Nickel Research Centre

Nickel News Roundup - Week 25

23 June, 2023

Market Overview:

Digital assets mounted major recoveries this week.

  • Bitcoin traded above $30,000 for the first time since April, coming within touching distance of a new yearly high
  • BlackRock’s recent spot Bitcoin ETF filing drove the leading crypto asset’s price above $28,000 for the first time in a month, before subsequent industry moves by TradFi players enhanced upside momentum;
  • a leading to Bitcoin’s best week since March
  • Bitcoin traded from a $25,460 low up to a $30,800 high (just below April’s highway we mark of $31,000), consistently trading around the $30,000 mark since Wednesday
  • Some industry observers believe the market is responding to institutional interest; “The rally is backed by institutional demand. The BlackRock announcement on a Bitcoin ETF, plus EDX Markets, gave Bitcoin a boost on hopes that traditional institutions will add depth to the crypto market”
  • Bitcoin’s current price of $30,010 translates to an impressive 17.6% weekly growth
  • This price point represents an approximate 81% year-to-date increase
  • Ether followed Bitcoin’s lead, posting strong growth throughout the week, crossing the $1,700, $1,800, and $1,900 levels once more
  • Ether’s weekly low of $1,656 on Friday led to a $1,930 high on Thursday
  • Ether’s current price of $1,882 represents a commendable 12.4% increase
  • Ether supply dynamics reached a neutral equilibrium, registering a current annual net issuance of 0.01%
  • Overall digital asset market capitalisation gained $130bn to reach current levels of $1.16tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms increased by $3bn, to $44.6bn

Digital assets bullishly reversed their last fortnight’s declines to come within touching distance of a new year-to-date high. BlackRock’s entry into the ETF space last week proved the starting gun for a race of new filings with WisdomTree, Valkryrie, and Invesco re-entering after previous rejections. Jerome Powell acknowledged the “staying power” of the asset class during testimony before Congress, and also recognised stablecoins as “a form of money”—in contrast to recent statements from Gary Gensler, further reflecting a lack of regulatory clarity in the US. TradFi powerhouses Citadel, Fidelity, and Schwab entered the institutional exchange space with a TradFi structure, and adoption continued internationally; AliBaba appointed a crypto advocate as their new chairman, Deutsche Bank, Credit Agricole, and Santander increased their exposure, and the IMF revealed plans to develop a global CBDC platform.

What happened: BlackRock sparks spot Bitcoin ETF race

How is this significant?

  • Late last week, BlackRock (the world’s largest asset manager) filed for a new Bitcoin spot ETF—a filing which seemed to catalyse a chain reaction of other TradFi giants filing for similar products or market entries
  • As Bloomberg’s Eric Balchunas points out “The BlackRock filing changed everything, that reignited the race”
  • Bloomberg Intelligence notes that the last 30 filings for spot Bitcoin ETFs were rejected by the SEC; but the status of BlackRock ($9tn+ AUM) as one of the most influential finance firms in the world—and their record of 575 ETF approvals vs 1 rejection—have led ETF experts to express optimism over a spot ETF finally being granted
  • James Seyffart of Bloomberg Intelligence opined that BlackRock would be unlikely to file an ETF without faith in the asset class; “One might say that they are about as good as it gets at reading the regulatory tea leaves”
  • The Wall Street Journal speculated that a particular facet of BlackRock’s filing could give them an edge over previous applications; namely a surveillance-sharing agreement with Nasdaq intended to mitigate concerns over potential Bitcoin price manipulation
  • Although data feeds of major crypto exchanges are public, the use of a TradFi service from Nasdaq may prove more palatable to regulators sceptical of the industry
  • Barron’s noted the prior elusiveness of regulatory approval for spot Bitcoin ETFs; the “white whale of the mutual-fund industry—an exchange-traded fund that owns Bitcoin”
  • They note that this makes Bitcoin one of the largest assets not held by an ETF, especially after its considerable year-to-date recovery; a status which means “fund companies have reason to believe the SEC might need to soon give in, whether or not it wants to”
  • CNBC identified BlackRock’s filing as “a huge milestone for the space”; it’s hard to get a more significant vote of confidence than the world’s largest asset manager
  • BlackRock’s filing last Thursday was soon followed by a spot Bitcoin applications from WisdomTree and Invesco, issuers previously rejected by the SEC
  • Unlike BlackRock, both Invesco and WisdomTree propose listing their products on the CBOE exchange, rather than Nasdaq
  • A WisdomTree representative told Barron’s that “This is a firm continuation of our stance from our initial filing based on WisdomTree’s extensive experience in ETFs”, indicating that BlackRock’s entry may have reignited hope in the ETF sector
  • Nate Gareci of advisory firm ETF Store noted “When the world’s largest asset manager makes a move like this, other issuers are going to take notice because the stakes are so high in the Bitcoin ETF race. There has been absolutely no indication that the SEC is ready to entertain a spot Bitcoin ETF. The likely assumption is that BlackRock may know something”
  • Invesco (a relative minnow compared to BlackRock, with a mere $1.4tn of assets under management) refiled their spot ETF application on Tuesday, after a rejection in October 2022
  • The firm cited a lack of spot ETF as a factor in investors seeking out riskier alternatives, leading to losses in unregulated platforms like FTX last year
  • A fourth filing emerged later in the week, as Valkyrie—another previously rejected applicant—submitted their own bid for a spot ETF
  • Their proposed Valkyrie Bitcoin Fund would trade on the Nasdaq, under the ticker name BRR; a reference to the alleged sound of the Federal Reserve’s “money printer” which—unlike Bitcoin—dramatically inflated its monetary supply in recent years
  • BlackRock’s filing even seemed to reignite interest in Grayscale, who are currently suing the SEC over their refusal to convert Grayscale’s GBTC fund into an ETF; GBTC trading volumes spike 400% within 5 days of BlackRock’s filing

