Nickel Research Centre

Nickel News Roundup - Week 4

29th January, 2021

Market Overview:

The digital asset market was mixed this week, with falls in Bitcoin offset by increases in the cryptocurrencies lower down the rankings—so-called altcoins. Several of these altcoins saw new all-time highs for the first time since the speculation-driven heights of early 2018, buoyed by a return of retail investors

  • Bitcoin experienced a dip this week, falling from a high of $34,700 on Monday to a low of $29,900 on Wednesday, before recovering back above the $30,000 mark. Just before publishing, Bitcoin surged over $3,000 within an hour, to $35,700 (a 15% weekly increase)
  • Ethereum reached another all-time-high within a week of setting a new record, achieving a price of $1,450, before Wednesday’s Bitcoin dip halted the momentum and took Ether down to a low of $1,220, before a recovery to a current value of $1,363; representing a 20% weekly increase
  • In addition to Ether, several other Ethereum-based altcoin projects achieved new record value and volume; including oracle project LINK, the DeFi project AAVE, as well as the meme-based cryptocurrency Doge 
  • The overall cryptocurrency market cap recovered last week’s losses, spurred by growth in the Ethereum ecosystem. At the time of writing, the market has a current value of $999bn, up from a weekly low of $843bn last Friday 
  • Total Value Locked in DeFi grew this week, driven by strong performance in the Ethereum ecosystem. On Friday, the overall value grew to a new record of $31.4bn, up from last week’s total of $29.7bn

Ethereum reached another new all-time high this week alongside several other prominent altcoins, whilst digital assets as a whole remained firmly on both the institutional and legislative agenda. Central banks spoke out in favour of digital assets, major American universities were found to have invested, record volumes continued to register, and cryptocurrencies pushed past some potential cultural barriers to open investment opportunities to new markets.

What happened: Ray Dalio, Founder of Bridgewater Associates, published a major macro research piece reviewing Bitcoin’s role as a long term investment asset: Ray Dalio — What I Think of Bitcoin 

How is this significant?

  • Ray Dalio, founder of Bridgewater Associates, is a leading global hedge fund manager and one of the most influential commentators on financial markets
  • Dalio has recently become more interested in Bitcoin, moving from a skeptical position of “I might be missing something about bitcoin so I’d love to be corrected” to a positive perspective dubbing it “one hell of an invention” and “an amazing accomplishment”
  • Dalio makes the case not from a technical perspective, nor as a Bitcoin maximalist, but as a global macro investor interested in Bitcoin’s utility as a portfolio component and monetary hedge, and in the option value were Bitcoin to become fully established as a long term store of wealth
  • The piece is tempered with caution, acknowledging the existing regulatory risks and custodial challenges, and how these may be resolved in the near to medium term

What happened: Institutional investment in Ethereum grows

How is this significant?

  • Late on Sunday, Ethereum achieved a new all-time high of over $1,450; spurred by an increasing institutional investment into cryptocurrency’s leading smart contract platform
  • Coinbase’s 2020 Annual Review found that an increasing number of institutional clients are approaching it as a store of value“The case for owning ethereum [ether] we hear most frequently from our clients is a combination of, first, its evolving potential as a store of value and, second, its status as a digital commodity that is required to power transactions on its network”
  • The degree of institutional involvement can be approximated by the rise of so-called “whale” addresses (those holding 10,000 Ether or more), which reached a 13 month high on Saturday
  • Additionally, large amounts of Ether have been withdrawn from centralised exchanges to non-custodial wallets, indicating an intent to hold the assets for the long term
  • According to data from crypto analytics firm Glassnode, the number of coins held on exchange addresses fell to around 15.5 million over the weekend, representing a decline of more than 1 million coins on exchanges over the course of just four days
  • This removal from exchanges may also have helped with Ether’s price run over the weekend, reducing supply in the face of steady demand
  • Additionally, Mike Novogratz’s Galaxy Digital, with over $800m in assets under management, announced plans on Monday to launch a range of Ethereum funds next month, positioning Ether as a growth asset with a minimum $250,000 investment for their onshore fund, and a minimum $100,000 for their offshore fund

What happened: Janet Yellen confirmed as Treasury Secretaryannounces plans for crypto-regulatory framework

How is this significant?

  • Previous remarks by Yellen regarding concerns over the use of cryptocurrency in illegal transactions were widely credited with causing a brief dip below $30,000 for Bitcoin last week
  • Written testimony of her Senate hearing ahead of confirmation indicates that she recognises the potential economic benefits of digital assets as well as their risks
  • In her testimony, Yellen stated that “I think it important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system”
  • Rather than trying to freeze digital assets out of the financial system, her intent seems to be integrating cryptocurrency into a robust regulatory framework, saying “I intend implement an effective regulatory framework for these and other fintech innovations”
  • Although Yellen’s overall stance on cryptocurrency remains ambiguous, there is some belief that two other prospective appointees to the Biden administration—former Ripple advisor Michael Barr as Comptroller of the Currency, and Chris Brummer as CFTC Chair—could be powerful advocates for digital assets alongside Gary Gensler 

What happened: Ivy League endowment funds have been investing in cryptocurrency for the past year

How is this significant?

