Nickel Research Centre

Nickel News Roundup - Week 4

26th January, 2024

Market Overview:

Digital assets continued cooling off, as high volume sell-offs from Grayscale’s converted GBTC ETF influenced Bitcoin’s price action.
Bitcoin spent the majority of the week trading at and around the $40,000 mark, with greater scrutiny placed on the scale of outflows from ETF issuers Grayscale

  • Bitcoin declined from a Friday peak of $42,130 to a Tuesday low of $38,580
  • Ether likewise declined, falling from a Saturday high of $2,494 to Tuesday lows of $2.173
  • Overall digital asset market capitalisation pulled back to $1.56tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi dropped to $55.2bn, despite declines elsewhere in markets

Digital assets cooled off further as attention intensified around the scale of GBTC ETF sell-offs. Elsewhere though, news was predominantly positive; ETF volumes and inflows remained strong, legal experts supported the chances of digital asset exchanges in current actions against the SEC, a Swiss crypto bank raised on a higher valuation than in 2022, Telefonica partnered with a crypto project in Mexico, the Bank for International Settlements became the latest entity to embrace tokenisation, and new reports showcased strong growth in both overall global digital asset adoption, and crypto trading activity in China—where trading still remains officially banned.

What happened: Grayscale sell-offs dominate spot Bitcoin ETF attention

How is this significant?

  • Spot Bitcoin ETFs continued trading with heavy volumes this week, but more attention shifted to sell-offs from Grayscale’s converted GBTC fund, which opened with a combination of far greater Bitcoin holdings (around $29bn at launch) and a far higher fee (1.5%) than its contemporaries
  • As of Wednesday, GBTC had accrued over $4bn of outflows, compared to the other funds which have all posted overall inflows
  • Notably, Grayscale outflows also included heavy volume from the FTX bankruptcy estate, which liquidated the vast majority (around two-thirds) of its GBTC holdings within three days of trading, accounting for roughly $600m of outflows
  • Industry publication Coindesk meanwhile estimated over $1bn of daily outflows from Grayscale for sale on Coinbase, citing blockchain data from analytics firm Arkham Intelligence (albeit with the caveat that not all would necessarily be for cash redemption—some may just be custodied with Coinbase)
  • This data tracked deposits from Grayscale wallets to Coinbase prime addresses, where they would be liquidated around market opening time, based on the previous day’s average Bitcoin price as per indices
  • According to analytics firm Lookonchain, Grayscale have deposited over 103,000 Bitcoin onto Coinbase (worth over $4.2bn) since ETFs were approved, and still hold almost 511,000 Bitcoins (worth around $20.4bn)
  • However, there are some suggestions that Grayscale’s outflows may be slowing; Bloomberg ETF analyst Eric Balchunas noted that Wednesday’s outflows were “only” $425m; the “lowest bleed since day one and seemingly trending down”, seemingly confirmed by his colleague James Seyffart who logged Thursday’s GBTC outflows
  • Likewise, JP Morgan analysts led by Nikolaos Panigirtzoglou published a new research note on Thursday, positing that profit-taking on GBTC (benefitting from the previous steep NAV discount pre-conversion) may be concluding soon (having already exceeded their $3bn estimate)
  • JPM analysts wrote that “most of the downward pressure on bitcoin from that channel [GBTC profit-taking] should be largely behind us… There appear to be two emerging competitors to Grayscale's bitcoin ETF: Blackrock and Fidelity, which have so far attracted $1.9 billion and $1.8 billion of inflows respectively. They both have much lower fees of only 25 basis points (without waivers) vs 150 basis points for GBTC”
  • ETF issuers have also been ramping up their marketing efforts, with BlackRock now reaching out to RIAs via educational webinars
  • Issuers Bitwise became the first to publicly disclose their ETF’s Bitcoin addresses, in service of greater on-chain transparency
  • Balchunas pointed out that this disclosure actually resulted in donations to Bitwise’s addresses, leading to “a first for ETFs” in terms of an over collateralised fund
  • Bitwise executive Matt Houghan commented on the post-approval market performance of Bitcoin by calling it the shadow cast by massive pre-approval expectation; “This is not strictly speaking an ETF-led sell-off. The ETFs are net buyers of Bitcoin… This is an ETF expectations-led sell-off. The market front-ran the ETF approval by piling into both spot Bitcoin and Bitcoin derivatives”
  • According to data from industry publication TheBlock, cumulative spot Bitcoin ETF trading volumes have now exceeded $20bn, with Grayscale, BlackRock, and Fidelity accounting for around 90% of the volume
  • Franklin Templeton crossed the nine-digit mark by accruing over $100m of total trading volume, with head of digital assets Roger Bayston remaining optimistic the firm will benefit as more financial advisors enter; “It’s just a matter of time … as education moves forward about how these assets complement and help deliver potentially better long-term solutions alongside other assets in their portfolio”
  • He added that “You have a brand new product that has never existed before. These platforms are doing their fiduciary responsibilities to filter through those providers and find differentiations that end up making sure that their clients have the best long-term results”
  • Coinbase Institutional head Brett Tejpaul agreed that a period of education post-launch is necessary before most financial advisors and institutions enter; “I think the most interesting bit that's getting a little bit drowned out by some desire to have headlines is it's the first time crypto can go mainstream… this is like the very moment we've been waiting for. So, for us, it's the next chapter of this asset class”
  • Tejpaul added “What's awesome about it is if you look at the quality of the names, both on the crypto first side, ranging through to more traditional names, you have this mix of asset managers, all of whom are saying they all have, quite significant client demand”
  • In the first seven days of trading, the nine new funds (excluding Grayscale) accrued over 100,000 Bitcoins in assets under management
  • Ultimately, Balchunas remains upbeat about ETF performances thus far, stating “$ARKB and $BITB crossing half a billion is remarkable. For any normal launch in first month that's considered blockbuster-level success”, and adding some perspective for recent price movements by stating “even post "dumping" btc is up 75%(!) in the past 12mo, that's demolishing all equities, bonds, hell it’s nearly double $QQQ which just had its best year since '99!”

