Nickel Research Centre

Nickel News Roundup - Week 51

22nd December, 2023

Market Overview:

Digital assets experienced more growth despite widespread profit-taking early in the week ahead of the holiday season.
  • Bitcoin once again crossed $44,000 this week, hitting a high of $44,280 on Wednesday, up from a low of $40,660 on Friday
  • Ethereum peaked at $2,286 early in the week on Friday, before likewise falling to its 7-day low of $2,128 on Wednesday
  • However, network activity on Ether remained high, with transaction fee burns moving Ether to its most deflationary state yet, with annual supply reduction currently standing at almost 1%
  • Overall digital asset market capitalisation experienced healthy growth, to $1.66tn
  • Despite the weekly decline in Ether’s value, other major altcoins performed strongly; particularly Solana, which grew over 30% to overtake Ripple’s XRP as the 4th-largest digital asset by market cap
  • According to industry monitoring site DeFi Llama, total value locked in DeFi remained almost unchanged at $52.5bn

Digital assets performed strongly heading into the year’s final furlong, as BlackRock built on their spot Bitcoin filing, Robinhood revealed plans for deeper digital asset integration, smart contract blockchain Solana surged, a major Thai bank moved into token issuance for clients, FTX reached a settlement with (Bahamas) creditors, and many more stories of adoption—on both a business and nation level—across four continents, including Argentina’s foreign minister confirming that contracts can be set in Bitcoin and other forms of crypto.

What happened: BlackRock updates spot Bitcoin ETF filing following SEC meetings

How is this significant?

  • According to published memos this week, asset management giant BlackRock had its second meeting within a month with the SEC in order to finetune their spot Bitcoin ETF filing—leading to heightened hopes of approval for such a fund
  • Nasdaq representatives also attended the meeting, as the proposed exchange for BlackRock’s iShares Bitcoin Trust to trade
  • In the updated S-1 filing, BlackRock also revealed the ticker of its ETF: IBIT
  • However, one key change was a concession to allow cash redemptions for the ETFs, rather than the in-kind redemptions previously proposed; “The Trust issues and redeems baskets on a continuous basis. These transactions will take place in exchange for cash. Subject to the in-kind regulatory approval, these transactions may also take place in exchange for Bitcoin”
  • Cash redemptions are generally viewed as the favoured method of the SEC, whilst investor preference leans towards in-kind redemptions, which would allow investors to redeem shares directly for Bitcoin held by ETFs, rather than their equivalent cash value
  • BlackRock is the latest of several major firms to amend their S-1 filings thusly, including ARK 21Shares, the first to file
  • Though the move towards cash redemption (at least on an initial launch basis) may prove disappointing to some digital asset advocates as it requires the sale of Bitcoins before redemption, some industry observers took it as a positive sign, saying it increases the likelihood of approval
  • Bloomberg Intelligence analyst Eric Balchunas tweeted “BlackRock has gone cash only. That’s basically a wrap. Debate over. In-kind will have to wait. It’s all about getting ducks in row before holidays. Good sign”
  • In a Bloomberg TV appearance on Tuesday, MicroStrategy chairman (and Bitcoin bull) Michael Saylor speculated that ETF approval could have an enormous market effect; “ It's not unreasonable to suggest that this might be the biggest development on Wall Street in 30 years… the last thing that was this consequential was the creation of the S&P index, the ability to invest in all 500 S&P companies via one trade”
  • Saylor posited that ETF approval could trigger a “demand shock”, followed by “supply shock” in April from Bitcoin’s quadrennial “halving” issuance reduction
  • In other Bitcoin ETF news, finance startup 7RCC Global proposed an “environmentally-friendly” Bitcoin ETF, aiming to address concerns around the energy consumption of Bitcoin mining
  • According to their filing, the ETF would hold 80% Bitcoin and 20% carbon credit futures, which custody partner Gemini described as “a bridge between the digital asset industry and ESG-conscious investors”
  • Bloomberg Intelligence analyst James Seyffart commented that “If someone wants Bitcoin exposure and is worried about the energy usage, this could give cover for those investors in an easy-to-access pre-packaged trade”

What happened: Solana blockchain benefits from stablecoin and tokenisation additions

How is this significant?