  • Harvard, Yale, and Brown have all been buying cryptocurrency as an investment for their endowments over the last year, with some accounts dating back as far as 18 months
  • By buying from Coinbase, these institutions are directly holding crypto as an investment, rather than holding cryptocurrency-linked derivatives
  • University endowments in America can be sizeable—Harvard holds over $40bn in assets, whilst Yale holds over $30bn
  • Directly purchasing cryptocurrency represents an evolution of sorts in the digital asset investment approach of universities, with several (including Yale, Harvard, and Stanford) having previously invested in crypto funds and blockchain venture capital companies
  • One source close to the subject confirmed to CoinTelegraph that digital assets are viewed as an increasingly viable investment class by a range of universities, saying “A lot of endowments are allocating a little bit to crypto at the moment.”

What happened: Raoul Pal, of the Global Macro Investor, published his long-term outlook on the sector, entitled The Inconvenient Truth About Crypto

How is this significant?

  • Raoul Pal, former co-manager of GLG and founder of the Global Macro Investor, is one of the key supporters of Bitcoin’s investment case, with an extensive following in the investor community
  • The piece explores the different investor communities in the sector (“tribes”) and maps the likely future path as the adoption increases
  • Cryptocurrency is presented as an ecosystem, where different coins and tokens fulfil different purposes, and no one coin will “win” it all; meaning more potential growth in the altcoin sector
  • Pal has long presented an optimistic case for the future value of cryptocurrencies, and recently shared Ray Dalio’s “What I Think About Bitcoin” piece

What happened: More major investments in cryptocurrency mining

How is this significant?

What happened: Cryptocurrencies on the Agenda at Davos

How is this significant?

  • This year’s World Economic Forum features two sessions dedicated to cryptocurrencies, reflecting their rise in the consciousness of economic policy-makers
  • The first session on Monday was titled “Resetting Digital Currencies” and featured speakers, including Bank of England Governor Andrew Bailey and Wester Union CEO Hikmet Ersek
  • The Thursday session is focused on the potential of CBDCs, featuring government representatives such as Tharman Shanmugaratnam of Singapore, and Zhu Min, chairman of the Beijing-based National Institute of Financial Research
  • This follows up on an increase in digital asset activity at the WEF, including the formation of a cryptocurrency working group aimed at exploring the utility of crypto and blockchain across a variety of use cases, declaring it “a key driver of sustainable finance”

What happened: Central Banks globally display activity on cryptocurrency

How is this significant?

What happened: Shariah-compliant cryptocurrency exchange approved in Bahrain

How is this significant?

  • By offering Shariah-compliant services, cryptocurrency exchanges can potentially open the doors to investors across the MENA region who’ve previously been reticent to invest for cultural reasons
  • The Central Bank of Bahrain has approved CoinMENA exchange, and they have been certified by the Shariyah Review Bureau, allowing investors in the region to gain exposure to cryptocurrency without any ethical concerns
  • CoinMENA also plan to offer an OTC desk for large transactions, allowing institutional investors across Bahrain, the United Arab Emirates, Kuwait, Oman, and Saudi Arabia to invest in cryptocurrency without suffering from major price slippage 

What happened: Value investor Bill Miller moves into cryptocurrency

How is this significant?

  • Bill Miller (and his son, Bill Miller IV) recently added a significant position in Bitcoin to the Miller Value Partners fund, as part of Microstrategy’s recent raise of $650m in convertible senior notes
  • In a note to investors, the Millers explained their decision, claiming that “when MicroStrategy issued the bond at par, in our assessment there was very little downside and an almost-free call option on Bitcoin”
  • They also expressed a bullish long-term view on the potential of Bitcoin, as well as praising its past performance; “Not owning any bitcoin has been a massive mistake, and we expect that will continue to be true”

What happened: Coinbase confirms over $90bn of assets on their platform, details public listing plans

How is this significant?

  • As the largest American cryptocurrency exchange, and first to announce plans to go public, Coinbase represents a barometer for public and institutional trust and enthusiasm for digital assets
  • In Coinbase’s 2020 Year in Review report, they announced that they currently hold over $90bn in assets, driven by widescale institutional inflows into cryptocurrency
  • Institutional exposure is growing, with the report noting that Coinbase has transacted massive institutional volume in the form of “single trades exceeding $1 billion for some of the largest institutions in the world”
  • On Thursday, Coinbase announced their plans to go public via a direct listing of its Class A common stock
News Roundups