What happened: Ex-SoFi CEO seeks SEC approval for interest-bearing stablecoin

How is this significant?

  • Figure Technologies, a firm founded by US fintech veteran Mike Cagney (former CEO of online bank SoFi) is seeking regulatory approval for interest-bearing stablecoins, according to Bloomberg reports this week
  • The filing indicates Figure will issue the stablecoins as fixed income securities known as “face-amount certificates”
  • Sources told Bloomberg that Figure’s digital arm is planning a $50m raise for the project (at a $250m valuation), with Jump Trading believed to be a lead investor
  • In a key difference from traditional stablecoins, which are pegged to a value of one US dollar, Figure plans to make their stablecoin redeemable at one cent per certificate—one hundred certificates to the dollar
  • In other SEC-related news, the agency (as expected) delayed decisions on further spot Ether ETF filings this week, including BlackRock, and Grayscale’s proposed conversion of its existing Ethereum Trust fund
  • Additionally, a US judge asked the agency for clarification as to the exact parameters on “what it considers securities in regards to virtual tokens”, as part of its current lawsuit against digital asset exchange Binance
  • Additionally, following oral arguments, Bloomberg litigation analyst Elliott Stein declared that he was increasing his odds of Coinbase securing a full dismissal of their SEC lawsuit to 70%; "We view the one [definition of investment contract] provided by Coinbase as more compelling, requiring investment in a business vs just an ecosystem, along with enforceable obligation. as the Ripple ruling in July suggested, sales of digital assets on public exchanges don't neatly fit into the Howey test for what constitutes an investment contract"

What happened: Swiss crypto bank Sygnum raises $40m

How is this significant?

