Nickel Research Centre

Nickel News Roundup - Week 28

14th July, 2022

Market Overview:

Bitcoin demonstrated both upside and downside volatility around the $20,000 mark, before higher-than-forecast CPI figures led to a steep market drop.

  • Bitcoin briefly topped $22,000 on Friday, achieving a weekly high of $22,230
  • The leading digital asset spent most of the week trading between $20,400 and $21,600, with a gradual decline from Friday onwards, intensifying on Tuesday
  • CPI figures on Wednesday revealed the highest US inflation since 1981—and had an instantaneous effect on trading confidence, dropping Bitcoin from $19,900 to a weekly low of $19,000 within an hour, before some recovery
  • Bitcoin’s current price of $20,020 equates to a 1.5% weekly decline
  • Ether mirrored Bitcoin’s movements hitting a weekly low of $1,010, with a weekly high of $1,261 on Friday, before a post-CPI low of $1,019 on Wednesday
  • Ether’s current $1,102 price represents a 5.6% loss on the weekly timeframe
  • Overall market capitalisation dropped to $893bn
  • Total value locked in DeFi dropped slightly to $39.5bn, according to industry monitor DeFi Pulse

Digital assets traded in a broader range than the previous weeks, with inflation figures having an instant effect on trader confidence. Outside of the markets, it was a big week in terms of venture capital, with a plethora of new funds announced and raised. Some major institutional presences like Jump Trading reaffirmed (and even enhanced) their interest in the space throughout the current crypto winter, a major miner added more Bitcoin to their balance sheet, and contagion from hedge fund 3 Arrows Capital’s insolvency continued to cast a shadow.

What happened: VC firm Lightspeed raises $7bn across new funds, adds “crypto native” team

How is this significant?
  • VC giant Lightspeed Capital Ventures defied global market pessimism this week by announcing the launch of four new early stage investment funds, worth $7bn
  • Three of the funds will concentrate on the US market, whilst one focuses on India
  • The funding represents approximately 60% more than the VC firm’s last flagship raise
  • A press release announcing the new funds also shone a spotlight on the firm’s devotion to the digital asset industry, via the launch of Lightspeed Faction; “a new, independent crypto native team to drive transformation in the blockchain ecosystem”
  • The press release noted that “Faction believes the innovation economy is at the precipice of a significant computing paradigm shift with blockchain companies leading”
  • Lightspeed partner Ravi Mhatre stated “Lightspeed has been selectively investing in crypto since March 2013, and we believe that cryptocurrency can have a positive impact on a population of people who are underbanked or unbanked not only in the U.S. but globally”
  • He also added that much of the industry’s potential remains to be realised; “We believe the industry is still early in the transition from web2 to web3… Faction is a testament to our shared belief in the ways that cryptocurrency may help to develop a web that better serves underserved people around the world”
  • Faction’s main purpose will be to act as a bridge between Web3 founding teams and Lightspeed, providing the established VC with the benefit of their crypto-native knowledge and experience

