Nickel Research Centre

Nickel News Roundup - Week 18

3rd May, 2024

Market Overview:

Digital assets declined amidst macroeconomic challenges, leading to Bitcoin’s first monthly drop since August 2023.
  • Bitcoin declined throughout the week, with the largest drop on Wednesday as US Bitcoin ETFs hit record outflows
  • General caution across multiple markets was exacerbated by Fed statements indicating a continuing higher-for-longer policy on interest rates
  • The leading digital asset’s weekly high was posted on Friday at $64,710, before falling under $60,000 on Wednesday, to a low of $56,760
  • However, it did rally somewhat late on Thursday into early Friday, approaching the $60,000 mark
  • Bitcoin posted its worst monthly performance since the FTX crash in November 2022, and the first monthly decline since August 2023
  • Ether declined from a Sunday high of $3,346 to a Wednesday low of $2,834 before staging a modest comeback
  • Ether’s smaller setback this week could possibly be attributed to the current lack of ETF products in the US, as outflows correlated with Bitcoin’s largest daily decline
  • Overall digital asset market capitalisation pulled back to $2.23tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi dropped to $89.1bn

Digital assets dropped this week as Bitcoin closed its first negative month since August, amidst macroeconomic pressures that were compounded by record ETF outflows. However, there was some good news in terms of assets accrued by new Hong Kong ETFs. Leading asset manager BlackRock continued to deepen its involvement in the space, several major politicians in the US pushed back against regulatory actions and attitudes, former Binance CEO Changpeng Zhao was sentenced to four months in jail, several companies posted strong Q1 performance, and VC activity rolled on.

What happened: ETF News

How is this significant?

  • Following last week's news of Hong Kong ETFs, trading in the spot Bitcoin and spot Ether funds officially began on Tuesday
  • Initial trading came in far below US Bitcoin ETF debut day; but given the relative size of each ETF market, this was somewhat expected already
  • The six funds from three issuers (each offering both spot Bitcoin and spot Ether with in-kind redemption) debuted to $292m in assets on day one; far below the $4.6bn posted by American ETFs on launch, but “way ahead of schedule” according to chief Bloomberg ETF analyst Eric Balchunas
  • Bloomberg Intelligence’s estimate for Hong Kong crypto ETFs put their assets at $2bn after two years; so in the context of the overall market, reaching nearly 15% of that total within one day could be seen as encouraging
  • Of this, Ether ETFs contributed about 15% of the total, and China AMC’s Bitcoin ETF accrued the most overall assets at $124m, despite the firm featuring the highest fee (99bps)
  • This placed ChinaAMC’s Bitcoin ETF at 3rd at 6th-best launch over the last three years in Hong Kong
  • It also reflected a better-than-expected relative performance for Ether ETFs, as Bloomberg estimates stood at 10% of assets before trading opened
  • ChinaAMC’s CEO Yimei Li expressed optimism about inflows, and announced intentions to “heavily and strategically” invest in building the spot crypto ETF ecosystem
  • She added “we are very happy to see lots of traditional investors who have been interested in Bitcoin, but had no instrument to invest”
  • The ETFs are also available in Chinese Yuan, and she said “that opens the door for a lot of RMB (Renminbi Yuan) holders who really need an alternative way of investing”, adding hopes that mainland China investors may be able to get exposure in the future, through methods like Hong Kong’s ETF Connect program
  • Tongli Han, the CEO of competing issuers Harvest Global (like ChinaAMC and Bosera, a Hong Kong unit of a major Chinese asset manager), described the debut ETFs as “building blocks” which could form the foundation of a larger crypto investment ecosystem
  • Indeed, he explained the firm’s zero-fee policy by saying “[the new funds] are like the first bricks to build a house. We don’t plan to make any money on the first bricks. We want to make money in the long term. We want to build up the entire ecosystem”
  • He identified 2024 as a “singularity point” for crypto assets thanks to wider regulation across global markets and cited a “huge demand” for collateralised financing from “crypto-natives” as an example of a wider investment ecosystem, alongside more sophisticated ETFs or bonds based on their ETF products
  • Doris Lian, CEO of final issuer Bosera International, told Bloomberg that “Hong Kong will have a significant place in the global virtual-asset sphere”
  • Her colleague, head of product Ethan Li, agreed, citing that the Asian trading hours were a particular market advantage that hadn’t been widely discussed
  • In the US meanwhile, uncertainty around Bitcoin price and stalling momentum led to the largest single day of outflows for ETFs on Wednesday, totalling $564m
  • This included the first day of outflows ($37m) for BlackRock’s IBIT, alongside Fidelity’s highest daily drawdown ($191m)
  • On Friday, Franklin Templeton were the only issuers to register inflows, as four of the “newborn nine” sat at 0 flows
  • Once again, Bloomberg’s Balchunas urged perspective when regarding Bitcoin ETF performance, stating that the run since debut has been unprecedented
  • He stated “I've never seen an ETF go up 30% out of the gate (and 80% before that!) like $IBIT et al and catch so much crap, I mean it's literally running circles around everything. The hate for this asset is so strong tho for some it has them spiking the football when they trailing by 25pts''
  • According to a new blog by ETF issuers VanEck, titled “The Investment Case for Bitcoin”, “Approximately $175B worth of bitcoin are now held by ETFs, countries, public and private companies”, with the majority of that total ($74.5bn) attributed to ETFs

