Nickel Research Centre

Nickel News Roundup - Week 5

2nd February, 2024

Market Overview:

Digital assets recovered some recent losses, as sell-offs from Grayscale’s converted GBTC ETF lessened, leading to greater net ETF inflows.
  • Bitcoin traded across a wide range this week, reaching a weekly high of $43,800 on Tuesday, before pulling back slightly after Jerome Powell signalled continued hawkish intent for interest rates
  • Bitcoin showcased a steady trend of increase from a weekly low of $39,890 on Friday, with the majority of trading oscillating in and around the $42,000 mark
  • Ether was also boosted this week, rising from a Friday low of $2,198 to a Wednesday peak of $2,384
  • Overall digital asset market capitalisation rose to $1.64tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi increased to $57.5bn

Digital assets recovered this week, as hype around spot Bitcoin ETFs—and sell-offs from GBTC investors—gradually subsided after several weeks of live trading. Elsewhere, there were major appointments as Coinbase seeks to secure fair political discourse, Hong Kong stablecoin efforts attracted attention from major mainland asset managers, FTX revealed plans to repay customers in full, Germany’s second-largest lender announced intent to launch crypto trading for retail banking customers, and several major VC deals were struck.

What happened: ETF news

How is this significant?

  • With spot Bitcoin ETFs trading live for a couple of weeks now, coverage of the new investment vehicle slowed down slightly—but even though Bloomberg ETF analyst Eric Balchunas said he’s “phasing out slowly” from daily coverage, he nonetheless believes that “by all measures, it’s been a fantastic success”
  • Said success also manifested in some positive price action this week, as outflows from Grayscale’s converted GBTC fund from sources including hedge funds (subject of much coverage last week, when it stood at over $4bn of outflows), slowed down compared to the launch weeks
  • In a new research note, Sean Farrell, head crypto strategist at Fundstrat Global Advisors wrote “We’re starting to see a pattern of decreasing redemptions from GBTC… a mere slowing down of this AUM exodus would serve as a large boost for the market”
  • One result of this slowing volume was BlackRock’s IBIT overtaking Grayscale’s GBTC as the highest-volume ETF; and with a much smaller fee, IBIT currently stands at around $2.8bn of Bitcoin
  • This represents strong inflows for BlackRock, as IBIT effectively started from zero, versus GBTC which currently stands at around $20.5bn of Bitcoin, having launched with $29bn (albeit at a higher valuation when ETFs launched at around $46,000 per Bitcoin)
  • Last Friday marked the first day of net-positive flows in a week for spot Bitcoin ETFs, as buyers of “the newborn nine” outnumbered sellers of GBTC’s converted fund
  • Last week saw overall crypto fund outflows of $500m, dominated by GBTC outflows
  • JP Morgan analyst believe that ETFs are now approaching a true reflection of their demand, beyond the hype of launch; “As we’ve been seeing transaction volumes slowing this past week, we think we are perhaps seeing indication of the hype around these ETFs abating and entering a perhaps more normalised flow environment”
  • As a corollary to spot ETF success, open interest and Bitcoin futures ETF volume has dropped, as market participants increasingly favour spot products for Bitcoin exposure
  • Open interest dropped 24% by January 30th, after increasing over 150% last year in anticipation of spot ETFs launching
  • The closure of GBTC’s long-running (pre-ETF conversion) NAV discount also played a role in declining open interest; Richard Galvin, co-founder of DACM notes “Having a long position on GBTC while being short on the CME Bitcoin futures was a popular trade due to the GBTC discount. The trade has paid off, leading to investors selling their GBTC units and closing the CME positions, resulting in a decline in open interest”
  • Bloomberg ETF analyst James Seyffart also notes that trading spreads are tightening on ETFs, as “Markets are getting more and more and more efficient”
  • Speaking of Seyffart and Balchunas, they were recognised this week by blockchain project Bankless as some of the 12 most important people to watch in crypto, dubbing them “the unexpected main characters” for bringing ETF awareness and coverage to the TradFi press
  • Additionally, in a sign that the spot ETF market is already maturing, Valkyrie became the first issuer to diversify their asset custody, adding BitGo as a custodian alongside Coinbase
  • As of the end of trading on January 29th, aggregate Bitcoin holdings by spot ETFs were estimated at just over 640,000

What happened: Coinbase hires former UK chancellor in push for political recognition

How is this significant?