  • After suffering throughout 2022 due to its status as the “favourite token” of Sam Bankman-Fried, the smart contract blockchain Solana has showcased a significant recovery since the former FTX CEO was found guilty in court
  • Starting from a lower market capitalisation, its recovery this year has indeed been much greater than Bitcoin and Ether on a percentage basis—on a year-to-date basis, Solana is up around 800% at the time of writing
  • This recovery is not solely down to Bankman-Fried’s perceived influence no longer casting a shadow (although that it obviously one factor); Solana has both undergone technical upgrades, and benefitted from the recovery of smart contract rival Ethereum
  • Industry analyst Noelle Acheson points out that the blockchain’s technology has been upgraded, with steadily improved performance over the last eight months “The developers kept on working and they fixed the outage problems that they were plagued with in the early years”
  • Additionally, a corollary of Ether’s recent rise—in price, interest, and on--chain activity—has proven a boon for Solana, reigniting interest in other smart contract platforms, particularly as transaction fees to execute smart contracts (known as gas fees in crypto parlance) have increased significantly on Ethereum due to higher activity
  • Solana, as a newer chain, has lower fees than the Ethereum blockchain, leading to a growth of activity in Solana-native DeFi, NFTs, and highly-speculative memecoins
  • USDC stablecoin issuers Circle this week began issuing their Euro-pegged EURC stablecoin natively on Solana, with a press release stating that “EURC is well positioned to radically enhance utility across peer-to-peer transfers and European remittance corridors”
  • Although Euro-backed stablecoins only represent a small percent of the overall stablecoin market, presence of this coin could help legitimise Solana; Circle intends for EURC to be regulated e-money under the forthcoming EU-wide MiCA crypto regulations
  • Circle’s product management VP Rachel Meyer commented that “Users will be able to securely hold savings in euro without the need for a traditional bank account, offering a powerful tool for those looking to safeguard against local currency volatility or devaluation risks that afflict numerous regions globally”
  • On Tuesday, tokenised real-world asset (RWA) platform Ondo Finance expanded its US Treasury-backed tokens to the Solana blockchain, alongside Solana-native DeFi applications
  • Ondo is the second-largest issuer of tokenised treasuries, after TradFi giant Franklin Templeton, according to datafrom tokenisation monitor
  • Ondo CEO Nathan Allman stated “The Solana DeFi ecosystem has demonstrated great resilience and growth potential, thanks to its innovative scaling and low transaction costs”

What happened: Robinhood reveals plans to dive deeper into digital assets

How is this significant?

  • Trading platform Robinhood recently expanded its crypto trading capabilities to customers across the European Union, allowing them to trade around 25 different tokens; and this is just one step of a strategy to increase their digital asset footprint
  • This represents an expansion compared to their US services, where concerns over regulatory uncertainty led them to pull back offerings to just 14 tokens
  • General manager Johann Kerbrat told TechCrunch that the company is looking to attract the “entire spectrum” of digital asset investors and provide chain-agnostic opportunities to users, such as the recent addition of Solanaearlier this month
  • He said “I think crypto has always been made by very technical people and for technical people. At the end of the day, I think customers, when they use crypto, they don’t really care what is the protocol under it? What is the network that you’re using? They just want the thing to work”
  • This means the company is now building in anticipation of broader digital asset interest, including more in-depth options for those who do indeed care about protocol-level concerns, augmenting crypto offerings with charting and trading tools from more traditional markets

What happened: Major Thai bank launches platform for fundraising via crypto issuance

How is this significant?

