Nickel Research Centre

Nickel News Roundup - Week 40

7th October, 2021 

Market Overview:

Digital assets bounced back strongly from the declines of the last fortnight, posting double-digit growth across almost all major assets—led by Bitcoin
  • Bitcoin increased by more than 26% over the course of the week, breaking through the $50,000 mark on Tuesday and reaching a weekly high of $55,570 on Wednesday, before retracing slightly to current levels of $54,530
  • These levels give Bitcoin its highest value since May, and once again took its market capitalisation above the $1tn threshold
  • Ether followed Bitcoin’s upward trajectory, breaking through both the $3,000 and $3,500 levels this week, reaching a weekly high of $3,622. Current prices of $3,605 represent a 21% weekly growth
  • The total market capitalisation of all digital assets reached $2.32tn this week, recovering from all the losses of September and approaching the $2.52tn all-time high of mid-May
  • Total value locked in DeFi gained $15bn in value thanks to the price appreciation of Ether and Bitcoin, growing to $107.2bn

Market momentum experienced a considerable shift this week, as Bitcoin once again became a trillion-dollar asset. Bank of America couldn’t have timed research coverage of digital assets any better, declaring that the asset class is now “too large to ignore”. Many other institutions paid close attention to crypto assets this week, including the likes of SBI Holdings, US Bank, Visa, Société Générale, and Credit Suisse, alongside a growing list of VC firms dedicating specific funds to investment in the sector.


What happened: Bank of America publishes report declaring digital assets “too large to ignore”

How is this significant?
  • Bank of America (BofA), the USA’s second-largest bank by asset value, this week announced research coverage of the digital asset market, saying that at $2tn and over 200 million users, it is now “too large to ignore”
  • BofA wrote “We believe crypto-based digital assets could form an entirely new asset class”, and noted the considerable growth of VC investment in the space; $17bn year to date compared with $5.5bn in the same period last year
  • Although they recognised Bitcoin’s place as the leading digital asset, BofA analysts were keen to highlight the breadth of development and opportunities in the sectors; “the digital asset ecosystem is so much more: tokens that act like operating systems, decentralized applications (DApps) without middlemen, stablecoins pegged to fiat currencies, central bank digital currencies (CBDCs) to replace national currencies, and non-fungible tokens (NFTs) enabling connections between creators and fans”
  • In their report, titled “Digital Asset Primer in Brief—Only the First Innings”, Bank of America acknowledged the risks posed by possible regulatory restrictions, but nonetheless declared themselves “bullish on the digital asset theme”
  • Reasons for their stated bullishness include how early in the adoption curve digital assets still are, and the competitive advantages blockchain can provide businesses; “applications built on this new software architecture appear to be growing more quickly than past technologies… creating significant upside potential for some and downside for others”

What happened: American regulators alleviate concerns over digital asset crackdowns

How is this significant?
  • Although SEC chair Gary Gensler has publicly stressed his belief that digital assets require more regulation, and more companies in the space should register with the SEC, some concerns over a China-style crackdown were allayed this week following comments from top US regulators
  • Speaking to the United States Congress, Federal Reserve chairman Jerome Powell stated he has “no intention to ban” or limit digital assets like China did, only stating that he sees stablecoins as similar to money market funds; “it's appropriate that they be regulated. Same activity, same regulation”
  • Gary Gensler also confirmed the United States regulatory approach will be “quite different” to that of the PBoC, and he has “no interest” in any bans on digital assets, saying that only Congress could take such an action
  • In other regulatory news, the SEC delayed decisions on four Bitcoin ETF applications filed by Global X, WisdomTree, Kryptoin and Valkyrie, giving the commission final deadlines ranging from late November to late December
  • Venture Capital firm Andreessen Horowitz (a16z) publicly submitted proposals to the Senate Banking Committee with a focus on the emergent field of DeFi, built to “represent the start to a comprehensive approach to supervision, oversight, and taxation in a decentralized environment”

What happened: New multinational VC launches to support crypto asset industry startups

How is this significant?
  • A new $75m Variable Capital Company launched this week aims to invest in digital assets, with a “focus on companies developing distributed ledger technology infrastructure, decentralised finance solutions and regulatory technology tools”
  • Based in Singapore and supported by Japan’s SBI Holdings, Italy’s Azimut Group, and Switzerland’s Sygnum Bank, the fund aims to provide “qualifying investors with unrivalled access to the fast-growing digital asset economy”
  • SBI Ven Holdings will act as the primary fund manager, and the company’s CEO Ryosuke Hayashi explained the fund’s creation in a press release “DLT and digital assets are at the inflection point of mainstream adoption, and they have the potential to reduce inefficiencies and unlock new capabilities across several sectors… The fund enables us to bring our expertise and networks in the sector to accelerate the growth of promising digital assets companies and to shape the future of financial services”
  • The fund marks the latest in several moves within the sector for SBI in particular, a month after they announced Japan’s first crypto asset investment fund

