Nickel Research Centre

Nickel News Roundup - Week 32

11th August, 2022

Market Overview:

Digital assets experienced another strong week of growth, after lower-than-forecast CPI figures boosted investor confidence.

  • Bitcoin traded above $24,000 on several occasions during the week, but couldn’t sustain a prolonged run above that figure before Thursday
  • Positively received CPI figures on Wednesday led to a quick $1,000 gain from prices around $23,000, after Bitcoin spent most of the week trading between $22,800 and $23,300
  • Bitcoin’s weekly low of $22,500 early in the week allowed for steady improvement, up to a weekly high of $24,630 early on Thursday morning
  • Bitcoin’s current price of $24,580 indicates 6.9% growth from last week
  • Ether outperformed Bitcoin once again, breaking above $1,800 for a sustained run, reaching a weekly high of $1,908 on Wednesday evening after a low of $1,590 on Thursday
  • Current prices of $1,890 equate to 15.9% weekly growth
  • 94 of the top 100 digital assets increased in market capitalisation this week, according to industry tracker Coinmarketcap
  • Overall market capitalisation grew in line with bullish momentum across many major assets, to $1.16tn
  • Total value locked in DeFi increased by almost 10% to $44.1bn, according to industry monitor DeFi Pulse

Digital assets had a week of steady performance, turning bullish after CPI figures indicated inflation easing. The world’s largest asset manager made its most direct move yet into digital asset management, several major banks confirmed hiring sprees for crypto expertise, VC raises continued, and one of the world’s most famed jewellers moved into the NFT field.

What happened:BlackRock partners with Coinbase to provide Bitcoin trading services

How is this significant?
  • BlackRock, the world’s largest asset manager, made their most definitive move into digital assets this week by partnering with Coinbase to increase institutional access to Bitcoin trading
  • Through the partnership, BlackRock clients will be able to use the company’s Aladdin investment management system to review, manage, and trade Bitcoin
  • Institutional clients using Aladdin currently manage around $20tn in assets 
  • A statement confirmed that the partnership will “initially” focus on Bitcoin, but left the door open for expansion to other top digital assets in the future
  • Although the partnership provides the first instance of direct investment access through BlackRock, the company has been gradually moving towards greater digital asset enthusiasm over the past year
  • BlackRock CEO Larry Fink confirmed earlier this year that the firm was researching digital assets in greater detail, and in April the company took part in a $400m funding round for stablecoin issuer Circle, securing a position as their primary asset custodian
  • Joseph Chalom, BlackRock’s global head of strategic ecosystem partnerships said client interest was a key factor in developing the partnership; “Our institutional clients are increasingly interested in gaining exposure to digital-asset markets and are focused on how to efficiently manage the operational life cycle of these assets”
  • News of the partnership had an instantaneous effect on Coinbase's share price despite the exchange’s current tensions with the SEC; leading to weekly growth above 40%
  • Some analysts believe the move could be a watershed moment in institutional approaches towards digital asset exposure; Owen Lau of Oppenheimer & Co. commented “It’s a big plus for the industry and also for Coinbase… After this validation, it is possible that Coinbase will be able to partner with more traditional financial industries. It shows that even with the size of BlackRock, they are going to partner with a crypto-native company, rather than building their own capabilities”

What happened: Contagion latest—withdrawals enabled, withdrawals closed

How is this significant?
  • Consequences of the mid-2022 crypto contagion crisis continued to cascade this week as firms at various stages of the exposure process moved to both allow customer asset recovery, and shut down withdrawals entirely
  • Bankrupt broker Voyager digital—currently undergoing a restructuring effort and considering buyout offers—announced they would reopen cash withdrawals from their platform from Friday onwards, after the bankruptcy court approved the move
  • According to Wall Street Journal reports, the amount of cash to be refunded equals $270m, held in custody by the Metropolitan Commercial Bank
  • Customers seeking a return of their crypto holdings (or a portion thereof) must file claims by October 3rd
  • A lawyer for Voyager said the distressed firm has received several offers for their assets in excess of a recent bid from Sam Bankman-Fried’s FTX, which was dismissed as a “low-ball liquidation bid”
  • Beleaguered ASEAN-based lender Zipmex announced plans to allow partial Ether and Bitcoin withdrawals by customers, following re-enabled altcoin withdrawals last week
  • The company has filed for protection from creditors and lawsuits in Singapore as they seek funding to alleviate their liquidity deficit
  • On Wednesday, blockchain developers Ripple Labs (issuers of the XRP crypto asset) revealed an interest in the acquisition of troubled lender Celsius (or at least, a portion of its assets)
  • Speaking to Reuters, a Ripple spokesperson confirmed “We are interested in learning about Celsius and its assets, and whether any could be relevant to our business”
  • Whilst Voyager and Zipmex reopened withdrawals, Asian-based exchange Hodlnaut announced they were “halting withdrawals, token swaps and deposits with immediate effect” due to “recent market conditions”
  • They also withdrew their application for a licence from the Monetary Authority of Singapore, indicating an intention to exit all operations in the city-state
  • The recent contagion and trapped user funds have led new Wall Street entrants to the market; credit traders, seeking the rights to assets from customers at steep discounts, in the hopes of recouping more as insolvency processes lurch along

