Nickel Research Centre

Nickel News Roundup - Week 25

23rd June, 2022

Market Overview:

Digital assets continued to suffer bearish sentiment, but losses slowed after rebounding from a weekend sell-off.

  • Bitcoin hit a weekly low of $17,720 on Saturday (its lowest point since November 2020), before recovering to a weekly high of $21,620 on Tuesday
  • This weekly low was notable as the first time in Bitcoin’s history that its price fell below the high of the previous bull market cycle; around $19,510 in late 2017
  • However, it is worth noting that Bitcoin’s current price remains more than double its value just two years ago; $9,630 on 23rd June 2020
  • Bitcoin saw some stability above $20,000 for a few days after the weekend, before Jerome Powell’s Senate Banking Committee testimony that “Recession is a possibility” led to a sharp sell-off
  • Bitcoin’s current price of $20,550 is 5.5% down on the week, but more than 16% up from its weekly low
  • Ether performed similarly, rebounding from a weekly low of $898 to a high of $1,157
  • Ether’s current $1,100 price represents a 6.4% drop on the weekly chart, but a recovery of around 22% from the weekend low
  • Overall market capitalisation declined slightly to $910bn, but rebounded over 15% from the weekly low of $790bn
  • Total value locked in DeFi remained relatively stable at $38.9bn, according to industry monitor DeFi Pulse

Digital assets continued last week’s negative momentum into the weekend, as overall market capitalisation dropped to levels last seen in early 2021. However, the market did show some strength in rebounding with significant buying pressure around the $20,000 Bitcoin mark. Outside of the market there were also some signs of recovery, with new multi-billion dollar valuations, tech giants helping to shape metaverse development, names like Deloitte, Citi, and KPMG, long-term recognition from the Bank of England, and even a digital asset exchange CEO being likened to John Pierpoint Morgan.

What happened: Bank of England official says crypto winter survivors could thrive 

How is this significant?
  • Although the Bank of England (BofE) has not historically been the greatest cheerleader for digital assets, Deputy Governor Joe Cunliffe did signal some conviction in their potential this week, saying those who survive the current bear market could emerge stronger
  • Speaking at the Point Zero Forum in Zurich on Wednesday, he said “The analogy for me is the dotcom boom, when $5 trillion was wiped off values… A lot of companies went, but the technology didn’t go away. It came back 10 years later, and those that survived—the Amazons and the eBays—turned out to be the dominant players”
  • Despite current market woes, he still believes the industry could be fundamentally transformative to finance; “Whatever happens over the next few months to crypto assets, I expect crypto technology and finance to continue… It has the possibility of huge efficiencies and changes in market structure”
  • He also stated that the BofE is currently developing a retail CBDC, with a consultation paper due out by the end of the year

What happened: New study reveals digital asset optimism amongst UK institutional investors

How is this significant?
  • New research commissioned and released by Nickel this week revealed that despite the year-to-date declines in 2022, many institutional investors in Britain remain optimistic for digital assets over a three-year horizon
  • Survey respondents managed nearly $72bn in assets cumulatively, and were overwhelmingly positive on their forecasts for the future of the sector
  • 93% predict the number of digital asset funds to increase, with 23% predicting a significant increase
  • 97% predict improvements in the regulatory framework over the next two years, which should help increase mechanisms for institutional exposure to the asset class
  • Competitiveness was cited as a key factor for predicted regulatory clarity; 93% said that positive regulation in countries like Germany and UAE would encourage other countries to follow suit, but 90% also feared Britain could be left behind if it doesn’t move swiftly
  • Around half of respondents (53%) believed British pension plans and other institutions will increase allocations towards the asset class
  • Survey respondents unanimously agreed that digital assets will become a mainstream asset class, 93% believed they have an important and disruptive role to play against traditional finance, and 97% believed wealth managers will lose business if they don’t offer services related to the asset class

What happened: FTX CEO Sam Bankman-Fried offers credit lines to beleaguered crypto firms

