Nickel Research Centre

Nickel News Roundup - Week 43

28th October, 2021 

Market Overview:

The digital asset market cooled down slightly after last week’s explosive growth, but nonetheless remains well over levels seen at the beginning of October

  • Bitcoin spent the majority of the week trading between $62,000 and $64,000, with a peak of $63,890, before a decline on Wednesday dropped Bitcoin below $60,000, for a current price of $58,930
  • This is down from last week’s record value of nearly $67,000 (when Bitcoin briefly surpassed the Swiss Franc in total value), but remains well above October’s opening value of around $43,800
  • Analysts noted leverage ratios on Bitcoin are at a yearly high, helping to explain the rapid dip on Wednesday as over-leveraged traders were liquidated
  • Ether stayed above $4,100 for the majority of the week, achieving a new all-time high of $4,366, before declining alongside Bitcoin—albeit to a lesser degree, with a current trading price of $3,991
  • The total market capitalisation of all digital assets reached another record this week, hitting $2.68tn on Thursday, before dropping to $2.47tn on Wednesday after large-scale sell-offs in Bitcoin
  • Total value locked in DeFi reached new highs of $106bn according to industry analytics platform DeFi Pulse

Digital asset price action remained strong throughout the week, with a new record high for Ether, before over-leveraged traders led to large-scale liquidations and price drops on Wednesday. The recent Bitcoin ETF registered record performance, and major hedge funds, asset managers, pension funds, and financial institutions announced their presence in the crypto asset space. Companies like Mastercard, Walmart, and FTX all continued the push to increase awareness of and access to digital assets, making this new asset class more mainstream than ever before.


What happened: Bitcoin ETF sets trading records

How is this significant?
  • After a wildly successful first day of trading last week, ProShares’ Bitcoin futures ETF became the fastest-ever to achieve $1bn in assets under management, up from $20m at launch
  • This broke a 17 year record set by the SDPR Gold ETF; fitting the narrative of Bitcoin as digital gold
  • In fact, the ETF has exceeded expectations to such a degree that JP Morgan issued a warning that, since the ETF is futures-based rather than spot-based, it could eventually warp the futures market and present a contango risk; “Contango in the BTC futures curve can impose a drag on performance for these funds due to the futures carry cost/roll yield. This carry drag can be several times the products' management fees, and could become even larger if these products gather substantial assets, due to their market impact”
  • The FT also noted that, with ProShares and Valkyrie now trading, there could be a “price war” looming for the funds, with a new filing from VanEck aiming to offer their futures ETF at a management fee of 65 basis points, compared to 95 basis points for both ProShares and Valkyrie 

What happened: $400bn investment manager Neuberger Berman expands digital asset involvement

How is this significant?
  • On Monday, investment management firm Neuberger Berman revealed a partnership with digital asset company BlockFi, “to develop and distribute a series of crypto asset management products and strategies”
  • The new joint venture will be known as “BlockFi | nb”. According to a press release announcing the partnership, “BlockFi | nb's crypto access solutions will exist alongside Neuberger Berman's growing suite of actively managed crypto strategies and BlockFi's retail and institutional crypto solutions”
  • This range of solutions will include new digital asset ETFs, as well as using other traditional financial structures to provide crypto asset exposure
  • Neuberger Berman MD Peter Sterling identified the growing appeal of digital assets as a key motivation for the new partnership, saying “Digital assets are increasingly taking their place as mainstream investments and we intend for BlockFi | nb to play a key role in that effort”

What happened: PIMCO beginning to invest in digital assets

How is this significant?
  • In an interview with CNBC at the Delivering Alpha conference, PIMCO chief investment officer Daniel Ivascyn provided some insight into the $2.2tn asset manager’s attitudes, actions, and strategies regarding digital assets
  • Ivascyn said the new asset class has tremendous disruptive potential; “it will be disruptive, and it very well may disrupt our industry, in our business in particular”
  • He stressed the company would take the time to gradually immerse themselves; “we’re looking at potentially trading certain cryptocurrencies as part of our trend-following strategies or quant-oriented strategies, then doing more work on the fundamental side”
  • He also revealed that some of their hedge funds have already gained indirect exposure to digital assets; “We’re trading from a relative value perspective. So we’re not taking directional exposure, but we’re looking to take advantage of mispricings between the cash product, popular trust that trades on the exchange, and then the futures”
  • Ivascyn also noted the generational appeal of digital assets, and the importance of understanding the sector now in order to reap benefits in the future; identifying a “rapidly changing environment that offers a pretty significant value proposition, particularly for younger generations, or the new generation of the investment community”