What happened: Citadel, Fidelity, and Schwab launch new digital asset exchange

How is this significant?

  • Alongside a raft of Bitcoin ETF filings from TradFi firms, this week also witnessed the launch of a new digital asset exchange backed by some of the biggest names in Wall Street; Citadel, Fidelity, and Charles Schwab
  • Other founding investors include VC giants Sequoia Capital, Paradigm, and Virtu Financial
  • Originally announced in September last year, EDX Markets is an institutional-only exchange, with a limited range of tradable assets; Bitcoin, Ether, Litecoin, and Bitcoin Cash—all of which were previously identified by SEC chair Gary Gensler (during his time at MIT) as “NOT Securities”
  • EDX additionally differentiates itself from most digital asset exchanges by operating a non-custodial model, using a third party custodian to hold assets during trading
  • As the Wall Street Journal explains “EDX runs a marketplace where firms agree to execute trades of coins and dollars, using its platform to agree on prices. Then the firms move crypto and cash between each other to settle the trades. Later this year, EDX plans to launch a clearinghouse to facilitate the process of settling trades, but even then it plans to use third-party banks and a crypto custodian to hold customer assets”
  • CEO Jamil Nazarali told Bloomberg “We believe crypto is here to stay, but for it to evolve as an asset class it needs to adopt the rules and investor protections that exist in traditional finance. The message we’ve got from our investors is that this creates an even bigger space for us”
  • In a previous interview with Coindesk, Nazarali framed the company as a beneficiary of last year’s industry turmoil; “What we’re seeing is that increasingly, investors want to trade through their trusted intermediaries and that’s especially true post FTX… We were founded really to solve a problem in the marketplace in the U.S.”
  • Bloomberg Opinion columnist Matt Levine (author of Businessweek’s historic “The Crypto Issue) appears to agree; “This is bringing the structure of traditional finance to the assets of crypto finance”
  • The launch of an institutionally-backed, institutionally-focused digital asset exchange appears to indicate continued institutional interest in digital assets, despite the ongoing SEC enforcement actions against Coinbase and Binance
  • In other Fidelity news, their UK Digital assets arm quadrupled revenue last year according to new filings, despite the generally downward market momentum of 2022
  • Fidelity forecast their digital asset revenue to “continue to grow upwards”, backed by strong institutional demand for trading and custody services

What happened: Enforcement fallout and regulatory efforts roll on

How is this significant?

