15th December, 2023
Market Overview:
Digital assets cooled down slightly after last week’s double-digit growth across the board, but still posted a healthy recovery from a significant sell-off.
- Bitcoin peaked at a new yearly high of $44,620 on Friday, before bouncing back from a major Monday pullback as widespread sell-offs and profit-taking led to the leading digital asset’s largest drop in 4 months, causing a weekly low of $40,560
- Nevertheless, the recovery since still puts Bitcoin above any prices prior to last week, and marks a year-to-date return of around 160%
- Ether followed suit, peaking at $2,402 on Saturday, before a weekly low of $2,155 on Wednesday
- Overall digital asset market capitalisation remained relatively steady, at $1.58tn
- Digital asset investment products experienced an 11th consecutive week of inflows, worth $43m, led by European investors
- According to industry monitoring site DeFi Llama, total value locked in DeFi this week increased to $52.2bn, despite the modest pullbacks in Ether
Digital assets took a breather after last week’s breakneck growth—but they still managed to bounce back strongly from a major drop following more political hostility in the US. Another major European bank declared stablecoin aspirations this week, Abu Dhabi staked its claim for greater influence, tokenisation reached the German “Mittelstand” and a pensions fund invested in crypto derivatives trading.
What happened: Deutsche Bank moves to issue stablecoin
How is this significant?
- Hot on the heels of last week’s news that French banking giant Société Générale (SocGen) decided to issue its own stablecoin, another European banking titan followed suit this week; Germany’s Deutsche Bank
- As reported across various publications in the German financial press on Wednesday, Deutsche—like SocGen last week—are looking to leverage their established reputation in finance to help broaden adoption of digital assets and stablecoins
- This new Euro-denominated stablecoin will be issued by a new Frankfurt-based company called AllUnity—a joint venture between Deutsche Bank’s DWS division ($927bn AUM), Dutch market makers Flow Traders, and crypto fund manager Galaxy Digital
- Mike Kuehnel, CEO of Flow Traders, commented “The tokenisation of financial assets will play a significant role and contribute to improving financial markets as well as bringing a new level of maturity to the digital asset space”
- Alexander Höptner, former CEO of crypto derivatives platform BitMex will head the new company, expected to go live in Q1 2024, issuing Euro-pegged stablecoins within 12 to 18 months
- Höptner believes that forthcoming EU-wide MiCA (Markets in Crypto Assets) regulations have helped to provide clarity for major corporations to increase their digital asset exposure; “now the regulatory framework and uses cases are there”
- He added “You need to have the stability, the trust, the connection and market power to make stablecoins really viable and usable. This partnership is pretty unique because it combines the trustworthiness of a big asset manager, that of a highly successful market maker and of a leading innovator in the crypto sector”
What happened: Former Credit Suisse exec launches crypto trading platform for banks
How is this significant?
- On Thursday, Bloomberg reported on a new digital asset venture by former Credit Suisse executive David Riegelnig, seeking to serve the banking industry
- Zurich-based Rulematch “offers a crypto trading venue for financial institutions only”, catering to banking clients in the EU, UK, and Singapore
- In an interview, Riegelnig praised the growing presence of banks in Asian markets, calling them “a group which is sometimes overlooked”
- Additionally, he expects a greater banking presence among investors in the future; “Despite often going unnoticed, a growing number of banks and financial institutions have actually been quite active in the crypto market. But, as we all know, they have faced challenges due to the many fundamental deficiencies in existing market infrastructure—capital efficiency, counterparty risk, compliance and latency”
- Rulematch currently cite seven banks and securities firms as clients, with Flow Traders and Bankhaus Scheich Wertpapierspezialist acting as market makers
- Perhaps the most significant client thus far is Spain’s BBVA
- Regulatory compliance and separation of duties to minimise counterparty risk is a key selling point for the startup, with Riegelnig telling industry publication Coindesk “Primarily, the mix of functions that so-called crypto exchanges typically do, which makes them much more of a broker than actual exchange, was what triggered us to start rolling out Rulematch”
What happened: Digital asset firms flock to Abu Dhabi
How is this significant?
