Nickel Research Centre

Nickel News Roundup - Week 20

19th May, 2022 

Market Overview:

Digital assets recovered some of last week’s losses, but sentiment remained bearish following the fallout of the Terra blockchain’s collapse.

  • Bitcoin hit a weekly low of $26,350 on Thursday as Terra’s unravelling sent shockwaves through the digital asset market
  • It subsequently recovered slightly, spending the majority of the week trading between $28,500 and $30,000, with a high of $31,270—but was unable to sustain any prolonged runs above the $30,000 mark
  • On Sunday night, Bitcoin set an unwelcome record of closing its weekly candle in the red for the seventh week running—the first such sequence in the network’s history, indicating current bearish sentiment
  • Bitcoin’s current price of $29,230 represents a 6.4% increase from last week’s figure
  • Ether moved in tandem with Bitcoin, recovering from a weekly low on Thursday of $1,748, to a general trading range of $1,940 to $2,078, with a weekly high of $2,146
  • Ether’s current price of $1,959 equates to a 5.5% growth from last week’s figures
  • Overall market capitalisation rose slightly to $1.24tn, as many altcoins still exhibited weekly losses due to consolidation and risk-averse investor behaviour
  • Total value locked in DeFi however dropped further this week to $55bn according to industry monitor DeFi Pulse, driven by the collapse of the Terra ecosystem and resultant concerns over holding stablecoins

Digital assets posted modest recoveries after last week’s major declines, but investors continued to exhibit caution as a major spotlight was cast on stablecoins. Despite concerns over a possible bear market or crypto winter however, long-term thinking prevailed elsewhere, as major banking institutions like Nomura, Goldman Sachs, and Barclays invested in the space, EY demonstrated growing corporate applications of blockchain, Meta indicated plans to process digital asset payments and investments, several new investment vehicles launched on traditional exchanges, and venture capital (including sovereign wealth funds) continued to back the industry.


What happened: Nomura launching crypto asset subsidiary

How is this significant?
  • Japanese investment bank Nomura confirmed their first-ever trade of crypto derivatives this week, alongside news that they will launch their own digital asset subsidiary
  • With $569bn in assets under management, Nomura is one of the ten largest banks in Japan, and follows in the footsteps of SoftBank, who have frequently featured in VC rounds for digital asset companies over the last year
  • The derivatives trades were conducted on the CME, with the assistance of Cumberland DRW
  • A Nomura spokesperson told the FT that new crypto-related services were being driven by a “significantly” growing client demand, even amidst a backdrop of falling global risk-on markets; “If we don’t do this, then it’s going to be more difficult down the line to be competitive”
  • Tim Albers, head of forex structuring in Asia (ex-Japan) told Bloomberg that the company and institutional investors remain optimistic about the market despite current high levels of volatility
  • Albers said “There has been significant volatility recently. Once the dust settles, valuations will become more attractive for institutional clients. We’re pretty excited to get this off the ground”
  • He also cited the potential benefits of increased regulation in the industry for institutional investors; “We expect the sector to mature over time, to become more regulated, which makes it more attractive for institutional investors… As a result, volatility should reduce over time”
  • Japanese news outlet Nikkei Asia reported that Nomura will establish their crypto subsidiary overseas, led by transplants from existing Nomura offices whilst they aim to establish a headcount of 100 by the year 2023 
  • The subsidiary is expected to offer services and products related to a broad range of digital assets, including NFTs

What happened: Stablecoin concerns hit headlines following Terra blockchain collapse