  • Kasikorn Bank (aka KBank), the second-largest bank in Thailand, is at the vanguard of the nation’s burgeoning digital asset adoption, following the recent election of a president with a history as an active crypto investor and a plan to “airdrop” tokenised money to every Thai citizen
  • In October this year, KBank acquired local digital asset exchange Satang for $103m, and are now building on those capabilities to move into crypto creation and issuance
  • KBank already has blockchain divisions and crypto custodian services, but now they’ve revealed their optimism regarding digital assets as a fundraising mechanism
  • Co-president Pipit Aneaknithi told Bloomberg “We’re advising some clients to issue tokens for fund raising. We see potential in this market. We’re serious about developing a digital-asset ecosystem that will be very cost efficient compared with existing, traditional platforms”
  • Pipit said that token issuance is more cost-effective than share sales or taking loans, saying that such tokens could even be yield-bearing for holders
  • He believes that Thailand’s approach to regulations, involving coin offerings within wider digital asset rules, means this is the right time to leverage such new approaches; “with the proper supervision being put in place in many countries, the time is ripe for healthy expansion”

What happened: Blockchain-based private credit rebounds in 2023

How is this significant?

  • According to monitoring platform, private loans via blockchain are up 55% year-to-date, with a current 2023 value of around $408m
  • Bloomberg notes that “some blockchain protocols charge less than 10% whereas traditional providers are seeking double-digit rates in the current environment”
  • Agost Makszin, co-founder of alternative investment management group Lendary (Asia) Capital said there are numerous benefits to running such credit on blockchain “Increased transparency and liquidation mechanisms on-chain have reduced the risk of lending. This has likely resulted in lower borrowing rates compared with traditional private credit, which is often slower and has a longer liquidation process”
  • founder Charlie You also noted that blockchain and smart contracts eliminate many manual processes in legacy systems; “Some of these cost savings are passed on to issuers. It also enables lower principal sizes to be issued that could not be done by traditional means, particularly if the financing structure is complex”

What happened: Rio de Janeiro seeks to attract crypto talent

How is this significant?

  • A rebound in digital asset adoption this year—and the desire to capitalise on digital asset businesses—has led to a wide spread of countries (outside of the US) positioning themselves as attractive headquarters for the industry, from the UK to the UAE to Hong Kong
  • Now, Brazilian megacity Rio de Janeiro appears to be the latest poised to stake a claim for some of the industry’s footprint, courtesy of mayor Eduardo Paes
  • Paes sees digital assets as the “finances of tomorrow”, and wants to ensure that Rio has a place on the forefront of an assumed increase in value and employment across the industry
  • Whilst other major cities have certain advantages, he believes that the renowned Rio lifestyle could be a lure to a young and dynamic workforce; “When I talk about crypto, when I talk about carbon markets, I look at an environment where people are not necessarily gonna need to get together to work. So what are they gonna be looking for? Quality of life”
  • Rio has twice hosted the global Ethereum developers summit, and Paes wants to make the city Latin America’s “capital of innovation”, adding “The environment in Rio or landscape or nature is an economic asset. So work from home, have your home in Rio. It’s going to be much, much better”

What happened: Digital asset exchange Bitfinex launches tokenised bond on Bitcoin sidechain

How is this significant?

  • Bitfinex this week announced the first tokenised bond to be issued on Liquid Network, a sidechain of Bitcoin able to deploy a variety of tokenised assets
  • The bond in question was worth $5m, denominated in the USDT stablecoin, and “has a 36-month tenor with a 10% coupon”
  • Bitfinex Securities leader Jesse Knutsen commented “This proof of concept issuance is a testament to the innovative spirit and collaborative effort between Bitfinex Securities and Mikro Kapital”
  • This follows an agreement earlier this year between Mikro Capital and Bitfinex Securities to explore tokenisation and stablecoins within microfinancing
  • Whilst tokenisation has overwhelmingly occurred thus far on smart contract blockchains such as Ethereum, or permissioned private corporate-owned blockchains, but this marks the first implementation via a Bitcoin sidechain, and may herald a broader use of Bitcoin’s network to secure such assets

What happened: Goldman Sachs declares 2023 “the year that crypto became institutionalised”

How is this significant?