How is this significant?
  • Sam Bankman-Fried, the CEO of one of the world’s largest digital asset exchanges, moved to provide funding to industry firms suffering from contagion after last week’s liquidity concerns around lender Celsius and hedge fund 3 Arrows Capital (3AC)
  • This included a $485m loan from his Alameda Research firm to Canadian digital asset exchange Voyager (in the form of $200m cash and USDC stablecoin and 15,000 Bitcoins), and a $250m revolving credit facility from FTX to digital asset lenders BlockFi
  • BlockFi CEO Zac Prince stated during the week that the company had liquidated some of an unnamed client’s (reported to be 3AC) positions, tweeting “We exercised our best business judgement recently with a large client that failed to meet its obligations on an overcollateralized margin loan… we fully accelerated the loan and fully liquidated or hedged all the associated collateral”
  • Prince also added that BlockFi were “one of the first to take action with this counterparty”
  • Voyager went public on Wednesday with their exposure to 3AC, issuing a press release stating that they are currently unable to assess how much they can recover from 3AC, but that “Voyager's exposure to 3AC consists of 15,250 BTC and $350 million USDC”, leading to an event of default if 3AC fails to repay them
  • The Wall Street Journal reported this week that 3 Arrows Capital is exploring multiple options to meet their financial obligations, including asset sales or a bailout after failing to meet recent margin calls
  • 3 Arrows Capital co-founder Kyle Davies said that the collapse of the Terra Blockchain following the depegging of its algorithmic stablecoin “caught us very much off-guard” on a $200m investment, according to a report in the Financial Times 
  • Bankman-Fried opined in a recent interview with NPR that “the core driver of this [market crash] has been the Fed”, with their actions causing “scared” markets and investors
  • He also revealed his desire to support the entire digital asset ecosystem during its current challenges, saying “I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion… Even if we weren't the ones who caused it, or weren't involved in it. I think that's what's healthy for the ecosystem, and I want to do what can help it grow and thrive”
  • In a twitter thread, he also said “regulation can help” and outlined the potential for blockchain and DeFi to prevent future cases of financial mismanagement like the 3AC episode, saying it “couldn’t have happened with an on-chain protocol that was transparent”
  • Bankman-Fried’s move to provide financing for struggling firms led hedge fund mogul Anthony Scaramucci to dub him “the new John Pierpont Morgan—he is bailing out cryptocurrency markets the way the original J.P. Morgan did after the [banking] crisis of 1907”
  • Senior crypto analyst at Messari, Tom Dunleavy, said it’s a case of “a respected industry player supporting a systemically important firm with capital at a time where they think the bottom could be in, or close… the further we get from the Terra incident, the more things start to calm down, the less potentially broader liquidity issues we will see”
  • In other FTX-related news, the company also announced further North American expansion this week through the acquisition of Canadian digital asset exchange BitVo

What happened: Deloitte team with NYDIG to bolster Bitcoin capabilities

How is this significant?
  • According to a press release on Tuesday, institutional Bitcoin firm NYDIG have partnered with Deloitte in a “strategic alliance designed to help companies of all sizes implement digital asset capabilities in their businesses”
  • The new alliance will help NYDIG increase its exposure to new clientele via Deloitte, offering Deloitte clients access to Bitcoin products such as “banking, consumer loyalty and rewards programs, employee benefits and more”
  • Richard Rosenthal, Deloitte’s head of digital assets banking regulatory practice, sounded an optimistic note on the future of the asset class “The future of financial services will centre around the use of digital assets, and we are focused on advising our clients on ways to engage in a regulated and compliant way… We believe this alliance with NYDIG will further drive business growth and is another hallmark of the extensive investment Deloitte is making in enabling digital asset innovation”
  • Leveraging Deloitte’s client base could be a key coup for NYDIG and their mission of Bitcoin proliferation; approximately 90% of Fortune 500 companies alone are currently Deloitte clients in some capacity