  • As part of ongoing legal actions, Binance.US agreed a deal with the SEC as a compromise against the agency’s initial wish to freeze all their assets
  • On Saturday, they agreed to a deal whereby funds would be fully repatriated to the USA from any other Binance entities, with Binance.US only able to spend corporate funds essential to running the business
  • Despite this successful compromise, Binance.US has been hit hard by the enforcement actions; data from industry analytics firm Kaiko suggests that the exchange’s US market share has shrunk to 1.5%, down from 8.2% in January and a high of 22% in March
  • The firm has already reduced headcount in anticipation of a “multi-year and very costly litigation process”, and industry observers appear doubtful of their long-term US market prospects
  • Additionally, soon after the aforementioned compromise, the SEC circulated a press release which Binance alleges contains misleading statements (such as accusations over commingling of funds, which the SEC were unable to prove in court), leading the exchange to issue a legal filing attempting to compel the SEC to adhere to “applicable rules of conduct”
  • The exchange has been hit by legal challenges in other jurisdictions as well; French prosecutors told industry publication Coindesk that they were investigating potential AML violations in Binance’s French affiliate, as well as withdrawing from the Netherlands, and cancelling a UK registration application
  • Banque de France governor François Villeroy voiced his belief that international crypto conglomerates need to be regulated internationally, proposing “MiCA2” amendments to the European Union’s Markets in Crypto Assets legislation
  • Coinbase CEO Brian Armstrong sounded a bullish note despite the ongoing legal threats from the SEC; perhaps buoyed by BlackRock’s selection of Coinbase as custodian for their spot ETF
  • Speaking at the FT’s “State of Crypto Summit”, he voiced ambitions for Coinbase to become a “super-app”like WeChat in China, allowing for a variety of financial integrations and social interactions, that “should work in a more global way”
  • Gurbir Grewal, SEC director of enforcement (no relation to Coinbase chief legal officer Paul Grewal) stated his belief that they should pursue the largest exchanges possible; “the cases we bring that will have the most impact and deter other bad actors [while] promoting compliance”
  • Bloomberg noted a wider geographic consequence of the SEC’s enforcement actions; a transfer of trading volumes to Asia
  • Trading in predominantly-Asian hours has increased this year, as “Investors and marketplaces are flocking to Singapore, Japan and South Korea—and more recently to Hong Kong, which this month introduced a new regulatory regime for crypto”
  • House Financial Services Committee chairman Patrick McHenry—a critic of perceived regulatory overreach by SEC chair Gary Gensler—revealed plans to debate (and hopefully advance) new laws for the asset class in the second week of July
  • The two bills in question seek to develop new regulatory frameworks for stablecoins, and clarify market structure while creating “a more distinct pathway for digital assets to transition from security investments to commodities”
  • In a lengthy interview with crypto journalist Laura Shin, SEC commissioner Hester Peirce stated that the agency’s approach to crypto under Gensler has been “very frustrating” voicing her opinion that “It’s not the job of Government to tell people what they can or cannot do, the SEC’s approach is wrong in making merit-based decisions on whether crypto gets to exist or not”

What happened: Jerome Powell recognises crypto assets’ staying power, status as “money”

How is this significant?

  • As part of semi-annual oversight testimony before the House Financial Services Committee in Congress, Federal Reserve chairman Jerome Powell made several statements on digital assets
  • Although he commented on the decline in market size since 2021 highs, Powell nonetheless stated that “crypto appears to have staying power as an asset class”
  • He advocated for “quite a robust federal role” in future stablecoin supervision
  • Powell advocated this position by stating that “We do see payment stablecoins as a form of money, and in all advanced economies, the ultimate source of credibility in money is the central bank”
  • He also said that the Fed was “a long way” from deploying a national CBDC, despite the proposed introduction of the FedNow instant payment system in July
  • Recognition of stablecoins as a legitimate form of money was of interest to many industry observers, particularly since it appeared to contradict recent bombast from Gary Gensler, who declared “We don’t need more digital currency. We already have digital currency. It’s called the U.S. dollar. It’s called euro. It’s called the yen. They’re all digital now”
  • Powell also indicated his belief that inflation will likely remain non-transitory, with more hikes forthcoming this year; “it may make sense to move rates higher but to do so at a more moderate pace”

What happened: Hong Kong doubles efforts to secure banking for digital asset industry

How is this significant?