What happened: Contagion latest—Celsius recovers collateral as 3AC subpoenaed

How is this significant?
  • Consequences of the crypto contagion crisis continued to unfold this week, with some companies demonstrating proactive efforts to right their ships, whilst one major player went incommunicado
  • Beleaguered lender Celsius continued paying off loans to recover collateral deposits locked in DeFi protocols, with the latest reported tally (at the time of writing) standing at over $900m of debts repaid to such platforms
  • As DeFi platform loans are generally overcollateralised, Celsius is currently able to recover more assets on a net basis by repaying these debts; whilst also potentially causing issues of DeFi protocols being viewed as “prioritised” creditors compared to their own customers in the event of any possible litigation
  • Thanks to the open nature of the Ethereum blockchain, interested parties can follow the transactions linked to Celsius’ wallet address on a blockchain explorer, thus tracking the loan repayments, collateral recoveries, and any collateral liquidations or transfers in real time
  • According to reporting on industry publication TheBlock, Celsius reduced their debt to DeFi platform Aave by $63.5m on Tuesday, leaving them with around $8m to pay off
  • Bloomberg reports that Celsius wouldn’t comment on their source of funding to pay off the debts, but large-scale recovered collateral sell-offs remain a distinct possibility, as the lender remains publicly committed to “strategic transactions as well as a restructuring of our liabilities” as potential means to recover
  • On Thursday morning however, news emerged that Celsius filed for Chapter 11 bankruptcy protection, taking the step to “stabilise its business and work out a restructuring for all stakeholders”
  • As part of the filing, Celsius petitioned to continue operations, with CEO Alex Mashinsky issuing a statement saying the process will strengthen the company
  • In contrast, 3 Arrows Capital (3AC), the collapsed digital asset hedge fund defaulting on numerous loans has taken a different approach to their issues—running from them
  • Court papers revealed that liquidation firm Teneo have “not yet received any meaningful cooperation” from 3AC co-founders Zhu Su and Kyle Davies, as they seek to preserve the fund’s assets
  • The whereabouts of the co-founders are currently unknown, however Zhu Su did tweet for the first time in almost a month, claiming that their attempts to engage “in good faith” were met with “baiting” by the liquidators
  • On Tuesday, Teneo were granted the right to subpoena the 3AC founders, bank accounts, digital wallets, and associated entities by a federal bankruptcy court judge in New York
  • Voyager Digital filed for chapter 11 bankruptcy protection last week after exposure to 3AC, with lawyers at a preliminary hearing on Monday describing it as “unchartered territory” with “many potential legal issues of first impression”, including how bankruptcy courts can act in regards to digital assets
  • Voyager remains publicly committed to a recovery plan, including potential purchase of the business by interested external parties
  • Digital asset exchange faces a potential $270m loss from 3AC defaulting on a loan, but pledged in an open letter that the company “remains liquid, solvent and our customers will not be impacted”
  • is currently cooperating with investigations into 3AC, believing the hedge fund “defrauded the crypto industry”

What happened: Federal Reserve vice chair says digital assets do not pose “systemic risk”

How is this significant?
  • Speaking at the Bank of England Conference on Friday, Federal Reserve’s vice chair Lael Brainard urged authorities to “close regulatory gaps” this week in light of losses throughout the digital asset market
  • However, Brainard also concluded that the industry was unlikely to lead any negative market conditions, but rather follow them; “the crypto financial system does not yet appear to be so large or so interconnected with the traditional financial system as to pose a systemic risk”
  • More regulatory clarity is required within the US according to Brainard, who urged “This is the right time to establish which crypto activities are permissible for regulated entities and under what constraints so that spillovers to the core financial system remain well contained.”
  • She particularly highlighted stablecoins as a possible area of risk, advocating for a central bank digital currency (CBDC) as an alternative to “enhance stability”
  • On Tuesday, the Treasury’s Office of Financial Research published a paper outlining several key advantages for a CBDC, arguing that increased transparency could reduce the risk of bank runs; “Once a CBDC is introduced, policymakers have a new source of information: the flow of funds into the digital currency”

What happened: Multicoin Capital launches new $430m digital asset investment fund

How is this significant?
  • Digital asset VC firm Multicoin Capital announced their largest-ever fund this week, worth $430m
  • It represents the third fund for the company since its founding in 2017, building on previous raises of $17m and $100m
  • Co-founder Kyle Samani told industry publication TheBlock that they’ve invested about one third of their newest fund since closing the raise earlier this year, and currently have “single-digit billions” of assets under management
  • The new fund will deploy investments between $500,000 and $25m for early-stage projects, but a select few projects further along in the development and release pipeline could garner investments up to $100m
  • Multicoin co-founder Tushar Jain wasn’t concerned about deploying capital during a crypto winter, arguing that it could be more efficient in the long run; “As evidenced by our first and second venture funds, some of the best opportunities arise in bear markets… Valuations are more reasonable; founders are more focused, long-term and motivated; and real users explore projects they are genuinely passionate about”
  • According to information provided to technology industry website Techcrunch, the $430m fund will devote particular attention to companies operating within “web3 infrastructure, decentralised finance (DeFi), decentralised autonomous organisation (DAOs) tooling and new business models to collaborate on intellectual property”