What happened: Citibank announces partnership for digital asset custody

How is this significant?
  • Citi partnered with Swiss firm METACO this week to boost their digital asset custody capabilities
  • They join several other banking clients in integrating METACO’s custody platform, including Standard Chartered and Northern Trust’s custody platform Zodia, BBVA, and DBS Bank, but as the 4th-largest custodian bank in the world ($27 trillion of assets under custody, administration and trust), Citi represents the biggest institutional vote of confidence for the platform thus far
  • Okan Pekin, Global Head of Securities Services at Citi, said in a press release that “We are witnessing the increasing digitization of traditional investment assets along with new native digital assets… We are innovating and developing new capabilities to support digital asset classes that are becoming increasingly relevant to our clients”
  • According to the same release, integration of METACO’s Harmonise platform into Citi’s existing infrastructure will allow the bank’s clients “to store and settle digital assets seamlessly and securely”
  • As the announcement came from the Securities team, the expectation is that the technology will be used primarily for tokenised securities; stocks and bonds on the blockchain

What happened: Institutional digital asset exchange FalconX doubles valuation to $8bn

How is this significant?
  • FalconX, a California-based trading platform and brokerage for institutional investors, doubled their valuation to $8bn this week, less than a year after quintupling their previous valuation to $3.75bn
  • The Series D round raised $150m from Singaporean sovereign wealth fund GIC, B Capital, Thoma Bravo, Adams Street Partners, Wellington Management and Tiger Global Management
  • The funding comes despite the current “crypto winter” conditions, and puts FalconX on a par (in terms of valuation) with Fireblocks (who had their latest raise in January), and, the American subsidiary of leading exchange FTX
  • FalconX CEO Raghu Yarlagadda said that the company had a profitable first quarter despite the year-to-date downturn, and was on course to turn a profit in Q2 as well
  • Funding will be used to boost overall headcount by up to 20% and “fuel acquisitions in the data analytics and engineering spaces in order to build out its suite of services”

What happened: ProShares launched Short Bitcoin ETF for crypto bears

How is this significant?
  • ETF issuers ProShares—creators of the first Bitcoin futures ETF approved by the SEC—signalled plans to take advantage of the current crypto bear market, launching the ProShares Short Bitcoin Strategy ETF
  • This fund is the first inverse ETF related to Bitcoin, launching at a stage when the leading digital asset is approximately 70% down from its record highs last year
  • ProShares CEO Michael Shapir believes some crypto bears may have thus far been discouraged from following their own investment thesis due to the perceived complexity; “We think there are many investors who have bearish short-term or long-term view of Bitcoin and cryptocurrencies in general who haven’t acted on their view because it was too difficult or expensive… Those investors will be able to gain short exposure to Bitcoin as easily as buying an ETF in traditional brokerage account”
  • However, the product does come with its own complexity; like most inverse ETFs, it tracks inverse performance one day at a time, thus essentially resetting every day; “Investors who hold onto the ETF for longer periods therefore risk underperforming because of its ongoing costs”

What happened: Deutsche Börse integrates digital asset market data

How is this significant?
  • Frankfurt stock exchange owners Deutsche Börse this week announced a partnership with French technology firm Kaiko, to provide a full overview of digital asset prices within Deutsche Börse Market Data + Services
  • Kaiko currently collects and aggregates pricing data from over 100 different digital asset exchanges, and the agreement includes facilities (from Q4 onwards) for historical orderbook data on both an asset and exchange basis
  • lireza Dorfard, Head of Market Data + Services at Deutsche Börse stated “The crypto market faces high volatility and price fluctuations. Therefore, many of our clients have a high demand for consolidated data from centralised as well as decentralised exchanges to develop useful crypto investment strategies. Our new offering fulfils this need, helps our clients gain a deeper understanding of the cryptocurrency market and allows them to analyse specific events”

