Nickel Research Centre

Nickel News Roundup - Week 47

24th November, 2022

Market Overview:

Digital assets had another week of relatively stable performance, despite continued news cycle domination by FTX.
  • Bitcoin hit a weekly high of $16,940 on Friday, and lows of $15,610 on Tuesday
  • Bitcoin’s current price of $16,690 represents a 0.3% weekly increase
  • Ether peaked at $1,227 on Sunday, dropping to lows of $1,081 on Tuesday
  • Ether’s current price of $1,201 represents near-parity with last week’s prices
  • Total Ether supply remained below its pre-merge levels, but calmer heads in the markets led to lowered transaction costs and thus lowered burn rates, leading to a current 0.11% annual supply growth
  • Overall market capitalisation increased slightly, growing to $837bn
  • According to industry monitoring site Defi llama, total value locked in DeFi this week across all blockchains and platforms was worth $41.9bn

FTX fallout rolls on, with various twists and turns in the tale emerging on a daily basis. The group’s new CEO delivered a scathing assessment of the previous regime, and contagion continues to be a key concern for the wider industry. Nonetheless institutions like JP Morgan, DBS, CME and Cboe remain committed to the asset class, DeFi continues to gain recognition, as it becomes clear that whilst the FTX leadership certainly failed, blockchain didn’t.

What happened: FTX collapse: New CEO outlines old failings
How is this significant?
  • As FTX bankruptcy procedures began, news and details about the failed exchange empire continued to emerge and dominate reporting
  • New CEO (and veteran insolvency professional) John Ray III was absolutely scathing in his assessment of the previous leadership regime and procedures
  • In a court filing on Thursday, he called it the worst case of corporate failure he’d encountered in a 40-year career; this was not a failure of digital assets, this was a failure of leadership
  • He said “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented”
  • Ray made reference to an entire laundry list of leadership shortfalls, including personal loans worth billions from Alameda Trading to Bankman-Fried, widespread "cash management procedural failures", use of corporate funds to purchase homes in the Bahamas for employees and advisors (registered in their personal names), and excluding Alameda "from certain aspects of's auto-liquidation protocol"
  • However, Ray’s assessment of the overall group was not entirely negative, stating “Based on our review over the past week, we are pleased to learn that many regulated or licensed subsidiaries of FTX, within and outside of the United States, have solvent balance sheets, responsible management and valuable franchises”
  • Ray said that the plans are to “sell or restructure” the global business
  • Meanwhile, former CEO Sam Bankman-Fried is still independently attempting to secure funding from venture capital sources, despite no longer holding any official roles at FTX
  • The purchase of luxury homes with company funds is perhaps particularly emblematic of corporate excess; Reuters reported that FTX executives and even Bankman-Fried’s parents acted as signatories on over $120m of properties in the Bahamas
  • According to Reuters “Since before the bankruptcy proceedings, Mr. Bankman and Ms. Fried have been seeking to return the deed to the company and are awaiting further instructions”
  • On the first day of bankruptcy hearings in Delaware, the 50 largest unsecured FTX creditors were allowed to retain anonymity, as FTX lawyers argued revealing the identities of customers “would allow rivals to steal their business”
  • According to filings, the top 50 creditors are owed around $3.1bn
  • FTX attorney James Bromley backed up John Ray’s bleak picture of the company’s accounting practices, saying a “substantial amount” of the group’s assets “have either been stolen or are missing”
  • He added “Unfortunately, the FTX debtors were not particularly well run, and that is an understatement… We stand here today with an absence of information”
  • To further complicate matters, Bahamian regulators claimed on Thursday that on the 12th they “took the action of directing the transfer of all digital assets of FTX Digital Markets to a digital wallet controlled by the [Bahamas Securities] Commission”, after a security breach led to a hacker extracting funds the day before
  • Additionally, FTX lawyers objected to the FTX Digital Markets entity filing for Chapter 15 bankruptcy protection in New York—alleging that it was an attempt by Bankman Fried “to expand the scope of the FTX DM proceeding in the Bahamas, to undermine these Chapter 11 Cases, and to move assets from the Debtors to accounts in the Bahamas under the control of the Bahamian government”
  • In a textbook example of just how dramatic the decline and fall of FTX has been, both Amazon Prime and Apple TV purchased the rights to TV series adaptations of the story this week, within 24 hours of each other 

