Nickel Research Centre

Nickel News Roundup - Week 6

February 9th , 2023

Market Overview:

Digital assets experienced stable performance, maintaining last week’s levels after significant growth throughout the previous month.

  • Bitcoin declined gradually throughout the week, spiking to a high of $24,080 on Thursday, and reaching a low of $22,710 on Tuesday
  • Bitcoin’s current price of $22,730 equates to a 4.5% weekly drop
  • Ether followed suit, with a Thursday high of $1,703, and a low of $1,615 on Tuesday
  • Ether’s current price of $1,634 translating to a 2.2% weekly decline
  • Total Ether issuance dropped further below pre-merge levels; high levels of transactions increased burn rates, which once again exceeded new Ether entering circulation. Current annual issuance remains deflationary at -0.5%
  • Overall market capitalisation stayed above $1tn throughout the week, but dropped slightly to $1.07tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms remained unchanged at $49.3bn

Digital assets experienced a modest decline in value this week, but only after more than a month of strong growth. Adoption news continued to roll in from across the globe, with digital assets, blockchain, and CBDCs featuring prominently in policies, firms, and even humanitarian organisations from the UAE, Switzerland, UK, Russia, India, Germany, and Turkey.

What happened: Dubai digital asset regulator launches hiring spree

How is this significant?

  • VARA (Dubai’s Virtual Assets Regulatory Authority) is inundated with interest from firms in the digital asset space seeking to set up shop in the Emirates, leading to a grand hiring push
  • In an interview with Bloomberg, VARA CEO Henson Orser revealed that the regulator plans to quadruple headcount within the next few months, and expects approximately 300 new business applications by the end of the year
  • Orser said they will begin issuing final permits to firms already operating in the Emirate on a provisional basis from June onwards
  • On Tuesday, VARA published their final framework regarding requirements for firms to obtain a full regulatory licence in Dubai; rules which Orser believes “will stand head and shoulders above the rest”
  • This new framework comes just a few weeks after UAE officials at Davos confirmed digital assets “will play a major role for UAE trade going forward”
  • The assumption that their legislative framework will prove compelling has necessitated a drastic increase in headcount; “It’s been a mad sprint. It’s a case of ‘be careful what you wish for’. We’ve created a lot of work for ourselves in terms of supervision and enforcement”

What happened: Swiss crypto asset bank SEBA recruits JPM alum for leadership role

How is this significant?

  • SEBA, a digital asset-focused bank backed by finance giant Julius Baer, confirmed new APAC leadership this week for an increased institutional presence in the region
  • Amy Yu will lead the APAC unit, having previously worked in JP Morgan’s prime services division in the region
  • Yu said that recent travails in the digital asset market could ultimately benefit regulated firms with links to traditional finance counterparties; “What we have seen in the last few months has been painful for most market participants in crypto but probably very necessary”
  • In particular, SEBA seeks to bolster its profile in Singapore and Hong Kong, where it is currently exploring licencing; Yu said “Depending on how our licences and conversations progress with the regulators that will probably determine where I spend most of my time”
  • She noted that Hong Kong has “really come out with a bang” with recent efforts to woo the asset class, but doesn’t view the industry as a zero-sum game between them and the more conservatively-inclined Singapore market
  • In other news of Swiss digital asset firms making key hires, custodianship company Metaco (who recently partnered with German finance giant Dekabank) unveiled a pair of top recruits from IBM this week
  • Former IBM head of digital assets infrastructure Peter Demeo joined as chief product officer, whilst ex-IBM lead architect Angel Nunez Mencias was hired as chief customer officer
  • Demeo dubbed the move a “win-win”, saying “IBM’s strongest partner in digital assets over the last several years has been Metaco, and now we have a real opportunity to collaborate and take things to the next level
  • Metaco CEO Adrien Treccani says the company is investing in internal growth despite last year’s inclement market; “We have tripled the size of the team and are still planning to double the size of the company this year. The hires are mainly between Europe, Southeast Asia and North America, but we do have more regions appearing with our growing user base of clients”

What happened: Contagion latest—FTX requests return of Bankman-Fried political donations

How is this significant?