What happened: Brevan Howard achieves largest-ever crypto hedge fund launch

How is this significant?
  • Brevan Howard successfully achieved the largest-ever launch of a crypto hedge fund with BH Digital this year, raising more than $1bn from institutional investors, according to sources familiar with the matter
  • Current assets don’t appear to include proprietary capital from Brevan Howard or Alan Howard himself, estimated at “several hundred million dollars”
  • This would place the firm among the upper echelon of raises across any hedge funds, which a source speaking to industry publication Blockworks hailed as “a massive result”
  • With a multi-manager and multi-strategy approach (allocating 10% to venture investments and the remainder to crypto assets), the fund has managed to significantly outperform the market, despite major events like the Terra Luna and Celsius collapses
  • Staffing has increased from 25 in January to over 60 now, with an additional 20 blockchain engineers on full-time external retainers
  • Long-time digital asset enthusiast Alan Howard was a driving force behind the development of the fund for the nascent asset class, which sources say has remaining capacity up to about $1.5bn AUM
  • Existing capital hasn’t been fully deployed yet, allowing the firm to benefit further from more realistic valuations during the ongoing bear market

What happened: Major financial institutions increase digital asset hiring focus

How is this significant?
  • Three major banking institutions this week confirmed plans to develop their expertise in the digital asset field through aggressive hiring policies, despite the relative market doldrums of 2022
  • A recent job posting by Citigroup indicated plans to move into DeFi—or at least gain DeFi exposure—under the auspices of the newly-created post of Digital Asset Risk Manager for Cryptocurrencies, Stablecoins and Decentralised Finance
  • Additionally, another new position being hired for carries a focus on more permissioned applications of blockchain; CBDCs, digital securities and enterprise blockchain
  • Both roles are listed at director level, and the former hints at a deepening involvement in digital assets, including responsibilities of “new cryptocurrency, stablecoin and decentralised finance initiatives, pilots, proof of concepts and strategic partnerships”
  • Morgan Stanley also indicated wider crypto asset plans through a recent job listing, searching for a product development manager focused on the digital asset industry
  • e-Bank Revolut also announced an increased focus on the asset class, with “plans to increase its crypto headcount by 20% across Europe, the UK and US over the next six months”
  • Headcount specialising in the field has already tripled over the last year, and Revolut’s crypto general manager Emil Urmanshin expects it to remain an important part of the company’s overall offering; “We see crypto as a long-term play and remain bullish on the crypto industry… Although there has been turmoil, interest in crypto assets has increased and we still have more customers trading crypto than during July 2021”

What happened: Major entities confirm support for Ethereum’s proof-of-stake transition

How is this significant?
  • The Ethereum blockchain’s forthcoming switch from energy-intensive proof-of-work consensus to more environmentally-sustainable proof-of-stake has garnered widespread support within the industry, as timelines towards the process move closer
  • USDC stablecoin issuers Circle have confirmed they will support the new proof-of-stake Ether, but won’t service any competing blockchains that spring up in an attempt to maintain the network on a proof-of-work basis
  • Stablecoin issuers Tether have likewise expressed exclusive support for Ethereum’s proof-of-stake transition, rather than any proof-of-work chains adopting the code
  • Such chains, known as “forks” in blockchain lingo, arise at various times when miners (or those maintaining a network) disagree on its codebase, leading to competing projects touting their own specific benefits
  • As the upcoming software upgrade moves Ethereum from miners securing the network to validators doing so, there is (predictably) some pushback from miners, with several proof-of-work offshoots already announced
  • It’s worth mentioning that the current main Ethereum chain itself is a fork, created when the majority of miners on the network voted to reverse transactions tied to a malicious hack in the network’s formative days, with the original chain still existing as “Ethereum Classic”