  • Sygnum, a key banking services provider in the Swiss digital asset scene, is seeking to expand its geographic footprint after successfully concluding a funding round
  • The 35m CHF ($40m) round values the company at around $836m, slightly above a previous round in the much more buoyant VC environment of 2022
  • Sygnum’s Singapore CEO Gerald Goh told Bloomberg “We’re envisaging in this year to enter one more European jurisdiction as well as one more Asian jurisdiction”, although he declined to provide longitudinal or latitudinal specifics
  • The bank has seen steady growth despite 2022’s harsh crypto winter; over the last two years it has doubled its number of clients to 1,700, and also doubled assets under management to roughly 3.7bn CHF (around $4.3bn)
  • In other VC news, secure cash transportation firm Brink’s (known for its armoured trucks) went from analog to digital this week by investing in Goldman-backed crypto custody firm BitGo
  • Zac McKenna, Brink’s head of digital assets, commented “We are excited to not only partner with, but invest in BitGo as we become their global secure logistics and vaulting provider”

What happened: Telecoms giant Telefonica partners with mobile crypto project Helium

How is this significant?

  • Global telecommunications firm Telefonica partnered with Nova Labs this week, a project building on top of the Helium blockchain
  • As part of the agreement, Telefonica customers will be able to tap into Helium’s peer-to-peer hotspots in key Mexican locations, improving their overall network coverage
  • Telefonica’s chief wholesale officer, Jose Juan Haro commented “This program in Mexico is critical to evaluate performance and customer satisfaction of this solution and its associated costs”
  • Telefonica will also be able to offload data onto Helium’s network, improving network performance as a result

What happened: Digital asset lenders Nexo sue Bulgaria for $3bn

How is this significant?

  • In a rare case of a digital asset firm suing a nation, crypto lending firm Nexo has filed an arbitration claim of $3bn against Bulgaria, following a raid on its offices and charges against four Bulgarian nationals in January last year which it claims were “politically motivated”
  • Bulgaria dropped the inquiry in December, “citing a lack of evidence of criminal behaviour”
  • The claim from Nexo was submitted to Secretariat of the World Bank’s International Centre for Settlement of Investment Disputes in Washington, and cites loss of local business opportunities and reputational damage as the result of Bulgarian legal inquiries

What happened: 1RoundTable raising up to $800m for growth-stage digital asset VC fund

How is this significant?

  • Dan Tapiero, CEO of 10T Holdings and 1RoundTable Partners (1RT), revealed to TechCrunch that 1RT has embarked on a broad fundraising round in order to take advantage of more grounded valuations following a general lull in VC activity
  • 1RT is raising between $200m and $800m for its fourth fund, slated to close in March
  • Tapiero believes that 2022’s crypto winter and 2023’s sharp decline in VC funding has created a compelling opportunity for venture investors now; “The deals right now are incredible. It’s the single best time to invest in companies… the prices in the secondary are 50% to 80% discounted from previous rounds—and that’s for companies that are doing well, too”
  • The new 1RT fund will concentrate on growth-stage companies in key areas of blockchain gaming, NFTs, and metaverse, with an initial inclination to fund between 10 and 15 firms
  • Speaking about the broad funding goal, Tapiero said that there was already a lot of interest from various sectors; “It’s never been the case that the landscape has been this empty, so we’ll raise as much as we can. We’re seeing some strong interest from really large players like large family offices, sovereign entities or national entities that want exposure to the space and are essentially new”

What happened: Chinese investors continue buying crypto—despite official ban

How is this significant?