What happened: JP Morgan registers trademark for digital asset wallet
How is this significant?
  • On Tuesday, JP Morgan Chase were granted a US patent for a digital asset wallet, indicating a continued involvement despite CEO Jamie Dimon’s personal dislike of the asset class
  • Imaginatively named “JP Morgan Wallet”, the filing outlined a variety of blockchain-based functionality for the product, including “virtual currency exchange, virtual checking account, crypto payment processing, and credit and cash card payment processing”
  • The wallet could be a crucial factor in their recently-outlined plans to create digital identity credentials across a variety of DeFi and metaverse apps

What happened: Contagion latest—Genesis degenerating?
How is this significant?
  • Distressed lender Genesis denied any plans for imminent bankruptcy filings on Monday, after recently suffering significant exposure to FTX
  • Due to Genesis’ status as a counterparty in any institutional loans across the digital asset field, developments are being closely scrutinised
  • In a statement emailed to Reuters, representatives said Genesis continues to hold meetings with creditors, and “our goal is to review the current situation consensually without the need for any bankruptcy filing”
  • Bloomberg however reported that the firm is struggling to raise $1bn in capital, from sources including Binance and Apollo Global Management
  • On Tuesday, the New York Times reported that bankruptcy remained a possibility, revealing that Genesis hired investment bank Moelis & Company to explore various options, including restructuring and a potential bankruptcy
  • Barry Silbert, CEO of Genesis’ parent company Digital Currency Group (DCG), wrote a note to shareholders declaring “in the ordinary course of business, DCG has borrowed money from Genesis Global Capital in the same vein as hundreds of crypto investment firms. These loans were always structured on an arm’s length basis and priced at prevailing market interest rates. DCG currently has a liability to Genesis Global Capital of ~$575 million, which is due in May 2023”
  • Despite this exposure, Silbert reassured shareholders that DCG “has only raised $25 million in equity capital and is on pace to do $800 million in revenue this year”

What happened: Coinmarketcap has added Proof of Reserves breakdowns as part of the industry drive towards revised transparency standards
How is this significant? 
  • A key industry reaction to FTX’s downfall has been a movement towards demonstrating “Proof of Reserves”, showcasing on-chain evidence of user funds and digital assets
  • Now, leading data aggregator Coinmarketcap has added Proof of Reserves breakdowns to its website, giving users a convenient overview of exchanges participating towards transparency
  • Concerning transparency, Binance CEO Changpeng “CZ” Zhao joined industry voices in questioning whether Grayscale’s GBTC fund is fully backed by Bitcoin held in custody by Coinbase—but he swiftly deleted his tweet after Coinbase CEO Brian Armstrong shared some data (albeit in the form of regulatory filings rather than blockchain addresses)
  • Grayscale published their own piece on safety, security, and transparency, but declined to share specific wallet addresses for their Bitcoin reserves, citing security concerns, saying “panic sparked by others is not a good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years”
  • Smaller Bitcoin fund Osprey ($46m AUM) took the opportunity to publish their own public address, also held in Coinbase Custody
  • CFTC commissioner Kristin Johnson used FTX’s downfall to issue a public reminder that whistleblowers whose reports lead to successful prosecutions are entitled to a percentage of enforcement fines, a situation where “the numbers are very big” 

What happened: Cathie Wood outlines crypto value thesis in Bloomberg interview
How is this significant?
  • In a wide-ranging interview with Bloomberg, Ark Investment head Cathie Wood explained her continued faith in digital assets, despite the recent media focus on FTX’s failure
  • She pointed out that the Bitcoin and Ethereum blockchains, on an infrastructural level, “have not skipped a beat” despite the ongoing crypto winter and contagion crises
  • Additionally, Bitcoin’s hash-rate and the total value of Ether staked in validator nodes remain at an all-time high, pointing towards continued security of the network
  • She spoke about Coinbase’s response towards events as they unfolded, using their position as a publicly-listed US exchange to advocate for greater regulatory clarity; the company recently took out a full-page ad in the Wall Street Journal for this purpose
  • “They just lost a very big competitor in the form of FTX, she added”
  • Wood believes a lot of fear in the market is based on uncertainty and unfamiliarity; “we don’t know what we don’t know”
  • To provide perspective, she also stressed that the entire digital asset ecosystem is only worth around 1/3rd the market cap of one company (Apple), and that FTX was a case of fraud, not failed blockchain
  • Viewing it as fraud compared to traditional markets, Wood elucidated that in terms of creditors, the $5bn to $10bn owed by FTX is dwarfed by historical failures like Lehman Brothers ($1.2 TRILLION owed) and Bernie Madoff ($64bn owed)
  • She concludes that Bitcoin and DeFi are both very big ideas, and that they bring much more transparency into the financial ecosystem, with much less counterparty risk
  • Franklin Templeton CEO Jenny Johnson also identified growth potential for DeFi this week, based on increased concerns about counterparty risk
  • Indeed, trading volumes on decentralised exchanges are up 11% this month, as traders moved funds from centralised exchanges onto DeFi platforms
  • Wood is certainly backing up her claims; after recently repurchasing Coinbase stock, Ark this week brought the total value of their GBTC shares to $53m, buying more as GBTC trades at a record discount

