Nickel Research Centre

Nickel News Roundup - Week 17

27th April, 2023

Market Overview:

Digital assets experienced mild declines this week, amidst wider economic uncertainties that saw the US trying to raise its debt ceiling.

  • Bitcoin hit a weekly high of $30,000 on Wednesday, following a low of $27,120 on Monday
  • The weekly high came after more weakness in the banking sector was exposed; First Republic seemingly on the brink of collapse despite multiple bailouts
  • Additionally, reports emerged that the banking industry significantly increased their lobbying spend in Washington last quarter, following widespread contagion
  • Bitcoin’s current price of $28,910 is in line with last week’s prices
  • Ether experienced similarly volatile performance this week, trading between $1,806 and $1,978
  • Ether’s current price lag’s slightly behind last week; $1,904 equates to a 2.3% drop
  • Ether supply dynamics remained deflationary with annual net issuance currently at -0.81% yearly
  • Overall market capitalisation remained steady at $1.2tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms declined to $49.4bn

Digital assets experienced mixed trading this week. Calls for greater regulatory clarity in the US continue to make noise, to the extent that Coinbase has sued the SEC to provide clearer crypto frameworks. Franklin Templeton, Visa, DWS, SBI Holdings, and Standard Chartered were just some of the major names to feature this week, as adoption and enthusiasm for digital assets continue despite America’s regulatory uncertainty.

What happened: Coinbase sues the SEC for greater regulatory clarity

How is this significant?

  • The SEC’s approach towards digital assets this year has been labelled by some as “regulation via enforcement”, taking legal action against industry firms whilst refusing to provide clear sector-specific frameworks
  • Now, the SEC find themselves on the receiving end of a lawsuit from the industry, after publicly-listed US-based crypto exchange Coinbase filed a narrow action against them in federal court
  • This mandamus petition (backed by Eugene Scalia, son of former Supreme Court Justice Antonin Scalia) aims to force the SEC to acknowledge a previous petition from Coinbase, which the commission has ignored since its filing last July
  • Last year’s petition sought greater clarity on digital asset securities, “requesting that the Commission propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities"
  • It further argued the necessity for a bespoke framework, as digital assets represent "a paradigm shift from existing market practices, rendering many of the Commission rules that govern the offer, sale, trading, custody, and clearing of traditional assets incomplete and unsuitable for securities in this market”
  • Coinbase Chief Legal Officer Paul Grewal commented on perceived regulatory hostility, stating “it seems like the SEC has already made up its mind to deny our petition. But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision”
  • He stressed the importance of receiving an unambiguous public response to their petition, stating that the Administrative Procedures Act requires the SEC to respond to petitions “within a reasonable time”
  • Grewal believes “a reasonable time” has long since lapsed, telling Bloomberg “Not only have we been waiting for many, many months, but there’s been a campaign of enforcement that the SEC has embarked upon in parallel”
  • Once the SEC has responded, if they deny the petition, Coinbase “would be allowed to challenge that decision in court and explain in that formal setting why rulemaking is required”
  • Grewal added “This step may feel unusual, and it is, because this step is usually not needed. But it is also unusual for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public”
  • He also stated that regulators forced their hand; “Coinbase does not take any litigation lightly, especially when it relates to one of our regulators. Regulatory clarity is overdue for our industry. Yet Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business”
  • Although Gary Gensler has repeatedly claimed that rules and status for crypto assets are crystal clear, he recently (repeatedly) refused to answer under congressional oath whether Ether is a security, and industry publication Blockworks collated numerous conflicting statements from regulators and public servants—including the New York Attorney General who argued just last month that it is both a commodity and a security
  • In other US-based regulatory news, House Republicans on the Financial Services Committee released a (partisan) draft stablecoin bill, after a previous bipartisan draft stalled
  • Under Republican plans, state regulators can charter stablecoin issuers, unlike the previous bill which required Federal Reserve registration

What happened: Franklin Templeton benefits from crypto business

How is this significant?