  • Publicly-listed US exchange Coinbase secured a high-profile advisor this week, hiring former Chancellor of the Exchequer George Osborne
  • Osborne, who was in charge of the UK economy during David Cameron’s premiership, is in fact the second UK chancellor to join the digital asset industry, following Philip Hammond’s appointment as chair of crypto custodians Copper
  • In a statement, Coinbase said “We look forward to relying on his insights and experiences as we grow Coinbase around the world”
  • This is part of a wider movement within Coinbase to secure political approval, as the company gears up for a US election they describe as “the most consequential in crypto’s history”
  • As part of this push, Coinbase CEO Brian Armstrong is helping to fund a “war chest” for a Super-PAC called Fairshake to support pro-crypto politicians
  • According to Bloomberg reports, Coinbase currently accounts for a third of the $85m raised by the Super-PAC
  • Owen Lau, analyst at Oppenheimer & Co. commented “Coinbase is still standing and fighting for the industry. He [Armstrong] needs to get this done”
  • In a statement, Collin McCune, head of government affairs at Andreessen Horowitz said “Supporting candidates, from both parties, who take a long-term view of technology is an important part of ensuring that clear rules of the road are developed for blockchain technology and digital assets”
  • He added “Crypto is at a tipping point in the U.S. and without a clear regulatory framework for entrepreneurs, we risk sending innovation abroad while harming consumers by allowing bad actors to continue to slip through the cracks
  • In other news of major executive hires, digital asset market maker GSR (one of the oldest trading firms in the industry) announced the appointment of former JP Morgan executive Andreas Koukorinis as its new head of trading this week
  • Koukorinis previously served as global head of credit and FICC eTrading at JP Morgan

What happened: Hong Kong stablecoin sandbox attracts Chinese corporate interest

How is this significant?

  • As Hong Kong continues to position itself as a key Asian crypto industry hub, it continues to attract interest from mainland China investors, where digital asset trading remains officially banned
  • Previously, the Hong Kong government strongly encouraged banks to provide services to crypto firms, and now it is encouraging the development of stablecoins, issuing rules for the digital asset subset
  • The push towards stablecoin issuance appears to have attracted the attention of major Chinese asset manager Harvest Fund Management Co., according to Bloomberg sources
  • The sources added that alongside Harvest, “fintech specialist RD Technologies and crypto exchange-traded fund aspirant Venture Smart Financial Holdings Ltd. are in discussions with the Hong Kong Monetary Authority” regarding the forthcoming stablecoin trials
  • Sean Lee, senior advisor and head of stablecoin at VSFG said that local stablecoins could help the city win further influence on the global crypto stage, calling it “a powerful alternative to the US dollar”, which currently dominates stablecoin denominations (and thus trading pairs in crypto trading)

What happened: FTX expects to pay back customers in full

How is this significant?

  • Failed digital asset exchange scrapped plans to relaunch this week—but did announce a capacity to repay its customers in full, potentially ending its long-running saga and black crowd hanging over the industry
  • Lawyer Andrew Dietderich provided the disclaimer “I would like the court and stakeholders to understand this not as a guarantee, but as an objective. There is still a great amount of work, and risk, between us and that result. But we believe the objective is within reach and we have a strategy to achieve it”
  • Said great amount of work consists largely of confirming that claims are legitimate, as claims number in the millions
  • He also explained why they wouldn’t relaunch FTX, saying “The costs and risks of creating a viable exchange from what Mr.Bankman-Fried left in the dumpster were simply too high”
  • Reports emerged earlier in the week that FTX’s estate is busy liquidating the firm’s crypto assets in order to repay customers in cash value; the exchange has nearly doubled its cash reserves in two months as a result
  • Additionally, FTX is earning towards bankruptcy repayments by “conducting Bitcoin derivative trades to hedge exposure to the coin and generate additional yield on its digital holdings”
  • In other news from the contagion that FTX’s fall instigated, bankrupt lender Genesis reached a settlement with the SEC, paying $21m to end the lawsuit over its involvement in the Gemini Earn program
  • And in other SEC legal news, the agency has asked a judge to dismiss a case without prejudice (allowing them to refile it) after their lawyers were found to have made misrepresentations in court
  • US District Judge Robert Shelby said he should consider sanctions against the agency as a result, but in a Tuesday statement, the SEC claimed “While the Commission recognizes that its attorneys should have been more forthcoming with the Court, sanctions are not appropriate or necessary to address those issues”

What happened: Portal raises $34m to build Bitcoin DEX

How is this significant?

