Nickel Research Centre

Nickel News Roundup - Week 7

18th February, 2021

Market Overview:


The digital assets market continued strong growth from last week, led by Bitcoin crossing the landmark value of $50,000, leading to a broad range of media coverage and awareness.

  • Bitcoin had another record week, pushing through $50,000 on Wednesday and achieving new all-time-highs above $52,500. At the time of writing, one Bitcoin is valued at $51,490; a 16% weekly increase
  • Ethereum also moved ahead strongly, touching an all-time high of $1,919,currently trading at $1,889
  • Overall market momentum remained positive, with only 7 of the top 50 digital assets performing negatively over the week
  • The overall crypto asset market cap surpassed $1.5tn for the first time—less than six weeks after first passing $1tn. Market cap reached an all-time high of $1.59tn early on Thursday morning
  • The DeFi sector grew slightly, with a Total Value Locked of $48.8bn

Digital assets saw new record values as last week’s news and sustained positive performance led to increased investor attention and favourable media narratives. More of the world’s largest banks continue to explore digital assets, one of the world’s largest companies is recruiting for digital currency integration, Bitcoin miners saw record revenues, and even Christie’s auction house has recognised the value that blockchain technology can bring to rare assets.

News:


What happened: $150bn Morgan Stanley fund is exploring Bitcoin, while JP Morgan plan future investment


How is this significant?

  • According to reports in Bloomberg, Counterpoint Global, an investing arm of Morgan Stanley with $150bn in assets under management, is currently performing a comprehensive analysis and assessment of Bitcoin and crypto assets
  • Counterpoint’s research is focused on whether digital assets would make a worthwhile addition to their customers’ investment portfolios
  • Within Morgan Stanley, Counterpoint is described as a fund specialised in investments “whose market value can increase significantly for underlying fundamental reasons”—Bitcoin’s position as a hedge against central bank monetary policy is seen as a fundamental reason behind its recent growth
  • Following on from last week’s news of BNY Mellon moving into digital asset custody, a move from Counterpoint (which would have to be signed off by Morgan Stanley and regulators) would represent the entry of another major traditional finance presence into the crypto assets space
  • Morgan Stanley already has some exposure to Bitcoin, via a 11% stake in Microstrategy, one of the largest institutional buyers of digital assets
  • Meanwhile, JP Morgan anticipates they will begin offering Bitcoin to clients in the future, even if they don’t believe a “critical mass” has been reached yet
  • Interviewed by CNBC, JP Morgan co-president Daniel Pinto said “If over time an asset class develops that is going to be used by different asset managers and investors, we will have to be involved… The demand isn’t there yet, but I’m sure it will be at some point.”

What happened: Deutsche Bank prepares for crypto asset custody and trading


How is this significant?

  • Reports emerged this week that Deutsche Bank is the latest major financial institution to create a digital assets offering for its institutional customers
  • According to a World Economic Forum paper published in December, Deutsche Bank has already built a digital assets custody prototype, with the goal of creating “a fully integrated custody platform for institutional clients and their digital assets, providing seamless connectivity to the broader cryptocurrency ecosystem”
  • Along with custody of digital assets, Deutsche Bank’s platform is also reported to include trading and token-issuing capabilities, allowing customers to combine digital asset services with traditional banking and fiat platforms
  • Deutsche’s platform is scheduled to roll out in a four-step process; the first step aimed at “institutional investors, such as asset managers, wealth managers/family offices, corporates and digital funds”
  • The next stages will involve token staking capabilities, tax & accounting services for digital assets, and finally token trading and issuance. An initial Minimum-Viable Product launch is planned for this year

What happened: Amazon recruiting for digital currency development


How is this significant?

  • On Friday, investigation by technology website TechRadar uncovered that online retailer (and one of the largest companies in the world) Amazon is recruiting to build technology bringing them into the digital assets space
  • According to a job listing they posted (since removed), their digital currency technology would be aimed at emerging markets with weaker banking infrastructures, launching with an initial pilot program in Mexico
  • The job posting for their Digital and Emerging Payments (DEP) division revealed that Amazon aims to allow customers to “convert their cash into digital currency...Using the currency], customers can enjoy online services including shopping for goods and/or services like Prime Video”
  • Given Amazon’s global presence, direct integration of digital currencies could legitimise them as a concept to many, particularly in emerging markets where their utility can carry as much value as their investment potential

What happened: Bitcoin Miners earn record revenues


How is this significant?

  • Fees earned by Bitcoin miners are not only indicative of Bitcoin value (from the new Bitcoins mined into existence on every block), but demand as well (from transaction fees paid to miners for moving Bitcoin from one wallet to another)
  • Research by crypto analytics firm Glassnode revealed that on Friday, Bitcoin miners earned their highest hourly revenue ever, worth $4m
  • Miners also earned record weekly revenues of $354.4m, 15% of which came from transaction fees
  • This eclipses the previous high from the speculation-driven December 2017 peak, when Bitcoin had a lower value but fewer miners and higher transaction fees
  • High revenues for miners encourage more miners to secure the network in hopes of earning block rewards and transaction fees—which strengthens Bitcoin’s security and value proposition as a decentralised network with no single dominant party
  • The performance of digital assets continues to fuel new demand for mining hardware, representing a long-term investment into digital assets: shares of mining device manufacturer Canaan Creative surged 27% on Tuesday, fuelled by Bitcoin’s record performance
  • Canaan Creative CEO Nangeng Zhang says that their growth has been fuelled by increased institutional investment, with a client base that shifted late last year “to mostly publicly traded companies and bitcoin-focused investment funds which tend to place sizable orders with longer-term commitment.