  • As the US banking crisis continues to roll on in the form of First Republic’s 41% daily drop—despite two multibillion bailouts—crypto industry firms find themselves with fewer options than ever after being forcibly “de-banked” by government shutdowns
  • One beneficiary of the banking crisis has been non-bank financial institutions such as $1.4tn asset manager Franklin Templeton, which reported this week that their FOBXX on-chain money market fund (which registers share ownership using blockchain technology) has registered significant inflows from digital asset firms since Signature Bank’s shuttering
  • Ray Bayston, Franklin Templeton’s head of digital assets, disclosed “elevated” levels of conversation with industry players, ranging from foundations to DAOs
  • Franklin Templeton SVP Sandy Kaul stated “Money market funds are used for collateral purposes and for payment purposes off-chain. We will fully anticipate those type of use cases moving on-chain as the regulations become more clear”
  • Speaking to CNBC, CEO Jenny Johnson outlined the firm’s blockchain ambitions, revealing on Wednesday that FOBXX will be integrated into Layer-2 Ethereum scaling project Polygon, making it compatible with Ethereum
  • This adds to its previous presence on the Stellar blockchain, a top-30 project by market capitalisation
  • She lauded Ethereum’s move to proof-of-stake consensus, calling it “one of the most impressive IT re-architectures… the Ethereum Merge happened essentially overnight, and every Level-2 company built on Ethereum got the benefits at no extra expense”
  • Johnson sounded an ambitious note for the technology, stating “we fundamentally believe that blockchain technology can be very important for asset management”

What happened: Visa continues web3 recruitment, touting “ambitious crypto roadmap”

How is this significant?

  • Visa’s head of crypto Cuy Sheffield tweeted this week, declaring that the payment processing giant has an “ambitious crypto product roadmap”, promoting recruitment efforts for software engineers to build out those products
  • Sheffield stated that “mainstream adoption of public blockchain networks” was a key goal of the company, indicating integration of existing projects, rather than attempting to create their own proprietary digital asset system
  • Additionally, he identified stablecoin payments as an area of interest, providing the least perceived friction between conversion of fiat currencies and crypto assets
  • According to the job posting he linked, “The Visa Crypto Team is building the next generation of products to facilitate commerce in everyone's digital and mobile lives. Our focus is to build intuitive features that expose profound new value for our customers”

What happened: Asset manager DWS partners with Galaxy Digital for crypto offering

How is this significant?

  • A press release on Wednesday announced a new strategic alliance between German asset manager DWS (€821bn AUM) and crypto investment firm Galaxy Digital
  • This will include integration into DWS existing investment infrastructure, as the release outlined that the firms “will work together to provide European investors access to the USD ~1 trillion digital assets market through cost-effective investment solutions that are easy to access via traditional brokerage accounts”
  • Fiona Bassett (Global Head of Systematic Investment Solutions at DWS) stated “we see increasing client interest in digital assets… We look forward to working with Galaxy to further accelerate international adoption of the digital asset economy”
  • Additionally, the press release stated that “For DWS, this alliance fulfils a key priority to develop comprehensive digital solutions, unlocking investor access to the ever-growing blockchain and digital assets universe”

What happened: EU approves Markets in Crypto Assets (MiCA) legislation

How is this significant?

  • Long-debated MiCA legislation gained final approval in the EU this week, setting in motion plans to introduce a wide-ranging legal framework for digital assets
  • Unlike the USA, the EU has thus provided bespoke regulation for the new asset class, rather than trying to fold a fundamentally new technology into existing legislation
  • After three years in development, the lawmakers’ approval was welcomed by many in the industry, although some cautioned that the length of its debating could render it outdated upon release
  • EU parliament member Ernest Utrasun lauded the legislation, whilst also acknowledging the need for future updates; “[this] marks the start of a new era of regulatory scrutiny on unregulated crypto markets... [but] important regulatory challenges remain unaddressed and new legislative actions are urgently needed to complete MiCA with the missing pieces”
  • MiCA will require European crypto firms to register in one of EU’s member states, covering approval for the entire bloc
  • Rules governing stablecoins will come into effect from next July, whilst the so-called “travel rule” (requiring exchanges to provide authorities with information on users transacting more than €1,000) won’t enter play until 2025

What happened: Bitcoin reaches new localised all-time high thanks to fiat inflation

How is this significant?