What happened: Crypto “mixer” Tornado Cash sanctioned by US authorities

How is this significant?
  • Tornado Cash—a crypto “mixing” service aimed at obscuring the original source of digital asset transactions—was sanctioned by US authorities this week, cutting off widespread support for the privacy protocol
  • A GitHub account hosting a copy of smart contract code for the service was deleted soon after, and major companies like Circle (issuers of the USDC stablecoin) froze funds associated with addresses behind the development of Tornado
  • US Treasury department representatives highlighted the mixer’s potential use in money-laundering as a reason for the sanctions, stating “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them”
  • The move led to backlash from privacy-conscious blockchain users, who argue that censorship of smart contracts could amount to attacks on freedom of speech
  • Sanctioning the service means any American users who transact with or have funds linked to Tornado Cash transactions could face consequences; a position seemingly parodied by users sending unsolicited funds through Tornado to various celebrities and influencers after the news broke
  • Some argued for valid reasons why users may seek to obscure the source (or destination) of funds, including Ethereum co-founder Vitalik Buterin himself, who “outed” himself as having used Tornado Cash for enhanced financial privacy when donating to Ukraine to protect the recipients of the funds

What happened: DeFi blockchain project Injective raises $40m from Brevan Howard, Jump

How is this significant?
  • Injective, a DeFi-focused smart contract blockchain, confirmed a $40m raise this week, with major investors including Alan Howard’s BH Digital, and Jump Trading’s digital asset arm Jump Crypto
  • Injective Labs CEO Eric Chen said “We are excited to collaborate with our partners… which we expect will be a major boon for the broader Injective ecosystem. With Jump as a major force in the crypto ecosystem, the partnership will be focused on expanding Injective's network and further providing shared liquidity across the Injective ecosystem”
  • The proof-of-stake blockchain features interoperability with the Ethereum network, but higher scaling capabilities, having processed over 90 million transactions within a few months
  • This scalability seeks to address several user pain points in traditional decentralised exchanges (DEXes), where transaction fees or processing times can spike during periods of high usage

What happened: Bain Capital leads $12m crypto funding round

How is this significant?
  • Risc Zero, a scalable blockchain firm, announced the successful completion of a $12m funding round this week, led by Bain Capital’s $560m crypto investment fund
  • This follows a previous $2m pre-seed round, after the release of their first open-source product in March 2022
  • Their blockchain project is built on Zero-Knowledge (zk) proofs, a cryptographic means of confirming or validating a transaction without exposing its contents, leading to greater privacy
  • According to a Risc Zero spokesperson, their full-featured blockchain should launch in the third quarter, following developer previews

What happened: Tiffany’s sells out NFT run at $50,000 a piece

How is this significant?
  • Renowned jewellers Tiffany’s recently entered the NFT field, providing a proposition based on merging the digital with the physical
  • Whilst NFTs are often conceptualised as a virtual certificate of ownership, Tiffany’s reversed the proposition somewhat by allowing holders of the famous CryptoPunks collection (widely cited as the first real NFT collection) to purchase a 3D NFT pendant based on the specific design of their individual NFT
  • CryptoPunk NFTs effectively acted as a “key” in the minting process; as the assets are tied to a blockchain address, they ensured that only the rightful owner of a CryptoPunk could initiate the minting of its associated Tiffany’s NFT
  • These “NFTiffs” can be redeemed for the commissioning of a physical one-off jewellery piece matching the CryptoPunk’s design
  • Anticipation for the collection was high, with all 250 spots being taken within 20 minutes of minting opening; the considerable $50,000 price tag netted Tiffany’s $12.5m in under half an hour of trading
  • CryptoPunks owners can however trade their NFTiffs to any party that wishes to redeem them for the physical jewellery, illustrating the powerful NFT value proposition of IP ownership; resales within 24 hours of minting reached over $1m
  • A CryptoPunks spokesperson explained to CNN “In this instance, owners of Cryptopunks are essentially commissioning Tiffany's to create new IP out of their CryptoPunk, and that new IP is a pendant. You have to own the CryptoPunk in order to own the IP for the pendant”
News Roundups