  • A key revelation of former FTX CEO Sam Bankman-Fried’s fall from grace was the scale of his political donations; and now FTX and associated debtors are trying to claw them back as part of the ongoing bankruptcy process
  • Larger campaign funding recipients will likely be the first pursued, after FTX and related entities began sending out confidential letters over the weekend demanding the return of such funds
  • One legal expert told TechCrunch “Given the sheer scale of the political donations—as well as allegations that these were potentially financed through FTX customer funds (through Alameda)—current FTX management has strong reasons to seek a return of these funds as a way to meet creditor shortfalls”
  • The Financial Times reported on Tuesday that the Digital Currency Group (DCG) is selling off shares in several of its subsidiary Grayscale’s digital asset funds, in order to pay off the debts of its beleaguered lending arm, Genesis Global
  • Citing SEC filings, the Times claims that the majority of said sales are comprised of Grayscale’s Ethereum funds, rather than its flagship GBTC trust
  • Earlier, news emerged that DCG CEO Barry Silbert had reached an agreement with the Winklevoss brothers, co-founders of digital asset exchange Gemini, and key creditors in Genesis’ bankruptcy
  • The conflict between the two groups has played out in an ugly public spat involving allegations (from Cameron Winklevoss) of fraud, but on Monday Genesis published an announcement about an “agreement in principle” regarding the debt
  • The agreement involves $1.7bn of debt restructuring from DCG (including “a new [$500m] second-lien term loan facility consisting of two tranches, one denominated in dollars, the other in Bitcoin”) and an equity contribution to the solvent Genesis Global Trading subsidiary, alongside a $100m contribution from Gemini
  • Cameron Winklevoss lauded the agreement as “a critical step forward towards a substantial recovery of assets for all Genesis creditors”
  • South Korean authorities searching for Do Kwon, the lead developer of the collapsed Terra Luna blockchain ecosystem, stated that investigators had recently visited Serbia on the hunt for him
  • Kyle Davies, co-founder of failed hedge fund Three Arrows Capital, was criticised by liquidators for failing to cooperate with them, including wilfully ignoring a subpoena that had to be issued over Twitter after he was unresponsive to other forms of contact
  • According to a source speaking to Bloomberg, digital asset exchange Kraken is the latest firm to be probed by the SEC over alleged unlicensed securities offerings

What happened: Bank of England signals plans for digital pound

How is this significant?

  • The Bank of England (BoE) and UK Treasury made their biggest statements thus far on plans for a CBDC, including technological outlines
  • The sterling-backed Digital Pound (dubbed “Britcoin” by some wags) “could be a new way to pay that’s trusted, accessible and easy to use” according to chancellor Jeremy Hunt
  • A consultation paper was published by the BoE on Tuesday, noting “we judge it likely that the digital pound will be needed in the future… The digital pound would maintain public access to retail central bank money and, as our lifestyles and the economy become ever more digital, it would also promote innovation, choice and efficiency in domestic payments”
  • Responses to the consultation paper are open for 4 months, with a separate working paper intended to allay concerns on CBDCs and financial stability
  • Currently, proposals include a potential £10,000-£20,000 holding limit per individual; “likely to strike an appropriate balance between hanging risks and supporting wide usability of the digital pound”
  • This limit positions the digital pound towards a retail focus, although some critics have claimed the technological requirements (such as setting up digital wallets on smartphones) could disproportionately affect the elderly and impoverished
  • BOE Governor Andrew Bailey said “A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability… This consultation and the further work the bank will now do will be the foundation for what would be a profound decision for the country on the way we use money”
  • Digital pounds could operate independently of bank accounts—but still require KYC procedures
  • Deputy BoE Governor Jon Cunliffe stated that a digital pound ''could complement and support new forms of private digital money and payment services”, citing reduced transaction and remittance costs as potential benefits with a CBDC potentially launching in 2030 according to current estimates
  • Cunliffe also said a digital pound could launch before 2030; “The work over the next two to three years will inform that decision and will reduce the lead time to launch should the decision at the end of this stage be to implement the digital pound in the UK, which could then be introduced in the second half of the decade”

What happened: Revolut enables digital asset staking for customers

How is this significant?

  • e-Bank Revolut became one of the first banks to natively offer digital asset staking for customers this week—albeit not customers in the United States, where there are rumours of possible SEC crackdowns on staking services
  • Staking will be available to Revolut customers in both the UK and EEA region
  • Customers can earn returns on their assets within the Revolut app across four major proof-of-stake blockchains; Ethereum, Cardano, Polkadot, and Tezos
  • As staking helps to secure a blockchain network, stakers are rewarded (usually in the network’s native coin). APY on rewards will be variable, with Revolut offering guarantees that funds are held with trusted custodians

What happened: Ethereum blockchain readies for Shanghai upgrade

How is this significant?

  • Following last year’s successful conversion to a proof-of-stake protocol with The Merge, leading smart contract blockchain Ethereum is scheduled to undergo its next major upgrade in March; codenamed Shanghai
  • The Shanghai upgrade could have a key effect on token velocity across the network, as it will allow Ether currently locked in staking contracts to be withdrawn
  • All Ether currently staked within Ethereum was staked without the opportunity of withdrawal until the Shanghai upgrade
  • Whilst some speculate that this could lead to mass withdrawals from current stakers, it does also carry the flipside of encouraging new stakers (also known as “validators” in Ethereum) to enter—and thus further secure the network by greater decentralisation
  • Not only would existent stakers exiting improve the rewards for other validators, but having greater flexibility over fund movements could incentivise institutions to earn yield on their holdings, safe in the knowledge they can remove their Ether from the staking process at any time if they wish to liquidate the underlying asset

What happened: Digital assets contribute towards Turkey earthquake relief efforts

How is this significant?