  • Although 2022’s brutal market conditions and crypto winter have left Bitcoin (and most other digital assets) well below their all-time high denominated in US dollars, consistent currency debasement has led to record highs in other denominations
  • In Argentina, a country with a history of hyperinflation, Bitcoin’s value proposition as an alternative to fiat currency is so compelling that it currently trades at a US$35,000 premium compared to average global prices
  • On Ripio, the country’s largest crypto exchange (4.5 million users), one Bitcoin can currently be bought for 13.8m ARS, or approximately $62,000
  • People also appear more eager to accumulate than offload; sell prices are currently around 12.8m ARS, or a $5,000 difference
  • This is partly due to current hyperinflation and financial access in Argentina; the official exchange rate is quoted at 218 ARS to the US dollar, but is only available to officials—the current market rate for most Argentines is closer to 483 ARS to the dollar
  • As a result of their chequered economic legacy, alternative financial mechanisms are more appealing; the BBC reported a year ago that Argentina was embracing crypto assets, and the FT reported in 2019—the depths of the previous crypto winter—how Bitcoin hit a new all-time high in Argentinian pesos

What happened: Contagion latest

How is this significant?

  • Binance.US pulled out of a proposed rescue deal for bankrupt lender Voyager Digital on Tuesday, stating “the hostile and uncertain regulatory climate in the United States has introduced an unpredictable operating environment impacting the entire American business community”
  • Genesis is also facing challenges in its bankruptcy process, requesting mediation after revealing that “a subset of creditors have decided to walk away” from a submitted restructuring proposal
  • FTX agreed a deal to sell its (solvent) crypto derivatives platform LedgerX to the owners of the Miami International Securities Exchange for around $50m
  • New FTX CEO John Ray III commented “We are pleased to reach this agreement… an example of our continuing efforts to monetize assets to deliver recoveries to stakeholders”
  • The Bahamas kicked off consultations on a more comprehensive and stringent crypto rulebook, to prevent repeats of FTX-esque mismanagement within domiciled companies

What happened: Firms refile spot Bitcoin ETF applications

How is this significant?

  • Although 2022’s crypto winter may have dampened enthusiasm for digital asset ETFs, 2023’s relative crypto thaw appears to have reignited interest in the exchange products
  • The SEC has consistently denied all applications for spot Bitcoin ETFs thus far, only approving futures-based products
  • Grayscale found repeated rejections so arbitrary that they initiated legal proceedings against the SEC after the regulators denied their request to convert their GBTC fund into a spot Bitcoin ETF
  • Now, two previously-rejected firms have decided to reapply in the hopes of having a spot ETF granted
  • ARK and 21Shares have teamed up to file for the ARK 21Shares Bitcoin ETF, designed to track price through the S&P Bitcoin Index
  • 21Shares CEO Hany Rashwan commented that last year’s market turmoil should encourage regulators to support products like ETFs; “American investors have been hurt by crypto scams that are primarily international—and especially because there aren’t available, easy, regulated options at home”
  • He added “We have seen greater demand from American investors for American-built products, especially over the past few months with bank failures and especially over the last year with international crypto blowups. That’s why we’re excited about pushing crypto in a regulatory-friendly way”

What happened: VC News

How is this significant?

  • An educational unit of Web3 giant Animoca Brands raised at a $100m valuation this week, from investors including Sequoia China and Kingsway Capital
  • “Edtech” firm TinyTap was acquired last June for $39m, indicating a significant bump in perceived value within a year
  • TinyTap has already launched NFTs for content creators on their platform, as a means of more accurately tracking and distributing royalties
  • Cosmose AI, an artificial intelligence retail engagement tracking service, was valued at $500m this week, following a new investment round that included contributions from Layer-1 blockchain Near Protocol
  • Zodia, Standard Chartered and Northern Trust’s crypto joint venture, raised $36m in a new funding round this week, led by Japan’s SBI Holdings
  • This dilutes Standard Chartered’s ownership stake down from 90%, although a spokesperson confirmed to Bloomberg that the bank “remains the majority owner”
  • SBI Holdings is now the second-largest shareholder, overtaking Northern Trust
  • Zodia CEO Julian Sawyer told Bloomberg that the funds would be used for expansion beyond Asia and Europe, although the USA remains out of bounds due to “uncertainty in its regulatory roadmap”

What happened: China integrates Digital Yuan into public sector pay

How is this significant?

  • China has been at the forefront of international CBDC development, advancing another step this week following reports that it’s Digital Yuan will be used to pay government officials
  • At this stage of its CBDC piloting, the rollout is limited to public sector workers in the eastern city of Changshu
  • However, government websites indicated that these workers will be fully paid in Digital Yuan
  • Proliferation of app-based payments (such as AliPay and WeChat) may help long-term adoption of the planned CBDC, particularly as the country moves towards a more cashless society in general
News Roundups