  • Hong Kong regulators continue to push for more digital asset support in their territory, in a bid to position the city as a key regional and global crypto hub
  • On Monday, regulatory leadership “called a meeting to bring together banks, crypto platforms and other industry participants”
  • Sources speaking to Bloomberg said the meeting identified and outlined specific challenges cited by crypto firms when registering for bank accounts
  • A representative of the Hong Kong Monetary Authority (HKMA) would not comment on specific details, but did confirm to Bloomberg that the central bank “has maintained close dialogue with the banking industry and relevant stakeholders on various topics from time to time”
  • This meeting follows a previous circular from the HKMA, a roundtable discussion in April attended by 20 different banks, and specific encouragement towards HSBC and Standard Chartered, key banking presences in the city
  • Speaking with Regulation Asia, HKMA representatives confirmed that “banks operating in Hong Kong should endeavour to meet the legitimate business need of licensed VASPs [virtual asset service providers]”

What happened: Credit Agricole and Santander secure crypto custodian approval

How is this significant?

  • On Thursday, Reuters reported that French bank Credit Agricole successfully registered with French market regulator AMF to offer crypto custodian services, positioning themselves in the industry ahead of MiCA regulations rolling out from 2024
  • The registration belongs to CACEIS, the $4.5tn AUC asset servicing business co-owned by Credit Agricole and Spain’s Santander bank, in an approximate 69:31 split
  • This registration brings Agricole in line with other French finance powerhouses like SocGen and AXA, who are already registered (also via subsidiaries) as Digital Asset Service Providers with AMF
  • This marks the culmination of a long-running process for CACEIS; the first reports of their efforts to build a crypto asset custody solution emerged back in 2021

What happened: Deutsche Bank applies for crypto custodian status

How is this significant?

  • Another major European bank deepening their involvement with the asset class are Deutsche Bank, who confirmed a desire to offer custody services for digital assets
  • Speaking at a conference on Tuesday, David Lynne of Deutsche’s commercial banking unit stated “We’re building out our digital assets and custody business. We just put our application into the [federal regulators] BaFin for the digital asset licence”
  • Lynne noted that this was part of a wider policy shift within the bank, and matched with their investment arm DWS’ recent forays into the digital asset space
  • Deutsche, with $1.4tn in total assets, are the largest bank in Germany, potentially widening access to the asset class within Europe’s largest economy
  • Industry observer Noelle Acheson commented “It is extremely unlikely it would go through the cost of doing this unless it had received sufficient expressions of interest from its large clients”

What happened: Contagion latest

How is this significant?

  • Digital asset custodians BitGo terminated efforts to acquire rival Prime Trust, following “considerable effort and work to find a path forward with Prime Trust”
  • Three Arrows Capital (3AC), the failed hedge fund that caused widespread contagion last year, is attempting to resurrect itself as a VC “focused on superior risk-adjusted returns without leverage”
  • Industry response has been—to say the least—sceptical
  • Do Kwon, founder of the collapsed Terra Luna blockchain ecosystem, received a four month prison sentence in Montenegro for attempting to travel with a forged passport, as part of his efforts to evade South Korean prosecutors
  • His colleague, Terraform Labs CFO Han Chang-Joon received an identical sentence on the same charges
  • Both the US and South Korea are seeking their extradition after local criminal proceedings are concluded
  • FTX’s bankruptcy process may have one clear winner—legal teams, who have already submitted $200m worth of billable hours
  • Additionally, FTX moved to claw back $800m from a variety of Alameda payment recipients and investments, “accused of aiding and abetting SBF, dishonest assistance and unjust enrichment”

What happened: Ripple secures payments licence in Singapore

How is this significant?

  • On Thursday, Ripple (issuers of the XRP digital asset) announced in-principle approval of a Major Payment Institution Licence from the Monetary Authority of Singapore (MAS)
  • MAS, the city-state’s central bank, has moved to restrict retail access to digital assets following last year’s crypto winter, whilst still wishing to maintain Singapore as a hub for digital asset businesses
  • CNBC reported that the licence “will allow Ripple to offer regulated digital payment token products and services and expand the cross-border transfers of XRP”
  • Singapore already serves as the APAC headquarters for Ripple, and according to a press release ”a majority of Ripple’s global on-demand liquidity transactions flow through Singapore”
  • Ripple has also doubled its headcount in Singapore over the past year in efforts to ensure greater compliance and business development
  • Local newspaper The Straits Times wrote that on-demand liquidity flowing through Singapore increased fivefold year-on-year in 2022
  • Ripple chief legal officer Stuart Alderoty told the paper “Places such as Singapore, Britain, the United Arab Emirates and the broader European Union have made huge strides in the past few years towards defining rules for crypto, such as licensing frameworks and having a clear taxonomy. While the US flounders, Ripple will continue investing our time and resources in countries like Singapore”
  • In other Ripple news, CEO Brad Garlinghouse published a video and Twitter thread giving his reaction to the recent unsealing of the “Hinman documents” in their long-running legal case against the SEC
  • Ripple’s position is that Hinman’s speech was prejudicial, pushing to publicly recognise Ether as a commodity whilst roundly ignoring a broad range of internal feedback
  • He commented that “it’s truly the first time the SEC was forced to be transparent about their lack of internal coherence or faithful application of the law, acknowledging they may not have the jurisdiction to fill the ‘regulatory gap’ over crypto at all… They have preached (and demanded) transparency from those they regulate, but fight tooth and nail when held to the same standards”