What happened: JP Morgan cites inflation as key driver of Bitcoin rise

How is this significant?
  • In a research note published on Thursday, JP Morgan analysts cited the recent launch of a Bitcoin ETF as a contributing factor towards Bitcoin’s new record highs—but they believe that the inflation narrative has been the key driver of value appreciation
  • In the note, a variety of strategists claimed ““By itself, the launch of [Bitcoin Futures ETF] BITO is unlikely to trigger a new phase of significantly more fresh capital entering Bitcoin. Instead, we believe the perception of Bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into Bitcoin funds since September”
  • Bloomberg noted that gold’s appeal as an inflation hedge appears to be waning, with the $56bn SPDR Gold Shares ETF experiencing four consecutive months of outflows, totalling more than $3.6bn

What happened: Mastercard plans to roll out crypto asset services to banking partners

How is this significant?
  • Payment processor Mastercard made moves this week to deepen digital asset integration within their financial infrastructure, thanks to a partnership with publicly listed institutional exchange Bakkt
  • In a press release announcing their partnership, it was revealed that the services provided will go far beyond accepting crypto assets as payments 
  • Mastercard users will be able to “buy, sell and hold digital assets through custodial wallets powered by the Bakkt platform”, as well as use crypto debit and credit cards, and benefit from loyalty solutions “enabling its partners to offer cryptocurrency as rewards and create fungibility between loyalty points and other digital assets”
  • This could open the doors to integration of digital assets at more than 20,000 financial institutions partnered with Mastercard, who currently cite 2.8bn Mastercards in use worldwide

What happened: American pension fund makes direct Bitcoin and Ether investment

How is this significant?
  • The Houston Firefighters’ Relief & Pension Fund ($5.5bn in assets) became the first major pension fund in America to make a direct digital asset investment this week
  • Working together with institutional solution providers NYDIG, the fund announced a $25m investment in both Bitcoin and Ether
  • Administrators at the fund identified the move as sensible strategic diversification; CIO Ajit Singh said “I see this as another tool to manage my risk. It has a positive expected return and it manages my risk. It has a low correlation to every other asset class”
  • Singh also identified the reasoning behind the direct exposure, alluding to Ethereum’s future staking capabilities; “We didn’t want to get the synthetic exposure... As more and more institutional adoptions happen, there will be more and more dynamics that develop for supply and demand. And having physical assets—actual tokens—gives us in the future the possibility of income generation potential”
  • Earlier this year, news emerged that pension funds like California’s CalPERS were increasing digital asset exposure through shares in Bitcoin mining companies

What happened: FDIC Chair advocates for American banks to hold Bitcoin

How is this significant?
  • Federal Deposit Insurance Corporation (FDIC) Chair Jelena McWilliams spoke about digital assets at this week’s Money 20/20 conference in Las Vegas
  • McWilliams believes it is time for traditional financial institutions to become more active in the space, saying “I think that we need to allow banks in this space, while appropriately managing and mitigating risk”
  • As part of this risk mitigation, she noted her role in an interagency team including the Federal Reserve and OCC to properly coordinate policies for American banks; “My goal in this interagency group is to basically provide a path for banks to be able to act as a custodian of these assets, use crypto assets, digital assets as some form of collateral”

What happened: Tesla confirms plans to resume acceptance of Bitcoin as payment

How is this significant?
  • In a recent SEC filing, Tesla confirmed plans to begin accepting Bitcoin as payment again, after suspending it earlier this year due to concerns over carbon emissions from Bitcoin mining
  • In their earnings report, the company wrote that it “may in the future restart the practice of transacting in cryptocurrencies ('digital assets') for our products and services”
  • Tesla also confirmed they continue to hold their original Bitcoin investment, minus the 10% sold in April as a means of proving the asset’s liquidity
  • Tesla CEO Elon Musk tweeted this week that he continues to hold Bitcoin and Ethereum, as well as the populist meme-inspired Dogecoin

What happened: PayPal co-founder Peter Thiel declares himself “underinvested” in Bitcoin