What happened: Financial Services Committee chair accuses SEC of deceiving congress

How is this significant?

  • Patrick McHenry, the chairman of the House Financial Services Committee chastised his SEC counterpart Gary Gensler this week, effectively accusing him of lying to congress
  • This relates to new court filings which revealed that the SEC opined Ether to be a security since enforcement chief Gurbir Grewal approved a formal order of investigation into Ethereum on March 28th 2023
  • Despite this, Gensler repeatedly refused to comment on requests for clarification from McHenry regarding the SEC’s view on Ether’s status during a congressional hearing last April
  • McHenry released a scathing statement, saying “just months after a federal judge sanctioned SEC enforcement lawyers for lying to the court, new evidence suggests Chair Gensler himself misled Congress. Chair Gensler refused to answer questions regarding the SEC's classification of ether. New court filings show this was an intentional attempt to misrepresent the commission's position”
  • He added that “Classifying Ether as a security contradicts previous statements of the SEC and Chair Gensler—yet another example of the arbitrary and capricious nature of the agency’s regulation-by-enforcement approach to digital assets”
  • Additionally, CFTC chair Rostin Behnam recently indicated that SEC categorisation of Ether as a security would cause conflict with the CFTC, which already approved Ether futures products last year, long after the formal approval of investigation into Ether
  • Senator Cynthia Lummis also pushed back against perceived political hostility and disingenuousness towards the asset class, speaking out against DOJ interpretation of money transmission laws to include wallet developers without direct control over user wallets, in order to prosecute creators of “mixing” services used for privacy
  • She stated “Arguments against self-custody software threaten the fundamental property rights that are core to being an American”
  • Industry advocacy group CoinCenter filed an amicus brief supporting the developer of a coin-mixing service, saying the DOJ stance is a “massive overreach” and contrary to FinCen guidelines and rulings

What happened: Binance founder Changpeng Zhao sentenced to four months in prison

How is this significant?

  • Binance founder and former CEO Changpeng “CZ” Zhao was sentenced on Tuesday over his guilty plea to AML charges
  • Zhao stepped down as CEO in November following Binance’s $4.3bn settlement with US prosecutors over various violations, including a personal $50m fine and admission of AML shortfalls by “CZ”
  • Seattle district judge Richard Jones said that the sentence should indicate “wealth, power and status” are no impediment to prosecution—indeed, Zhao is the first chief executive ever jailed for Bank Secrecy act violations, and likely the richest person ever imprisoned in the US
  • This is of course despite a litany of other AML violations by banks leading to no imprisonment for chief executives
  • However, the sentence was far below the DOJ's desired three-year term, with Judge Jones noting a huge volume of letters of support and “extraordinary” cooperation with prosecutors, saying “To be honest with you, sir, everything I see about your history and characteristics are of a mitigating nature”
  • Zhao stated “I will do my time, conclude this phase and focus on the next chapter of my life (education)....I will remain a passive investor (and holder) in crypto”
  • In a statement which displayed the contrast between him and disgraced former FTX CEO Sam Bankman-Fried, Zhao said “I left my family to come to the US to take responsibility for my actions. That’s because responsibility is a core value for me, and I live by that”

What happened: BlackRock news

How is this significant?