What happened: NFT News—new raises, funds, and corporate metaverse initiatives

How is this significant?
  • This week saw NFT NYC, the leading global conference for non-fungible tokens take place, and also featured several major developments for NFTs
  • NFT-focused Ethereum scaling solution Immutable X launched a $500m fund to encourage adoption and development of Web3 technology, particularly gaming
  • Immutable co-founder Robbie Ferguson believes that the issuance of in-game assets as NFTs—providing users with greater ownership and potential monetisation of their gameplay experience—is a source of great untapped potential for the technology
  • Ferguson told TechCrunch “We see gaming being one of the biggest opportunities in Web3 to have ever existed… The total addressable market is going to be enormous and much bigger than what gaming is today — a $100 billion industry for in-game items alone”
  • From the world of Web2, several current technology giants this week joined the Metaverse Standards Forum; an organisation dedicated to “drive industry-wide cooperation on interoperability standards” for metaverse technology
  • Founding members of the Metaverse Standards Forum include Meta, Microsoft, Sony Interactive Entertainment, Alibaba, Huawei, and video game developers Epic Games
  • Magic Eden, a Solana-blockchain based NFT marketplace, raised $130m and achieved a $1.6bn valuation following fresh funding from backers including Sequoia, Paradigm, and Lightspeed
  • This represents a 10-fold increase from their previous valuation, showcasing the continued growth of NFTs outside of the Ethereum blockchain

What happened: KPMG establishes a metaverse presence

How is this significant?
  • “Big Four” accounting firm KPMG became the latest corporate giant to enter the metaverse space, committing $30m this year towards the creation of a “collaboration hub” built on blockchain technology
  • This hub will be used by both KPMG US and KPMG Canada “to connect employees, clients, and others with Web3”, providing “education, collaboration, training, events, and workshops” according to KPMG US enterprise innovation chief Cliff Justice
  • Justice is evidently a big believer in the potential of the metaverse, saying “it's not just augmented reality and virtual reality. It's really the next iteration of the internet. It really encompasses everything that the internet would encompass, but it's more interactive”
  • Additionally, he stated “The metaverse and Web 3.0 represent the next generation of the internet and will reshape the way businesses and consumers engage, transact, socialise and work… Business leaders are looking to move quickly past exploratory phases and deploy solutions to train employees, engage customers and extend their brand in this new market”
  • He also believes in a great financial potential, commenting on Citi’s recent $8tn to $13tn metaverse 2030 value forecast, saying “some of those estimates might be conservative”
  • KPMG also confirmed they will “continue to explore opportunities” related to both crypto assets and the Web3 industry

What happened: Stablecoin news—new currencies and more algorithmic concerns

How is this significant?
  • Stablecoin issuers Tether announced plans for GBPT, a new stablecoin pegged to the value of the British Pound, to launch in July
  • Tether cited the UK government’s plans to become a global crypto hub, and stated that “Tether is ready and willing to work with UK regulators to make this goal a reality and looks forward to the continued adoption of Tether stablecoins”
  • Meanwhile, competing stablecoin issuers Circle (developers of USDC) announced the creation of a reserve-backed Euro stablecoin; Euro Coin (EUROC)
  • Euro Coin is scheduled to launch on June 30th, with support across a broad range of exchanges and custodians
  • Circle told industry publication Coindesk that the asset’s reserves will be in “ cash and euro government debt only”
  • Following increased scrutiny for stablecoins—particularly algorithmic stablecoins—after the Terra blockchain’s collapse, there are some concerns surrounding the Tron blockchain, where the chain’s algorithmic USDD stablecoin has traded below its desired $1 for over a week, recovering from a low of $0.92 to current levels of $0.97

What happened: Latin American firms see bear market as opportunity to increase market share

How is this significant?
  • Bloomberg reported this week that the current crypto winter hasn’t dampened enthusiasm for digital asset firms in Latin America, due to a history of high inflation and unstable economies across the region
  • Digital asset exchange OSL for instance plans to increase headcount by 40%
  • OSL Managing Director Fernando Martinez forecasts a six to twelve month bear market, but believes that beyond that, interest in digital assets remains high
  • Argentinian fintech company Banza plans to double its headcount, with CEO Pablo Juanes Roig stating “This is circumstantial and the downward cycle is going to reverse. Today it can be an obstacle, but cryptocurrencies are here to stay and the number of people left to join is enormous”
  • BTG Pactual, Latin America’s largest investment bank, plans to launch a digital asset investment platform called Mynt, allowing users to buy Bitcoin and Ether, and previously launched an ETF tracking the top 20 digital assets by market capitalisation
News Roundups