How is this significant?
  • The de-pegging of the Terra Blockchain’s UST algorithmic stablecoin (and crash of the chain’s complementary LUNA token) continues to cast a shadow across the wider digital asset industry, with many legislators using the event as an opportunity to argue for more regulations across the industry
  • Although Terra’s collapse was not a surprise to some, its consequences nonetheless moved beyond just the project itself; particularly as those involved in running the Terra ecosystem rapidly sold off $2.9bn of the company’s Bitcoin reserves in a futile attempt to reverse UST (and thus LUNA’s) decline; thereby increasing sell pressure on Bitcoin during a period of downward momentum
  • In a research report on Monday, Goldman Sachs analysts posited that there needs to be broader adoption of digital assets into existing financial and payments infrastructures for algorithmic stablecoins to function; “Stablecoins have limited use as a payments medium at this time. If that real-world use case were to grow over time, it could create a more stable demand base for these assets… Hypothetically, an algorithmic stablecoin could survive in the long-run, if it were to have ongoing transaction-related demand”
  • Rohit Chopra, director of the Consumer Financial Protection Bureau, echoed these sentiments on their current status, telling Bloomberg they’re “not ready yet” for use in consumer payments
  • Janet Yellen pointed towards the UST meltdown during a hearing with the House Financial Services Committee, saying “I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks that we have known for centuries in connection with bank runs”
  • Reserve-backed Tether (USDT), the largest stablecoin by market capitalisation, briefly dropped 5% during mass sell-offs as investors reacted nervously to UST’s demise, but concerns abated as customers were able to redeem on a 1:1 basis with US dollars without any issues, including about $2bn of redemptions on May 12thalone 

What happened: Meta files trademarks indicating crypto and digital payment systems

How is this significant?
  • Meta, the parent company of social networks Facebook and Instagram, submitted several trademark applications this week pointing towards development and integration of crypto payment systems on their platforms
  • The new platform at the heart of the trademark filings is to be called Meta Pay, and is described in the applications as an “online social networking service for investors allowing financial trades and exchange of digital currency, virtual currency, cryptocurrency, digital and blockchain assets, digital tokens, [and] crypto tokens”
  • Meta have made no secrets of their plans to include digital assets into their metaverse vision, including recent trials of NFT integration on Instagram, and other metaverse-related trademark applications

What happened: Blockchain data firm Chainalysis achieves $8.6bn valuation 

How is this significant?
  • Following a $170m Series F funding round, blockchain analytics firm Chainalysis confirmed a new valuation of $8.6bn
  • This more than doubles its previous $4.2bn valuation from a round led by Coatue last June
  • The Series F round featured the involvement of a sovereign wealth fund, being led by Singapore’s GIC
  • The growth of the digital asset market over the last couple of years is reflected in several metrics about Chainalysis; they doubled headcount to 700 over the last year, and increased the number of high-value clients providing recurring revenue by 75%
  • Chainalysis CEO Michael Gronager praised GIC’s involvement as a key to increasing their presence in the Asia-Pacific region, whilst acknowledging the growth of the asset class as a whole; “Over the past year, the cryptocurrency industry crossed into the mainstream with financial institutions entering the space and new technologies like NFTs disrupting traditional markets”

What happened: Ernst & Young deploys supply chain tracking on Ethereum Layer 2

How is this significant?
  • “Big 4” accounting firm EY launched a new supply chain traceability and inventory management solution this week on public blockchain technology
  • Called OpsChain, it is deployed on Nightfall, a Layer-2 Ethereum blockchain developed in conjunction with scaling solution Polygon
  • James Canterbury, Principal and Blockchain Leader, Ernst and Young LLP, said in a press release that the addition of inventory management could increase utilisation of blockchain across supply chains; "Managing complex operations across enterprise boundaries is a big step forward. EY OpsChain Supply Chain Manager significantly widens the breadth of use cases available for clients to consider"
  • EY believe that OpsChain can help enterprises run more internal services and data on Ethereum or Polygon, including the issuance of supply chain data in the form of ERC-721 NFTs, with other Ethereum token formats to follow