  • Although mainland China maintains an official ban on digital asset trading from 2021, whilst Hong Kong has opened up towards the sector, a recent Reuters report reveals that mainland Chinese remain heavily interested—and invested—in the asset class
  • Amidst growing concerns over economic health, several citizens have seemingly sought out alternative investment classes, such as digital assets
  • A Shanghai-based finance sector executive told Reuters “Bitcoin is a safe haven, like gold”, and detailed his commitment to secure crypto exposure, jumping through several hoops such as using bank cards from small rural commercial banks, capping transactions at 50,000 Yuan, and purchasing on the grey market
  • Since Hong Kong opened up to trading, Reuters also notes that “Mainland investors can also open overseas bank accounts to buy crypto assets. After Hong Kong's open endorsement of digital assets last year, Chinese citizens are also using their $50,000 annual forex purchase quotas to move money into cryptocurrency accounts in the territory”
  • A Hong Kong crypto exchange executive told Reuters that challenging conditions in China’s economy “have made investment on the mainland risky, uncertain and disappointing, so people are looking to allocate assets offshore… Almost everyday, we see mainland investors coming into this [digital asset] market”
  • According to data from blockchain forensics firm Chainalysis, China’s “global ranking in terms of peer-to-peer trade volume jumped to the 13th place in 2023, from 144 in 2022”, and “Despite being banned, the Chinese crypto market recorded an estimated $86.4bn in raw transaction volume between July 2022 and June 2023, dwarfing Hong Kong, which witnessed $64bn in crypto trading”
  • Additionally, China over indexes on high-value investors, as ”the proportion of large retail transactions of $10,000-$1m is nearly twice the global average of 3.6%”
  • In other Hong Kong news, HashKey Capital partnered with FTSE Russell to launch three new crypto asset indices “designed for investors who seek to add crypto exposure to their investment portfolios”
  • HashKey MD Deng Chao commented “We have witnessed a significant surge in demand from investors who want to diversify their portfolios beyond the established cryptocurrencies, and our new indices are a testament to our commitment to providing innovative solutions that cater to the evolving needs of our clients, who look to us to navigate and understand the complexities of this robust and thriving asset class”

What happened: New study suggest large increase in digital asset ownership

How is this significant?

  • A new report published by digital asset exchange found that last year’s recovery of the crypto industry coincided with a growth in its overall investor base
  • According to the company’s research, the number of digital asset owners globally grew by 34% last year, from 432 million to 580 million
  • This aligned almost perfectly with growth in Bitcoin ownership, which increased 33% from 222 million to 296 million
  • Unique addresses on Ethereum matched the global average growth rate even closer, standing at 33.7%
  • Of course, these figures may be overstated, coming with the caveat that one individual can control multiple blockchain addresses
  • researchers believe that “The main catalyst behind BTC's adoption growth was the development in Bitcoin exchange-traded funds… Strong interest from institutional investors also contributed to the increase in BTC’s adoption… ETH’s adoption growth was mainly driven by liquid staking after Ethereum’s Shanghai Upgrade, which allowed the withdrawals of staked ETH after the transition to the Proof of Stake blockchain”
  • They also found that 51% of digital asset owners hold Bitcoin, and 40.9% of Bitcoin holders also hold Ether

What happened: Bank for International Settlements confirms tokenisation developments

How is this significant?

  • As part of its 2024 innovation hub, the Bank for International Settlements (BIS) revealed it would be working in the field of tokenisation, via the pilot program Project Promissa
  • This project includes BIS, the World Bank, and Swiss National Bank as participants
  • Innovation hub head Cecilia Skingsley commented that “The project will use distributed ledger technology to simplify [digitised promissory note] management and transparency. Tokenization is an important area where we have already launched one project and are planning more initiatives”
  • According to the BIS, most promissory notes remain paper-based, so a blockchain system could represent significant improvements in speed and transparency
  • In other tokenisation news, Deutsche-backed Swiss firm Taurus received Swiss regulatory approval to offer tokenised securities to retail clients via its TDX tokenised asset trading marketplace
  • With this approval, Taurus has access to both primary and secondary markets, greatly enhancing the liquidity of digital securities
  • TDX Head of Product Yann Isola stated “Our core belief at Taurus is that private markets 2.0 shall be digitized, so that buying a private security becomes as easy as buying a book on Amazon. The growing demand for real-world asset (RWA) tokenization, the fastest growing market segment in the digital asset space, validates this belief”
News Roundups