What happened: New digital asset VC joins market with $100m in funds

How is this significant?
  • Another new VC to enter the digital asset field this week was Protagonist, a Miami-based firm launching a $100m early-stage crypto investment fund
  • Co-founder George Bousis told Techcrunch that Protagonist’s funding comes from a variety of sources, including family offices, individuals, and the Solana blockchain-focused development firm Saber Labs 
  • Particular focuses of the new fund will include the gaming industry, emerging layer-1 blockchain protocols, and projects focused on enhancing privacy and security in the blockchain space
  • Bousis said that their investment thesis relies on the streamlining of user experience when blockchain technology is implemented; “Some of the things I’m really excited about personally is bridging the gap between digital and physical assets, and actually leveraging crypto, DeFi and blockchain as a technology without consumers realising or understanding that they’re using it”
  • Like the Multicoin Capital co-founders, Bousis was bullish on launching an investment project during bearish market conditions, telling Techcrunch “In bear markets and out of financial crises… you see some of the best businesses and returns come from these markets… This is where legends are born and you can really make a name for yourself…we think this is where the real builders and investors are going to thrive”

What happened: Jump Trading doubles down on crypto commitment despite bear market

How is this significant?
  • Traditional finance giants Jump Trading entered the crypto asset space less than a year ago with the launch of Jump Crypto, a subsidiary devoted to digital assets
  • Founding president Kanav Kariya believes that current market volatility provides opportunities for future returns that might not be possible in frothier bull markets
  • Speaking to Bloomberg, Jump Crypto representatives cited the backing of the firm’s traditional market-making business as a key advantage compared to many crypto-native firms
  • They said they long expected a crypto winter, and viewed it as “another opportunity to double down, to be able to invest in projects now hopefully at a better valuation”, whilst simultaneously building out infrastructure in anticipation of an eventual “crypto spring” market recovery
  • In other Jump Crypto news, they recently released the results of their own investigation into the collapse of the Terra Luna blockchain’s UST stablecoin, concluding that it was mainly retail investors who suffered total losses, as larger and institutional investors were able to exit their positions prior to a total depegging 

What happened: Former Meta employees seek $200m to build new blockchain

How is this significant?
  • According to technology publication The Information, a new blockchain startup founded by former Meta employees is seeking $200m in a Series B round, on a $2bn valuation
  • The round is being led by FTX Ventures, and has already raised commitments worth $140m
  • The blockchain, called Mysten, aims to host decentralised applications including social media and blockchain games
  • A previous Series A round in December 2021 was led by Andreessen Horowitz (a16z) raising $36m on an unknown valuation

What happened: Digital asset firm Animoca raises $75m on a $5.9bn valuation

How is this significant?
  • Animoca brands—a prominent digital asset firm with a focus on investment and blockchain game development—successfully concluded a $75m funding round for a valuation around $5.9bn
  • This valuation is actually higher than the $5bn achieved during their last raise in January this year, despite the overall market declines in 2022
  • Investment giants KKR were believed to be in discussions for the funding round, but pulled out due to current market conditions, according to parties with knowledge of the issue
  • Nonetheless, there was significant investment interest from other parties, including Liberty City Ventures, Kingsway Capital, Alpha Wave Ventures and 10T—funding which was secured after the collapse of the Terra blockchain led to a wider market collapse, according to Animoca co-founder Yat Siu
  • Siu said that investors had the opportunity to remove their commitments in light of market conditions, but most remained invested; “It demonstrates that there is capital in the market and interest in the sector… There are clearly deals to be made”
  • Funding will be used primarily in the fields of investment, development, and acquisitions

What happened: Bitcoin miner Marathon Digital sells no Bitcoin in Q2

How is this significant?
  • Bucking the trend of rival Bitcoin mining firms Cleanspark, Bitfarm, and Core Scientific, mining giant Marathon Digital confirmed that they sold none of the 707 Bitcoin they mined during the second quarter
  • This figure was up 8% year-on-year, but significantly down from Q1, with “operational obstacles” including severe storms near mining facilities cited as reasons for the reduced output
  • Marathon’s last sale of mined Bitcoin dates back to October 2020, before the height of the last bull market
  • Last week Marathon’s shares rose by 54% as they revealed the recovery of 4,769 Bitcoins to its balance sheet after unwinding an investment in institutional Bitcoin firm NYDIG
  • The company currently holds 10,055 Bitcoins, but did acknowledge that they may have to sell some in future “to fund operating costs as production increases”
  • One key difference allowing Marathon to hold so many more of its mined Bitcoins is their policy of using 3rd-party operators, rather than building their entire facilities from scratch, drastically reducing overheads and start-up costs
News Roundups