How is this significant?
  • Tech billionaire Peter Thiel voiced his support for Bitcoin this week, citing central bank monetary policies as a key motivator
  • Speaking in Miami, he said “I feel like I’ve been underinvested in it”, and noted that whilst he feared that the secret of Bitcoin may be out of the bag following its rise over the last year, “I think the answers are still to go long… Maybe it still is enough of a secret”
  • Thiel backed up this attitude towards digital assets with direct action, as his Valar Ventures led a $27m funding round for APAC-focused digital assets payment network XanPool
  • Additionally, PayPal registered its largest trading volumes since the price crash of May

What happened: First banks sign up for Bitcoin trading platform from NYDIG

How is this significant?
  • This week, institutional Bitcoin solutions provider NYDIG announced the first two financial institutions in America to adopt their technology in order to enable clients to trade and hold digital assets in their bank accounts
  • New York’s Five Star Bank, and California’s UNIFY Credit Financial Union are inaugural institutions to adopt NYDIG’s technology stack, built on top of digital banking provider Q2’s platform
  • In a press release, NYDIG’s Chief Innovation Officer Patrick Sells said “The market momentum is building around bitcoin, and by rapidly expanding our network, we are laser-focused on helping banks and credit unions take advantage of this opportunity… We know the opportunity for financial institutions is real, and that is why we’re so excited to have our first financial institution customers live on the Q2 Digital Banking Platform”
  • According to research carried out by NYDIG, 80% of Americans would store digital assets with their primary bank or credit union if the facility was offered, compared to just 20% who currently own digital assets

What happened: Walmart installs 200 Bitcoin ATMs in pilot scheme

How is this significant?
  • Walmart, America’s largest physical retailer, has rolled out a pilot scheme installing 200 Bitcoin ATMs in its stores—a number which could climb to 8,000 across America through the infrastructure of established cash kiosk operator Coinstar
  • Although Bitcoin ATMs charge high fees, they present a low barrier of entry to users, and represent the growing appeal and ubiquity of Bitcoin
  • The pilot scheme by Walmart follows previous signals of interest from the retail giant, including a job posting in August to recruit a new Head of Digital Assets, with a responsibility to develop a digital asset product and strategy roadmap for the corporation

What happened: FTX exchange raises over $420m in funding

How is this significant?
  • FTX exchange increased its valuation to $25bn this week, following a series B-1 raise worth nearly $421m
  • The funding came from 69 different investors; including “Ontario Teachers’ Pension Plan Board, Temasek, Sequoia Capital, Tiger Global, Ribbit Capital, Lightspeed Venture Partners and funds and accounts managed by BlackRock”
  • FTX also revealed that Temasek was an undisclosed participant in their previous Series B raise three months ago, which raised that investment from around $900m to $1bn
  • Since the Series B in July, FTX reports 48% growth in its user base, 75% increase in volume, and nearly $14bn transacted per day
  • Additionally, the company expanded its recent sports sponsorship and marketing efforts by confirming the purchase of advertising time during the next Superbowl; the most sought-after and viewed advertising space in America

What happened: Citibank endorses Coinbase stock as “the general store of crypto”

How is this significant?
  • This week, analysts at Citi identified the long-term potential of Coinbase’s COIN stock, saying “we believe COIN is investable”
  • Citi explained their position by identifying Coinbase as “the general store” of digital assets, whose value will grow as the asset class grows, providing “investors direct exposure to increased retail and institutional adoption”
  • They also identified the company’s active efforts towards securing—and potentially influencing—US regulatory compliance as a future strength; “To a degree, we think rising regulations could be a positive for Coinbase’s competitive positioning, particularly versus business models that predominantly rely on markets being unregulated”

What happened: Sotheby’s invests in NFT platform, and new crypto unicorns are born

How is this significant?

What happened: $2.6bn quant hedge fund GSA Capital enters into crypto asset investment

How is this significant?
  • London-based GSA Capital PArtners LLP joined big hedge fund names like Alan Howard and Steve Cohen this week, by seeking portfolio exposure to digital assets
  • According to senior investment partner Chris Taylor, GSA began the systematic trading of digital assets in August, and is in the process of hiring a head of crypto trading and operations
  • Taylor noted a desire to launch quickly in order to capture as much upside as possible, noting “It’s interesting to be involved in something new where you feel that there aren’t a lot of people you can go to to explain how it’s done, and there aren’t existing procedures for how the operational set-up should look”
News Roundups