What happened: Digital assets gain widespread mainstream media coverage


How is this significant?

  • Driven by recent record performance across the digital asset space, the last week has seen perhaps an unprecedented amount of coverage not just in the financial press, but across mainstream media as well
  • The Financial Times, which has a history of skepticism towards crypto assets, claims that Bitcoin’s “credibility has been boosted” by recent institutional and corporate adoption, and quotes a fund manager noting “We are potentially at the birth of a new asset class”
  • The Economist wrote that whilst it may still “baffle” some financial analysts, “The corporate world is taking notice” citing the likes of Tesla, BNY Mellon, and Mastercard
  • The Telegraph cited a surge in banks seeking advice on Bitcoin and how they can adopt digital assets in line with regulatory compliance
  • The Guardian noted Bitcoin’s growth past the $50,000 milestone, noting that “the increase was a combination of endorsements from prominent business people, including Musk, and several investment banks that have said they would buy the currency” and “Bitcoin remains fundamentally supported because of growing demand as major companies warm towards cryptocurrencies”
  • Essentially, the performance of digital assets over the last 6 months appears to have led to a shift in the mainstream narrative around them; although many still sound caution, the amount of institutional investment means there is a greater appreciation for the fundamental value propositions of this asset class

What happened: Japan’s SBI Holdings aim to make crypto assets a key driver of profitability


How is this significant?

  • SBI Holdings is one of the largest financial services firms in Japan, a country with strict regulatory scrutiny towards digital assets
  • On Monday, SBI’s CEO and founder Yoshitaka Kitao announced plans to set up a crypto-based joint venture with foreign financial firms, citing digital assets as a “core pillar of profitability” in the future
  • Kitao said that for investors, it is no longer an “either-or” situation where one must commit to a single asset class; “Institutional investors, mainly hedge funds, have recently started investing in cryptocurrencies...Not just institutional investors but also Elon Musk”
  • SBI’s digital asset involvement has proven profitable thus far, as pre-tax profits from their current crypto interests amounted to almost $64m in the nine months to December 2020; more than an 80% increase on the same period a year prior
  • Now, Kitao wishes to aggressively expand the role that digital assets play within SBI, saying “To become number one in the world, our choice is buying a leading company or creating an alliance with major global companies. Our M&A strategy will not be something like taking minority stakes in many companies”

What happened: Non-Fungible Token (NFT) value and utility grows


How is this significant?


What happened: Coinbase opens waitlist for Ethereum 2.0 staking and sees share prices soar on private market trading


How is this significant?

  • Ethereum, the world’s second-largest cryptocurrency, has begun a move from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism allowing the protocol to scale up for widespread enterprise usage
  • The upgrade from ETH to ETH2 will mean that instead of transactions being confirmed by hardware miners, they are confirmed by people staking their existing Ether, acting as network validators
  • Coinbase is one of the largest digital asset exchanges in the world, and a key platform for institutional investors. By offering an ETH2 staking service, they remove the need for technical expertise from investors wishing to generate extra yield on their assets by acting as validators
  • Once staking goes live, Coinbase are offering yields of up to 7.5% to customers, introducing a long-term passive income stream into an asset that formerly relied purely on trading to realise value
  • In other Coinbase news, it’s been reported that based on the price of Coinbase shares from the NASDAQ private market reaching more than $300, their value at direct public listing would be around $77bn; larger than NYSE owner Intercontinental Exchange Inc.
  • Over 3 weeks trading on the NASDAQ private market, share prices have grown from $200 per share to $300, with a Coinbase source claiming “it’s not a handful of shares...Each week it’s tens of millions of dollars, a pretty sizeable amount”
  • Another major exchange and wallet provider, Blockchain.com, confirmed on Wednesday that they’ve closed a $120m funding round to grow their institutional capabilities, citing “the immense optimism about cryptocurrency from serious, institutional investors”

What happened: Microstrategy files to sell more than $900m in notes for additional Bitcoin purchases


How is this significant?

  • On Wednesday, Microstrategy announced that it intends to offer “$900 million aggregate principal amount of convertible senior notes due 2027 in a private offering to qualified institutional buyers”, intending to use the proceeds for Bitcoin purchases
  • According to their press release, the net proceeds could be as high as $1bn “if the initial purchasers exercise in full their option to purchase additional notes”
  • Wednesday’s statement was a significant increase from just one day before, when they announced a plan to raise $600m with an option for an additional $90m issuance
  • This follows a $650m convertible senior notes issue in December(which itself was increased from an initial $400m offering), used to buy Bitcoin
  • Thus far, Microstrategy CEO’s move towards institutional Bitcoin advocacy has been successful for the company, with share prices increasing by more than 660% since they disclosed their first Bitcoin purchase in August 2020

What happened: Crypto infrastructure company Pyctor sees investment from major international banks


How is this significant?

  • Pyctor is a digital asset infrastructure company backed by ING, and featuring collaboration between several established financial institutions; including ABN AMRO, BNP Paribas Securities Services, Citibank, Société Générale – Forge, UBS and State Street, amongst others
  • The range of names involved indicates an increasing interest in digital assets from the realms of traditional banking
  • Having been incorporated, they are now raising external money, with project lead Herve Francois saying “I can tell that we are looking for external investors for Pyctor (be it financial institutions or Venture Capitalists) to capture the exponential growth in digital assets that we are currently witnessing”
  • Pyctor have begun onboarding clients, held a production-ready launch and released their open-source code for the “digital asset post-trade market infrastructure for global custodians, institutional issuers and other capital market actors”
2021-02-17 20:00 News Roundups