  • The tragic earthquake in Turkey this week set off a wave of humanitarian efforts and contributions; and Turkish nonprofits have leveraged the peer-to-peer power of crypto, raising millions in digital asset donations within days
  • The borderless nature of crypto assets can prove particularly helpful in crisis situations, eliminating waiting times on international money transfers or settlements, as well as cutting costs associated with intermediaries
  • This includes donations in stablecoins (which accounted for nearly half of digital asset donations at press time), which can give humanitarian organisations more predictable values to work with than other digital assets
  • Following Russia’s invasion of Ukraine last year, the Ukrainian government officially accepted crypto asset donations, with $184m received as of last month
  • Binance also pledged to donate $100 in BNB to all Turkish customers, equating to about $5m worth of donations in total

What happened: Binance returns to South Korean market via acquisition

How is this significant?

  • The world’s largest digital asset exchange returned to the highly-insular South Korean digital asset market this week; but did so via an acquisition rather than launching a fully fledged Binance Korea subsidiary
  • After exiting the South Korean market two years ago, it took a “meaningful” equity position in local exchange GOPAX this week
  • The funding came via the Industry Recovery Initiative which Binance launched to help contagion-stricken firms following FTX’s collapse in November
  • GOPAX had to suspend withdrawals on some assets in the wake of the economic upheaval following FTX’s fraud
  • According to Binance chief business officer Yibo Ling “The fundamental thrust of this deal was to support customers and make sure that any customers who want to withdraw their assets have the ability to do so”
  • This marks the second recent market entry via acquisition for Binance, after they bought regulated Japanese exchange Sakura in November last year
  • In other Binance news, the exchange is still pursuing a full audit after Mazar’s moved away from the industry, but stressed it may take time; Asia Pacific head Leon Foong noted that the largest firms still aren’t equipped for the intricacies of the industry
  • Foong said “It shows you the limitations of the more traditional industries because there is a learning curve. Number one, it’s not their core competence. And number two, obviously there’s a lot of scrutiny if they get it wrong”

What happened: Deutsche Bank’s asset management arm to invest in digital asset firms

How is this significant?

  • Deutsche Bank’s asset management arm DWS is currently in talks with two different crypto industry firms in Germany, according to Bloomberg sources on Wednesday
  • Potential targets include Deutsche Digital Assets (a creator of crypto ETPs) and Tradias, a digital asset market maker owned by Bankhaus Scheich
  • Additionally, DWS are allegedly interested in collaboration with Mike Novogratz’s Galaxy Digital, one of the longest running digital asset investment firms
  • DWS CEO Stefan Hoops is a proponent of new technologies, recently identifying blockchain and digital assets as a key pillar for reviving the firm’s growth

What happened: MicroStrategy mulls Bitcoin futures

How is this significant?

  • Leading corporate Bitcoin holder MicroStrategy may seek exposure to Bitcoin futures as a means of generating yield, according to chairman (and former CEO) Michael Saylor
  • Speaking in a Bloomberg TV interview, he said “In the future we will always consider forward yields. We may find a way to generate yield this way”
  • Although the company’s “acquire and hold Bitcoin” strategy led to poor results last year as the leading digital asset’s value dropped sharply, it has as a corollary benefited greatly from Bitcoin’s appreciation this year; MicroStrategy’s shares are up approximately 99% year-to-date
  • Saylor also noted that since MicroStrategy first invested in Bitcoin in August 2020, it’s up nearly 100%; approximately 5 times as much as the S&P 500 in the same period, and far in excess of the 5 or 6% loss in gold over the timeframe

What happened: Russia’s largest bank reveals plans for DeFi platform

How is this significant?

  • Sberbank, the largest lender in Russia (110 million customers and 1 million corporate clients), is set to launch a DeFi platform in May, according to local news agency Interfax
  • Sberbank will build their platform on top of Ethereum, with testing from March onwards, according to the bank’s head of blockchain, Konstantin Klimenko
  • Users will be able to transfer digital assets from other platforms via the decentralised MetaMask browser extension, a popular means of interfacing with DeFi applications
  • Klimenko and Sberbank are optimistic about the future of DeFi, believing it can “displace traditional banking services in the future”
  • This is far from Sberbank’s first foray into digital assets; in March last year it was granted a licence to issue digital assets, after previously launching Russia’s first blockchain ETF

What happened: India’s largest retailer to accept CBDC payments

How is this significant?

  • Mukesh Ambani’s Reliance Retail, the largest retail chain in India, will roll out support for the Digital Rupee, in a move which could massively catalyse adoption of the CBDC
  • As part of the Reliance conglomerate, Reliance Retail becomes the largest Indian firm to accept CBDC payments, starting at gourmet stores from Thursday before rolling out support to all its properties eventually
  • Reliance Retail director V Subramaniam said “This historic initiative of pioneering the digital currency acceptance at our stores is in line with the company’s strategic vision… With more Indians willing to transact digitally, this initiative will help us provide yet another efficient and secure alternative payment method to customers at our stores”
  • The Reserve Bank of India began Digital Rupee pilot programs in select cities last December, citing numerous benefits to citizens and the economy; including a reduced reliance on cash (which has led to widespread issues in the past), and improved international remittances and settlements
News Roundups