What happened: AliBaba recruits crypto advocate Joseph Tsai as new chairman

How is this significant?

  • Global tech giant AliBaba finally replaced Jack Ma as their chairman… bringing back co-founder Joseph Tsai, who has become a noted digital asset evangelist since leaving the online retailer
  • After initially departing AliBaba in 2013, Tsai invested in many crypto and Web3 startups, including FTX, alongside a range of other investments through his Blue Pool Capital family office, ranging from protocol level rounds to NFT startups
  • Bloomberg writes that his influential position could facilitate greater acceptance of the asset class in AliBaba’s backyard; “Elevating Tsai to chairman puts a friendly face on crypto as he has been a longtime supporter of digital assets… Bitcoin and other cryptocurrency activities are still largely illegal in China, but Hong Kong has recently begun wooing crypto companies as US regulators have cracked down on the industry”

What happened: IMF reveals plans for global CBDC platform

How is this significant?

  • On Monday, IMF managing director Kristalina Georgieva confirmed efforts to develop a global, single-ledger CBDC platform designed to ensure interoperability across various nation-level digital currencies
  • She told a conference of African central banks in Morocco that “CBDCs should not be fragmented national propositions... To have more efficient and fairer transactions we need systems that connect countries: we need interoperability”
  • Furthermore, she noted that 114 countries are currently exploring CBDC development, with ten of those “already crossing the finish line”
  • As part of this global development stream, she advocates for a global CBDC regulatory framework, arguing that any shortfalls in government-issued systems will likely catalyse market for decentralised crypto assets
  • The IMF notes high crypto adoption across numerous Latin American countries with histories of economic exclusion or instability; Georgieva states “If well-designed, CBDCs can strengthen the usability, resilience, and efficiency of payment systems and increase financial inclusion… While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long run… instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics”

What happened: New digital asset reports and surveys showcase current attitudes

How is this significant?

  • Several firms recently published new research related to crypto assets and the wider digital asset industry, with attitudes exhibiting a general upswing in optimism since the start of the year
  • Coinbase released a new report on corporate adoption of crypto which revealed widespread interest; “52% of Fortune 100 companies have invested in crypto or blockchain initiatives since the start of 2020”
  • As of Q2 this year, 70% of those invested firms are in the publicly launched state
  • Since 2017, “Fortune 100 companies have made 109 private venture capital investments in 80 crypto blockchain startups, contributing to rounds worth over $8 billion”
  • Some key names are Citi Ventures, Google Ventures, Microsoft Ventures, and Goldman Sachs; these four have made as many crypto private investments as the rest of the Fortune 100 combined
  • Coinbase also revealed that “About two thirds (64%) of surveyed Fortune 500 executives who are familiar with cryptocurrency or blockchain say that investing in these technologies is important for staying ahead of their competition”
  • Meanwhile, Bernstein published a new report on tokenisation, touting its improved efficiencies, liquidity, and accessibility
  • Bernstein estimate that tokenisation could account for $5tn of value within five years, split across private market funds, securities and real estate, along with CBDCs and stablecoins
  • Report author Gautam Chhugani noted that their projections are contingent on regulatory recognition (and approval) of blockchain’s benefits; “Over the next five years, we expect a swell in the stablecoins and CBDC tokens in circulation, led by China’s CBDC program. Stablecoins and CBDC tokens, coupled with yield farming in decentralised markets, will compete with bank deposits as an investment or saving instrument”
News Roundups