What happened: Visa reveals stablecoin and CBDC interoperability development

How is this significant?
  • Visa, the world’s leading payment processor, published a white paper this week detailing their development efforts on establishing interoperability between stablecoins, CBDCs, and fiat currencies
  • In the abstract of their white paper, they note that the rising popularity of digital assets makes interoperability across blockchains more important; “As the number of DLT networks increases... the likelihood that transacting parties are on the same network decreases... it is crucial to facilitate payments that are universal across networks, scalable to massive loads, and highly available”
  • Their approach involves the creation of a Universal Payments Channel, or UPC. This UPC would allow digital assets across different blockchains to be directly exchanged, with transactions verified through a trusted gateway known as a “UPC Hub” that verifies the correctness of the different blockchains before confirming transactions
  • With a multitude of central banks around the world developing their own CBDCs, interoperability with less-centrally issued and internationally-distributed stablecoins could be a key part of future global payment infrastructure

What happened: $429bn asset manager KKR & Co. makes first digital asset investment

How is this significant?
  • Private equity firm KKR made what Bloomberg reported as “an exploratory step” into the digital asset sector, investing in a fund by DeFi-focused ParaFi Capital
  • KKR co-founder Henry Kravitz has also invested in ParaFi in a personal capacity
  • A KKR source said that the firm has established an internal working group aimed at establishing the best use cases for digital assets and blockchain technology
  • Although the amount of investment wasn’t disclosed, it was confirmed to come directly from KKR’s balance sheet, and other known investors in ParaFi include Bain Capital and Galaxy Digital

What happened: Société Générale applies for $20m DeFi-issued loan

How is this significant?
  • France’s Société Générale (SocGen) became the first major financial institution to apply for a loan through decentralised finance, on the established Maker DAO platform (issuers of the Ethereum-based DAI stablecoin)
  • In a proposal on Maker DAO’s governance forums, SocGen applied for a loan worth $20m in DAI, offering tokenised AAA-rated bonds as collateral
  • SocGen identified the move as a “pilot use case”, with an intention to “help to shape and promote an experiment under the French legal framework”
  • A contributor to Maker DAO identified SocGen’s proposal as evidence of increasing institutional interest and trust in the DeFi space, saying “This is the next logical step in MakerDAO’s mission to integrate the crypto and real-world economies. Our first experiments with home loans in April were akin to Sputnik, and the SocGen-Forge proposal is akin to Yuri Gagarin”

What happened: Non-fungible tokens outperform Warhol at auction

How is this significant?

What happened: Credit Suisse tokenises resort shares on Ethereum blockchain

How is this significant?
  • In conjunction with tokenisation technology solution Taurus, Credit Suisse this week tokenised shares in resort company Alaïa SA, within weeks of tokenised securities being recognised by Swiss law
  • Shares can now trade as tokens on the Ethereum blockchain, with the same legal recognition as traditional assets
  • Tokenisation platform Taurus promoted the advantages of this distribution model, saying “By digitising its equity, Alaïa simplifies its capital management in view of an upcoming secondary trading”
  • Taurus co-founder Lamine Brahimi said in a press release “We are committed to supporting entrepreneurs and financial institutions to make private assets digital and facilitate corporate finance 2.0. The collaboration with the Credit Suisse Institutional Clients team has been exceptional and I look forward to the next steps of this project which will constitute a world-premiere paving the way to many”

What happened: NFX Venture Capital includes digital asset firms in new $450m fund

How is this significant?
  • Venture Capital firm NFX, led by Facebook alum Morgan Beller, revealed the creation of a new $450m seed fund, designed for early-stage investment across a variety of industries, including digital assets
  • Beller, formerly the lead of Facebook’s Libra (since renamed Diem) digital asset project, has led the firm to increase investment into the sector, alongside other industries like biotech, gaming, and fintech
  • In a press release, Beller said “We are broadly looking for companies, products, platforms that are going to onboard the next billion users into crypto”, with a focus on growing the network effects of the burgeoning asset class