- The UAE has been at the forefront of digital asset adoption this year, with Dubai grabbing many headlines for its proactive crypto regime, including a bespoke digital asset regulation body; VARA (Virtual Asset Regulation Authority)
- However, to many industry observers, it is fellow Emirate Abu Dhabi which may be poised to capitalise the most on the region’s digital asset appetite
- Former Binance CEO Changpeng “CZ” Zhao has set up a special purpose vehicle in Abu Dhabi’s international financial centre this year, joining other billionaires such as Ray Dalio and the Adani family
- A representative for Zhao commented that “We obviously think ADGM [the Abu Dhabi Global Market international economic zone] is a great place to domicile companies”
- Several major digital asset firms have made the leap to the ADGM recently, including custodians Copper, token issuers Paxos, and trading platform eToro, with industry analysts citing a combination of government policy and a proliferance of high net-worth investors
- As an example of state-level support for the industry, Abu Dhabi’s largest conglomerate, International Holding Co. (partly owned by the royal family), secured a 10% stake in Bitcoin mining and crypto exchange entreprise Phoenix back in October, prior to their initial share issue
What happened: Elizabeth Warren proposes anti-crypto bill
How is this significant?
- Senator Elizabeth Warren (a noted digital asset sceptic who’s boasted of “building an anti-crypto army”) followed her recent industry attack alongside CEOs of major banks with a new bill seeking to “crack down” on crypto, alleging major AML concerns
- The bill garnered some bipartisan support, but is predominantly backed by Democrats, reflecting the broad ideological split on digital assets within Congress
- Industry publication Coindesk posits that the bill could be unconstitutional, but if passed could further weaken the US’ place in the industry; “Warren’s bill essentially would make it illegal to use crypto in the US and put severe restrictions around writing code meant to provide people with similar privacy guarantees as paper money”
- The levels of reporting and surveillance necessary under Warren’s proposals could complicate the use of crypto in the US to the extent of crippling the industry
- However, just as BlackRock’s high ETF approval success rate reignited interest in the spot Bitcoin ETF race, so some industry observers hope that Warren’s low bill approval rate should provide hope; of 330 bills proposed by Warren, only one has passed into law unchanged, whilst ten were absorbed into other bills
- The Centre for Digital Commerce dubbed Warren’s comments on crypto “dangerous” and declared that lawmakers need to sufficiently understand the technology before they attempt to govern it
- Meanwhile, Blockchain Association CEO Kristin Smith told Bloomberg that she believes “politics around crypto are shifting more in favour of the technology”, citing optimism around ETFs and a dismissal of bad actors within the industry over the last year
What happened: Jack Dorsey’s Block releases Bitcoin hardware wallet
How is this significant?
- Twitter co-founder Jack Dorsey has developed a public profile as a Bitcoin advocate since leaving the social media site
- Now, his payments company Block (formerly Square) has launched a hardware wallet to help people self-custody their own Bitcoin, avoiding exposure to risks of keeping funds on-exchange
- The Bitkey hardware wallet will integrate with Block’s own Cash App, allowing for seamless transfer of assets between the two
- The units are currently available for preorder, with shipping scheduled for early 2024
- Block’s Bitcoin team lead Thomas Templeton told Bloomberg that more such integrations could be forthcoming “We have already started working with Cash App from day one and we are looking for other synergies as well”
- He added that the hardware wallets were developed with regular users in mind, to broaden the base of self-custody; “When you look at the Bitcoin space, there are tools and products that are built for super users or a subset of people deep in the industry but there is not a product for regular folks dipping their toes in the space”
What happened: Taurus tokenises SME loans in Germany
How is this significant?
- Taurus, a Swiss crypto custodian backed by and partnered with Deutsche Bank, became the latest institution to join the tokenisation wave this week, creating tokenised debt products for the German SME marketplace
- The loans will be based on offerings by Zurich-based lenders Teylor, who generally loan between $100,000 to $1.5m to firms in the German “Mittelstand” economy that forms the backbone of the nation’s manufacturing
- Taurus will make these loans available for trading on its TDX platform, through a tokenisation process involving Luxembourg-based Swiss/EU-compliant investment vehicles
- Teylor CEO Patrick Stäuble stated that “Our credit portfolio of high-quality SME loans is funded through private transactions with large-cap financial institutions…. With the admission of the Teylor ledger-based security on the TDX platform, we can now offer a standardised investment product. Professional investors can simply open an account and trade our security token”
- Taurus co-founder Lamine Brahimi added “The Teylor ledger-based security now makes it possible for investors to commit smaller amounts and trade the token in our regulated TDX marketplace. Teylor also fits well into our ecosystem of regulated financial services providers with a solid track record”
What happened: Cantor Fitzgerald CEO Howard Lutnick declares enthusiasm for crypto
How is this significant?