  • Despite facing the first-ever outflows of its IBIT ETF on Wednesday (having launched on January 11th), BlackRock remains bullish not just on crypto ETFs but the wider digital asset ecosystem
  • The firm’s head of digital assets, Robert Mitchnik, indicated that interest in Bitcoin remains strong, believing that firms may begin entering after concluding lengthy post-launch due diligence processes
  • He told Coindesk “The re-initiation of the discussion around bitcoin is turning on how to allocate BTC into portfolio constructions… Many of these interested firms—whether we're talking about pensions, endowments, sovereign wealth funds, insurers, other asset managers, family offices—are having ongoing diligence and research conversations, and we're playing a role from an education perspective”
  • He also elucidated the asset manager’s overall view on the sector, saying “When we think about this space, we see the potential for digital assets to benefit our clients and capital markets, with a focus in three areas: cryptoassets, stablecoins and tokenisation. And these pillars, they're all interrelated. That's a really important thing for people to understand. And the work that we do across each informs our strategy and our insights for the others”
  • One institution which has apparently completed its due diligence is Europe’s second-largest bank, BNP Paribas—according to recent SEC filings, the firm secured exposure to Bitcoin via BlackRock’s IBIT
  • Although the bank’s allocation to IBIT is extremely modest, it still represents one of the major financial institutions to secure exposure via ETF, as well as a reversal from a September 2022 in which the firm announced a disinterest in digital assets
  • Regarding Mitchnik’s statement on tokenisation, BlackRock backed his words with actions this week, leading a $47m funding round in RWA (real world asset) tokenisation firm Securitize
  • BlackRock recently partnered with Securitize to create the tokenised money market fund BUIDL; which became the largest tokenised fund on Tuesday, overtaking Franklin Templeton’s BENJI with over $375m in total asset, according to analytics firm

What happened: Block to reinvest profits into Bitcoin

How is this significant?

  • Payment processors Block deepened their commitment to digital assets this week, building on recently-announced automated sales conversions to Bitcoin for merchants and Bitcoin mining developments
  • According to Block CEO (and Twitter co-founder) Jack Dorsey, the firm has begun a dollar-cost averaging approach to increase its Bitcoin holdings
  • In April, the company started using 10% of gross profit derived from Bitcoin services in order to purchase additional Bitcoin as an investment
  • According to the plan, Block will do so every month for the remainder of the year
  • Block also released a Bitcoin Blueprint for Corporate Balance Sheets — the firm is more qualified than most to speak on the matter, having acquired $4.7bn worth (at current prices) of Bitcoin through separate investments in 2020 and 2021

What happened: Tether attestations showcase record profits in Q1

How is this significant?

  • USDT stablecoin issuers Tether revealed record quarterly profits in Q1 2024, according to its latest financial attestations
  • Tether says it posted $4.52bn in profit last quarter, with around $1bn in “net operating profit” from interest payments on treasuries held as backing assets for USDT
  • The third-party attestations by BDO say the remaining profit was mainly derived from “mark-to-market gains from its holdings of Bitcoin and gold”
  • Tether recently announced a split into four new units as its business interests have diversified; and it used a portion of its handsome profits to invest $200m in biotech firm Blackrock Neurotech (unaffiliated with asset management giant BlackRock)
  • Tether CEO Paolo Ardoino stated “Blackrock Neurotech is just the beginning of our journey through Tether Evo to venture into projects that redefine the boundaries of what's possible at the intersection of technological innovation and human potential”
  • Another firm to reveal strong Q1 performance was Coinbase, which posted $1.64bn in revenue, $300m above expectations
  • Profit included a “$650 million mark-to-market gain on crypto assets held for investment” according to new accounting standards
  • In other stablecoin news, data from Visa suggested that USDC overtook USDT as the top stablecoin for transactions
  • According to the data, USDC recorded “$456 billion in transaction volume last week compared with $89 billion for Tether’s USDT”
  • Whilst this may appear incongruous given USDT’s position as the runaway leader in market capitalisation, industry analyst Noelle Acheson explains “USDT is more held outside the US as a dollar-based store of value, while the USDC is used in the US as a transaction currency”
  • Visa’s digital asset head Cuy Sheffield added that user-driven stablecoin data can often be difficult to parse as “stablecoins can be used across a range of use cases with transactions that can be initiated manually by an end user or programmatically through bots”
News Roundups