What happened: Fifth-largest American bank integrates institutional Bitcoin custody

How is this significant?
  • US Bank, one of the largest banks in America, announced the launch of digital asset custody services this week, developed in conjunction with NYDIG
  • The services are intended for institutional investment managers serving clients in the United States or Cayman Islands, beginning with Bitcoin but expanding to additional digital assets like Ether and Litecoin in the near future
  • Gunjan Kedia of U.S. Bank Wealth Management said the move was primarily driven by institutional demand; “Investor interest in cryptocurrency and demand from our fund services clients have grown strongly over the last few years. Our fund and institutional custody clients have accelerated their plans to offer cryptocurrency and, in response, we made it a priority to accelerate our ability to offer custody services”
  • U.S. Bank’s Wealth Management and Investment Services currently have more than $8.6 trillion in assets under custody and administration and $282 billion AUM, making them one of the largest financial institutions to declare an interest in a breadth of digital assets

What happened: BitOasis exchange raises $30m for expansion in MENA region

How is this significant?
  • BitOasis, a digital asset exchange headquartered in Dubai, announced the close of a $30m funding round this week aimed at increasing their regional presence and regulatory compliance
  • The round was co-led by Jump Capital, within weeks of establishing a $350m crypto-focused investment fund
  • CEO Ola Doudin said “It further speaks to the state of interest in the MENA region’s growing crypto ecosystem, with global investors and venture capital heavyweights backing the region’s home-grown businesses”

What happened: 7 digital asset billionaires join Forbes list of richest Americans

How is this significant?
  • This week’s publication of the Forbes 400 saw a record number of entries for the digital asset industry, with seven billionaires, including the richest under 30 since Mark Zuckerberg
  • Sam Bankman-Fried, aged 29 and owner of the FTX digital asset exchange more than doubled his net worth to voer $22.5bn, thanks to a recent $900m funding round which valued the exchange at $18bn. He also derived wealth from the appreciation of the Solana blockchain, developed and backed by FTX
  • Digital asset billionaires accounted for 3 of the 15 aged under 40 (with the Winklevoss twins just missing out having turned 40 in late August)
  • Brian Armstrong and Fred Ehrsam both benefited from Coinbase going public, with share values giving them personal fortunes of $11.5bn and $3.5bn respectively
  • Other digital asset billionaires included Gemini Exchange co-owners Cameron and Tyler Winklevoss, and Ripple (XRP) developers Chris Larsen and Jed McAleb

What happened: Soros family office confirms Bitcoin ownership

How is this significant?
  • Although she was coy about disclosing exact amounts, Soros Fund Management’s CEO Dawn Fitzpatrick confirmed that George Soros’ family office holds “some” Bitcoin and digital assets
  • Fitzpatrick also revealed that they see value in the asset class beyond the popular “inflation hedge narrative”, saying that the utility of digital assets really stands out above issuance in her eyes; “the coins themselves are less interesting than the use cases of DeFi and things like that”
  • Additionally, Fitzpatrick echoed Bank of America’s assessment this week that digital assets have become too large to ignore; "I’m not sure Bitcoin is only viewed as an inflation hedge. I think it’s crossed the chasm to mainstream. There’s 200 million users around the world, so I think this has gone mainstream”

What happened: More high-profile investors display support for Bitcoin over gold

How is this significant?
  • This week, well-known investor Kevin O’ Leary revealed in an interview that for the first time, his exposure to crypto assets has exceeded his exposure to gold
  • Although he didn’t give a specific figure, he did reveal it to be more than 5%, saying “I have 5% in gold. Crypto for the first time is more than gold for me… The best way to look at it, if you’re an investor, either you believe in decentralized finance and centralized finance, and you believe in Bitcoin and Ethereum and the blockchain, or you don’t. If you don’t, stay in gold as a hedge, and if you do, tip into it”
  • Billionaire investor (and long-time Bitcoin enthusiast) Chamath Palihapitiya was even more bullish, saying that Bitcoin is “hard to kill” and he has invested hundreds of millions in it, declaring in an interview with CNBC that “I can pretty confidently say that bitcoin, I think, has effectively replaced gold. And it will continue to do so. And so that market cap is just going to grow”
  • He also revealed investments into other digital assets, but in (comparatively more modest amounts); “I haven't put a lot of money outside of bitcoin obviously. You know, tens of millions, hundreds of millions - like small capital right now. It could get very big. But irrespective of what I do, I will say is we all need to pay attention to it, because I think the implications are enormous”
News Roundups