What happened: Grayscale launches equity-based digital asset ETF in Europe

How is this significant?
  • Grayscale, operators of GBTC (the world’s largest crypto fund) announced their debut in European markets this week, with an ETF listing on exchanges in Germany, Italy, and the UK, with further expansion across the continent planned
  • The new Future of Finance UCITS ETF is called a “complementary exposure” to their existing funds, focused on equity in digital asset companies rather than direct digital asset holdings
  • Launch of this product in Europe doesn’t preclude the company’s current efforts to launch a Bitcoin spot ETF in the United States; they met privately with SEC representatives earlier this month, arguing that conversion of their GBTC investment vehicle into an ETF could unlock up to $8bn in value for investors
  • Grayscale CEO Michael Sonnenschein told Bloomberg that they increasingly see investors as exhibiting more long-term horizons in their digital asset investing, citing “pensions, endowments, and hedge funds” amongst an accelerating “institutional wave of adoption”
  • In other news from traditional exchanges, Brazil’s B3 stock exchange confirmed plans to launch Bitcoin futures“in the next three to six months” during a conference call on Monday
  • Swiss ETP issuer 21Shares moved in the opposite direction to Grayscale, launching their first investment vehicles in the US, via two crypto industry index funds, “providing accredited investors with broad exposure to both large-cap and mid-cap crypto assets”

What happened: Haun Ventures announced as strategic investor in TaxBit

How is this significant?
  • TaxBit—a startup focused on automated calculation of taxes related to digital assets—secured the backing of Andreessen Horowitz alumna Katie Haun’s new Haun Ventures VC this week
  • Although no specific figures were disclosed, they did issue a press release about the investment, so it’s likely to have been significant
  • In the release, Haun stated that it’s a long-term investment in digital asset infrastructure: “The web3 ecosystem has grown dramatically since I entered the space and yet we are still in early days. While the crypto economy will continue to unfold in cycles, there is now broad acceptance that this industry is here to stay. TaxBit provides core infrastructure that is required for the crypto economy to grow and reach its full potential”
  • Last August, the company raised $130m at a $1.3bn valuation
  • CEO Austin Woodward was keen to cite Haun’s previous experience working with the US governments as a key benefit of her involvement, especially after TaxBit established a Washington office this year “Katie and her team have really leaned in there as well… They have a big D.C. public sector presence”
  • Woodward identified 2022 as “the year of regulation”, and confirmed that despite recent market downturns, the company remains in a comfortable financial position; “We have a lot of cash, even to weather any economic downturns that we currently may be in”

What happened: Venture capital roundup—a16z releases inaugural “state of crypto” report

How is this significant?
  • Noted VC firm Andreeseen Horowtiz (a16z) released their first annual “State of Crypto” report on Tuesday
  • Although the report noted the current downturn may signal a current “crypto winter” market status, one of its key takeaways was that it exists within a price-innovation cycle, whereby new talent attracted during periods of bullish momentum eventually leads to the release of innovative products creating “consistent long-term growth driven by a feedback loop between interest and innovation”
  • Other key conclusions from the report were that Web3 technologies provide much greater benefits to creators, crypto and DeFi currently exhibit real-world impacts, Ethereum remains by far the leading smart contract platform, and—perhaps most crucially for the investment-minded—”Yes, it’s Still Early”, as current Ethereum user numbers put the industry roughly level with the internet in 1995 on an adoption curve
  • In other news from the VC world, Fortis Digital Ventures closed a $100m fund, with a minimum investment of $250,000
  • They told Techcrunch that current bearish conditions could have long-term benefits for the industry, separating the wheat from the chaff; “The overall marketplace is likely to see a retraction in the easy money that was flowing to fund even questionable ideas and projects… While a short-term headwind, we view this as a long-term positive, as it means projects will need to stand on their individual merits and not just use the terms ‘crypto,’ ‘blockchain’ or ‘web3’ in their marketing collateral”
  • Elwood Technologies, a crypto hedge fund founded by billionaire Alan Howard, completed a $70m round of Series A funding this week, co-led by Goldman Sachs and Dawn Capital
  • Other significant investors included Barclays, CommerzVentures, Chimera Ventures, and the Digital Currency Group
  • Elwood “aims to provide institutional-level access to cryptocurrency markets and liquidity ventures”, and Goldman Sachs’ digital assets lead Mathew McDermott commented on their investment saying “As institutional demand for cryptocurrency rises, Goldman Sachs has been broadening its market presence to appeal to client demand”
News Roundups