  • In a new report, Goldman Sachs analysts looked back on 2023 in digital assets as a year of evolution across the industry
  • Derivatives were seen as an indicator of increased institutional presence and activity, with Goldman writing “The institutionalisation of the market was most evident in the derivatives market. CME saw a consistent increase in bitcoin (BTC) and ether (ETH) futures and options trading, and in Q4 has become the top BTC futures exchange by open interest”
  • They also noted the growth of centrally-cleared derivatives venues for digital assets, including CBOE, Coinbase Derivatives, Eurex, GFO-X, AsiaNext and 24 Exchange
  • Additionally, growing expectations around a spot Bitcoin ETF—and the resultant resurgence of Bitcoin’s price—led to a wave of institutional interest; “October price action brought along interest from institutional investors, who took the opportunity to position themselves for a potential spot BTC ETF approval and/or hedge exposure via derivatives”
  • Existing crypto-related ETPs and ETFs saw inflows of nearly $2bn in Q4, according to the report

What happened: Bitcoin miner Marathon Digital acquires new mining sites for $179m

How is this significant?

  • According to a Tuesday press release, Bitcoin mining firm Marathon Digital is acquiring two new sites for additional mining operations, at a total cost of $178.6m
  • These purchases will enable mining giant Marathon to cut their cost per mined coin by 30%—a particularly critical endeavour, since the Bitcoin halving in April next year will reduce block rewards for miners by 50%
  • These reduced rewards have put pressure on miners to maximise efficiency ahead of the halving, including economies of scale via acquisition; earlier this month Marathon stated it had $800m of assets in cash and Bitcoin ready to “capitalise on strategic opportunities, including industry consolidation”
  • Marathon CEO Fred Thiel commented “For the past year, Marathon has been vertically integrating as we transition into a more sophisticated and mature organisation with a diversified portfolio of Bitcoin mining technologies and assets, and the acquisition of these sites is the next step in that evolution”
  • Over the last five trading days, Marathon’s shares increased in value from $17.40 to $24.78 following this news

What happened: International roundup
How is this significant?

  • There were several key developments concerning adoption at a nation or regulatory level outside the US this week, spanning four continents
  • Late on Thursday, Argentina’s new foreign relations and international commerce minister “ratified and confirmed” that contracts with the country can be set in Bitcoin
  • This follows the recent election of Javier Milei, a libertarian with a strong distrust of central banks and praise for Bitcoin’s core fundamentals
  • In a thread on X (formerly Twitter) minister Diana Mondino appeared to approach digital assets as akin to commodities, and stated “We ratify and confirm that in Argentina you can agree on contracts in Bitcoin… And also any other kind of crypto… Or anything like kilos of steer or litres of milk”
  • In a document released on Tuesday, China’s Ministry of Industry and Information Technology outlined a national strategy for Web3 development—despite the country maintaining an official ban on crypto trading
  • The central government wrote that “the emphasis will be on key areas such as governance and industry, with encouragement for the exploration of new business models like NFTs and decentralised applications, expediting innovative applications and the construction of a digital ecosystem for Web 3.0”
  • This follows some regional-level support for digital assets over the course of this year, such as Sichuan’s plans to foster a metaverse industry, outlined in August
  • Industry publication TheBlock also points out that “Earlier this month, state-backed blockchain-based Service Network China launched a national-level real-name decentralised identifier system in support of the country’s Ministry of Public Security research institute”
  • On Wednesday, the UK Treasury confirmed positive feedback for its proposed digital securities sandbox (DSS) design, allowing firms to test new crypto-based products with real customers and regulatory supervision
  • The Bank of England and FCA will oversee the sandbox, and the government said they would continue working alongside industry participants “to identify any further legislative provisions that need to be brought into scope, and if necessary can facilitate this via further statutory instruments amending the DSS”
  • Late on Thursday, El Salvador approved a migration law that will expedite citizenship applications for foreign investors who make Bitcoin donations to the government’s social and economic development programs
News Roundups