key employee retention plan”
  • Since filing for bankruptcy, over 100 employees (including former CEO Alex Mashinsky) have quit, leading to a “brain drain” that could damage the firm’s hopes of recovery
  • FTX and its CEO Sam Bankman-Fried are being investigated by Texas regulators, on the question of whether specific lending services violate state law
  • The IRS recognised NFTs for the very first time in new wording on tax filings

What happened: Japan relaxes digital asset listing regulations

How is this significant?
  • In a move that builds on Prime Minister Fumio Kishida’s support for Web3 businesses, Japanese regulators agreed to streamline listing procedures for digital assets on local exchanges and trading markets
  • Documents reviewed by Bloomberg revealed that industry bodies will drop a lengthy screening process for exchange listings, as long as the tokens already have a presence in Japan
  • These rules should come into effect by the end of the year, helping to support local start-ups and reducing concerns of competitive brain-drain
  • Additionally, in an effort to increase international competitiveness, regulators “could also scrap pre-screenings for coins new to the nation, as well as for tokens issued through initial coin or exchange offerings” by March 2024
  • Japan Virtual and Crypto assets Exchange Association (JVCEA) vice-chairman Genki Oda stated in an interview about the regulations “We hope the latest measure will help revitalise Japan’s crypto assets market”
  • Currently, only about 50 different digital assets are traded in Japan; representing a significant potential opportunity whilst the top 500 assets listed on market aggregator Coinmarketcap all have a market capitalisation of at least $25m

What happened: Decentralised exchange Uniswap secures $165m in funding

How is this significant?
  • The developers of the digital asset industry’s largest decentralised exchange (DEX), Uniswap, successfully completed a 9-figure fundraise this week, despite prevailing crypto winter conditions and reduced DEX trading volumes
  • Uniswap Labs raised $165m in a Series B funding round, at a valuation of $1.66bn—an apt valuation, given that the company’s logo is a unicorn
  • The round was led by Polychain Capital, and included investments from a16z, Paradigm, SV Angel, and Variant
  • Uniswap rose to prominence in the “DeFi Summer” of 2020, when digital assets returned to growth mode after a prolonged bear market, and decentralised exchanges allowed crypto holders to become liquidity providers and earn yield on their assets

What happened: VC news—Nine-figure funds and lending facilities

How is this significant?
  • Alongside Uniswap’s big raise, there was a slew of news from venture capital in digital assets, ranging from funding to major hires
  • Crypto asset management firm BlockTower revealed a new $150m venture capital arm, with its head Thomas Klocanas telling industry publication Coindesk that they actually launched in stealth mode ten months ago, and are now benefitting from the bear market
  • “I think it presents a lot of opportunity from a venture perspective... Objectively, crypto valuations and just valuations at large were a little crazy last year. Things have come back down to earth a little”
  • 1k(x), a $1bn AUM digital asset VC firm backed by billionaire Alan Howard, officially hired former HSBC Private Banking global head of innovation Diana Biggs as a partner
  • Biggs’ role will include institutional partnerships and support for portfolio companies
  • raised (undisclosed) new capital from UK firms Kingsway Capital and Baillie Gifford, at an undisclosed valuation
  • The company’s previous funding round in March also featured Baillie Gifford, at a valuation of $14bn
  • Binance launched a $500m lending facility from their mining branch Binance Pool, intended to support both public and private miners
  • With surging energy prices globally, miners’ profit margins have been squeezed, particularly as Bitcoin’s hash rate has also grown to record levels—up 72% from one year ago
  • Miners will provide digital assets to Binance as collateral for the loans, which have a duration of 18 to 24 months
  • Crypto custodians Copper announced $196m raised in an ongoing Series C round; below the $500m they were initially seeking when the round opened during bull market conditions last November
  • Blockchain gaming startup Stardust raised $30m in Series A funding, at a higher (but undisclosed) valuation than their previous round
  • Shardeum, a highly-scalable blockchain project from the co-founder of India’s largest digital asset exchange raised $18.2m in seed funding this week
  • Alongside many individuals and crypto-native VCs, there was a big name from traditional finance contributing to the seed round; market maker Jane Street Capital
  • A digital asset investment startup called Pillow raised $18m in a Series A round led by Accel and Quona, featuring investment from institutional powerhouse Jump Capital
  • Based in Singapore, their investment platform is currently available in 60 countries, and aims to provide exposure to digital assets without complicated technical logistics
  • Co-founder Arindam Roy tweeted “We now move to the next phase of our journey, one where millions of users worldwide are able to meaningfully interact with digital assets without barriers of geography, education, or infrastructure”

What happened: Coinbase files amicus suit supporting Grayscale’s ETF rejection protests

How is this significant?
  • The digital asset industry came out to back Grayscale’s recent lawsuit against the United States SEC, which argues that their Bitcoin ETF filing was unfairly rejected
  • Leading exchange Coinbase filed an amicus brief supporting Grayscale, as did a variety of trade groups, including the Blockchain Association, and the Chamber of Digital Commerce
  • The filings point out that the SEC has “categorically denied every proposal” of a physically-backed or spot Bitcoin ETF, yet approved multiple ETFs based on derivatives
  • Industry publication Coindesk points out that membership of the industry trade groups above includes significant names from traditional finance, including Goldman Sachs and Fidelity
  • It is perhaps worthwhile to note that whilst the SEC has a history of litigation against digital asset firms, this is the first major lawsuit from the digital asset sphere towards them, at a time when the sector’s political influence may be growing as a result of increased political campaign donations 
  • In other Coinbase-related news, CEO Brian Armstrong pledged to sell 2% of his company holdings over the next year in order to help fund scientific research
  • Armstrong currently owns 16% of Coinbase, alongside 59.5% of its voting shares
News Roundups