- Speaking on CNBC’s Money Movers podcast, billionaire Howard Lutnick outlined his position as a fan of crypto assets—albeit favouring a very limited portfolio
- Specifically, he voiced his support for both Bitcoin and Tether
- Concerning the latter, Cantor Fitzgerald’s partnership with the stablecoin issuers appeared to influence his opinion, as they act as custodian for many Tether backing assets
- “I'm a big fan of this stablecoin called Tether. I hold their Treasuries. So I keep their Treasuries, and they have a lot of Treasuries”
- Regarding Bitcoin though, it was the asset’s decentralised nature that appears to hold the greatest appeal; “The only asset people could have held where no one could take it? Bitcoin. With Tether, you can call Tether, and they'll freeze it” (as they did with several wallets linked to possible sanctions evasions earlier this week)
What happened: BlackRock spot Bitcoin ETF invites Wall Street participation
How is this significant?
- BlackRock continued iterating its spot Bitcoin ETF filing this week, with the latest update being one which could catalyse participation from Wall Street banks
- In particular, the newest filing allows authorised participants to create new fund shares with cash, rather than only with crypto assets
- This could prove crucial for highly regulated US banks that are legally unable to hold Bitcoin themselves, enabling them to act as authorised participants for a spot Bitcoin ETF, without holding Bitcoin itself
- According to a memo from a recent meeting between BlackRock, Nasdaq, and the SEC, “the cash APs use in this process can then be exchanged into Bitcoin by an intermediary and warehoused by the ETF's custody provider”
- CF Benchmarks CEO Sui Chung told industry publication Coindesk “If the SEC accepts this revised, dual model of create and redeem with cash and physical, that means the liquidity that supports the ETF shares when they trade would be increased, because obviously, you have more potential APs as part of the process… although trading firms like Jane Street, etc. are large and are experts, they fundamentally don't have the trillion-dollar plus balance sheets that large American banks have”
What happened: JP Morgan analysts predict Ether outperforming Bitcoin next year
How is this significant?
- In a new research on Wednesday, JP Morgan analysts led by Nikolaos Panigirtzoglou posited that after Bitcoin’s stellar performance this year, next year may signal Ether’s turn to lead the market
- The note stated “We believe that next year Ethereum will re-assert itself and recapture market share within the crypto ecosystem. The main catalyst is the EIP-4844 upgrade or Protodanksharding, which is expected to take place during the first half of 2024. We believe that this upgrade will likely prove a bigger step towards improving Ethereum network activity, thus helping Ethereum to outperform”
- Protodanksharding refers to a technological innovation whereby network efficiency can be improved by attaching temporary data packets to Ethereum blocks, increasing network throughput and reducing transaction fees
- Additionally, they theorise that spot ETF approval and the Bitcoin halving issuance reduction are already priced in for Bitcoin, and thus predict that the events won’t have an outsized effect on market dynamics
What happened: Pensions giant M&G invests in crypto derivatives exchange
How is this significant?
- The asset management arm of pensions firm M&G Plc invested $20m in UK digital asset derivatives platform GFO-X
- In a statement on Monday, M&G Investments revealed “capital was provided by M&G’s Crossover strategy on behalf of its £129 billion Prudential With-Profits Fund”
- Bloomberg speculates that this news could mark a shift towards more institutional investment, just over a year after FTX’s collapse burned several sovereign wealth and pension funds; “M&G’s investment may be a sign of turning tides for institutional support of crypto asset infrastructure”
- M&G portfolio manager Jeremy Punnett sounded his support for the investment and the industry’s long-term prospects in Britain, saying ”The lack of regulated trading venues is materially hampering the growth of the digital currency trading market. The UK has the potential to become a global hub for digital asset technology and investment”