  • San Francisco fintech Portal announced a $34m raise this week, exiting stealth mode on a new DEX aimed at Bitcoin
  • DEXes have traditionally proliferated on smart contract blockchains such as Ethereum, Binance Chain, and Solana—but Bitcoin’s comparative lack of smart contract capabilities and conservative approach to technological development have meant that native Bitcoin cannot be traded on DEXes; only “wrapped” Bitcoin, a token issued on the smart contract network pegged to Bitcoin’s value
  • In a press release, Portal revealed the VC support of numerous top exchanges, including Coinbase, OKX, and
  • The funding will allow the firm to develop a self-custody wallet, as well as “decentralised infrastructure for peer-to-peer swapping of Bitcoin across different blockchains without the need for intermediaries such as wrappers, bridges or centralised exchanges”
  • Portal claim that their infrastructure “will enable any user to swap bitcoin across a range of blockchains and back in seconds without giving up custody, privacy or security”

What happened: Ethereum developer interest reaches new highs

How is this significant?

  • Developer interest and activity continues to grow despite the market remaining well below its 2021 highs, according to a new report by Web3 development firm Alchemy
  • Ethereum leads the race for Web3 developers, as installations of the blockchain’s software development kit (SDK) increased 31% year-on-year to 106.4 million downloads in 2023; up from 81.4 million in 2022
  • This represents five consecutive years of increases for Ethereum
  • Jason Windawi, protocol specialist at Alchemy, told TechCrunch “It’s been great to see confirmation of the cliché that bear markets are for building. During the depths [of the downturn] it was easy to wonder if that’s true; we knew it was, but it’s good to have this data to show that”
  • However, the amount of interest may not correlate directly with activity, and could be influenced by curiosity (rather than action) as the market recovered last year—a separate report by Electric Capital posits that monthly active developers actually declined by 25% last year

What happened: Germany’s second-largest bank to pilot crypto trading

How is this significant?

  • Germany’s second-largest lender, DZ Bank, revealed to Bloomberg this week that it would launch a pilot for Bitcoin trading amongst cooperative banks this year
  • Scheduled for November, the “aim is to make it available to its 737 community banks for which it provides services”
  • The cooperative banks represent a cumulative 30 million retail clients, representing a large potential digital asset exposure within Germany’s more traditionally-conservative financial frameworks
  • DZ Bank board member Souad Benkredda told Bloomberg that whilst he didn’t expect universal adoption, he did see demand; according to a study by cooperative bank association Genoverband “every second bank wants to activate the solution for their customers”
  • DZ Bank launched a crypto custody platform in November, so this represents a deepened involvement with the industry

What happened: PayPal uses proprietary stablecoin in crypto VC investment
How is this significant?

  • After launching its own stablecoin in August last year, US payments giant PayPal has now used said digital asset in the field of venture capital
  • The firm used $5m worth of the USD-pegged PYUSD as part of a $6.5m investment in Mesh, a firm working in the digital security space
  • Mesh co-founder Bam Azizi supported the move to invest via stablecoin, telling industry publication Blockworks “When compared to alternative payment methods [like] wire transfers, PYUSD is superior because it works 24/7 and has a very low cost. This was also a great opportunity for us to demonstrate the security and robustness of Mesh API and that the vision for both companies is perfectly aligned”
  • PYUSD is currently the eleventh-largest stablecoin by market capitalisation, but has seen significant recent growth in adoption and deployment, doubling in market cap since early December
  • In other VC news, hybrid crypto trading platform Cube achieved a $100m valuation on a $12m funding round
  • According to Cube founder Bartosz Lipinski, the exchange aims to negate founder risk seen in FTX’s SBF-led downfall; “Cube uses a hybrid model with off-chain order matching and on-chain settlement. This lets users retain ownership of their assets without having to transfer them to an exchange custodial account for trading”
  • VC experts Andreessen Horowitz (a16z) sounded a bullish note for the industry, predicting a “crypto renaissance”, saying that a16z “consistently deploys capital” into both token and equity investments within the industry, believing blockchain has the potential to push back against some threats of AI
  • As an example, managing director Chris Dixon said “blockchain can help creators gain ownership over their content and show provenance, including demonstrating that a particular video is real and not AI-generated”
News Roundups