What happened: New research reveals increasing institutional allocation during “crypto winter”
How is this significant?
  • Coinbase published its 2022 Institutional Investor Digital Assets Outlook Survey this week, conducted in partnership with
  • Although research was conducted before the dramatic downfall of FTX, respondents were still surveyed during the depths of crypto winter, between September and October
  • Institutional investors appear to exhibit a long-term view of the asset class; 62% of investors who are currently invested in crypto increased their allocations in the past 12 months vs. 12% who decreased their allocations
  • 58% plan to increase their allocation over the next three years, and a nearly-identical number favour a buy-and-hold approach
  • Crypto winter has dampened short-term expectations on price appreciation, but long-term 72% of respondents believe “digital assets are here to stay”, a figure which Coinbase identifies as “a strong signal of the acceptance of crypto as an asset class”
  • Like Coinbase itself, investors are calling for legislative clarity; more respondents were concerned about regulation than volatility

What happened: Financial institutions reaffirm commitment to crypto
How is this significant?
  • Futures exchange giants CME Group and Cboe are taking recent market events in their stride, saying they have no plans to switch gears on their digital asset approaches
  • Chris Isaacson, Cboe COO said “These events reinforce our strategy. If there is ever a time where trust in markets need to be built and reinforced in digital assets, it’s now. That’s what we’re committed to doing”
  • CME Group CEO Terry Duffy was a fierce critic of Sam Bankman-Fried, but won’t let “one bad actor” change their stance regarding the industry at large; “I’m not prepared to say I’d delist it. We’ve been at the cutting edge of innovative products, but what we don’t do is do it in a reckless manner”
  • e-Bank Revolut confirmed “no material exposure” to FTX, and CEO Nik Storonsky remains committed to the asset class, and the bank recently secured crypto licences for both the United Kingdom and EU
  • Payment processor Block issued a statement reaffirming that they are “Bitcoin-first” and believe in decentralised payments “not controlled by any person, bank, country, or corporation”
  • Jeff Tijssen, Bain & Company’s global head of fintech, said that this could be a transformative moment for the industry once anticipated regulation arrives; “It has become a bit of a wild west, and the fact that businesses can operate out of the Bahamas without any decent degree of regulatory oversight is a big part of the issue”

What happened: DBS performs fixed-income trade on JP Morgan’s Onyx blockchain
How is this significant?
  • DBS became the first bank in Asia to complete an intraday repo transaction via JP Morgan’s proprietary Onyx Digital Assets blockchain
  • Andrew Ng, head of treasury and markets at DBS, said “Repurchase agreements or repos are a traditional and well-established method of raising financing, but infrastructural and technical inefficiencies mean the minimum term has usually been one day… Through leveraging efficiencies of a blockchain-based solution, we are able to raise USD funding in compressed time frames which are beneficial to our liquidity needs”
  • Onyx cuts down the transaction times required from several working days to just a few hours
  • Since launching in 2020, Onyx has experienced over $300bn in intraday repo deals 

What happened: El Salvador moves closer to issuing Bitcoin bonds
How is this significant?
  • El Salvador, the first country to officially recognise Bitcoin as legal tender, appears set to broaden its recognition of the asset
  • On Tuesday, a presidential spokesperson released a 33-page document calling for a “digital-assets commission and a Bitcoin Fund Management Agency to oversee crypto-related debt sales”
  • The proposed government bond issue seeks to raise $1bn; half for the development of infrastructure in a tax-free coastal “Bitcoin City”, and half for the purchase of additional Bitcoins
News Roundups