Nickel Research Centre

Nickel News Roundup - Week 7

16th February, 2024

Market Overview:

Digital assets recorded a week of historic bullishness, including major growth in spot Bitcoin ETF inflows.
  • Bitcoin reached its highest value since 2021 this week, breaking through the landmark $50,000 price level, before quickly ascending past $51,000 and $52,000 after a brief pullback based on US inflation figures
  • Climbing above $50,000 also marked a tripling from Bitcoin’s lowest ebb during the recent crypto winter, when it traded at lows around $16,460 in November 2022
  • Bitcoin’s year-to-date growth is at nearly 25% in mid-February, handily outperforming other asset classes such as gold and bonds which have posted negative YTD returns
  • Following this strong performance, options traders have set their sights higher for Bitcoin, with significant increases in late-March open interest above $60,000 (reaching up to $80,000)
  • Ether exhibited similar momentum, but outperformed Bitcoin, growing steadily from a Friday low of $2,445 to a Thursday high of $2,860—its highest value since May 2022
  • Overall digital asset market capitalisation increased by over $200bn to $1.96tn according to Coinmarketcap data (although some other market aggregators put it above $2tn)
  • According to industry monitoring site DeFi Llama, total value locked in DeFi grew by around 20% this week (boosted by Ether’s strong appreciation) to $72.8bn

Digital assets experienced a banner week with excellent market performance, as ETF inflows increased alongside decreasing outflows from GBTC one month on from their opening bell. Broker-dealers, wealth managers, hedge funds, and VCs all identified a growing interest in the asset class from clients and investors, several major industry players posted impressive financial results based on the positive momentum of Q4 last year, and some flawed narratives around supposed illicit funding via digital assets were undermined by both new research and congressional testimony.

What happened: ETF news

How is this significant?

  • Spot Bitcoin ETFs shifted heavily towards net inflows this week, as Bitcoin crossed the $50,000 price barrier for the first time in over two years—with some speculating that trading activity related to Chinese New Year helped contribute, whilst others acknowledged the impact of ETF flows
  • After 21 trading days, data compiled by Bloomberg showcased $2.8bn in total net inflows across Bitcoin ETFs, including the effect of $6.8bn in outflows from Grayscale’s converted GBTC ETF
  • After one month of trading, daily net inflows averaged around $125m
  • Bloomberg declared the ETF launches “a success by key metrics”, as Jane Edmondson (head of thematic strategy at TMX VettaFi) told the publication “Any ETF, regardless of the category, garnering over $100 million in assets in a month is deemed a success. We have most of them over that threshold despite the variance in fee structure”
  • Indeed, not only did the ETFs garner enough assets to be deemed a success; they were historic successes: the top 2 ETFs by assets after one month (out of 5,535 total launches) were both spot Bitcoin ETFs (BlackRock's IBIT and Fidelity's FBTC respectively)
  • Four of the top 25 ETFs by assets after one month are now spot Bitcoin ETFs, showcasing broad investor interest in exposure to the asset class
  • This week saw at least $490m of daily inflows to ETFs, with Grayscale outflows dropping to $125m—far short of $400m daily outflows previously
  • Fineqia International analyst Matteo Greco wrote in a research note; “The noticeable correlation between the diminishing outflows from GBTC and the upward trend in prices is evident when examining the total daily flows into BTC Spot ETFs. The substantial reduction in GBTC outflows began on January 26th, coinciding with the beginning of a consistent influx into BTC Spot ETFs, resulting in 11 consecutive days of net inflows”
  • However, there could be a forthcoming spike in GBTC sell pressure; a federal judge approved bankrupt crypto lender Genesis’ request to redeem $1.6bn worth of GBTC shares as part of a compensation plan to creditors
  • The judge offered some encouragement, stating that “sales will be done strategically with a broker to ensure the shares are not unloaded too quickly”
  • CoinShares head of research James Butterfill noted that this week witnessed the largest daily inflows since launch day (January 11th) itself, as net inflows topped $4bn on the 14th of February
  • BlackRock and Fidelity now hold over 191,000 Bitcoins, worth over $10bn—BlackRock’s IBIT came in for particular praise from Bloomberg ETF analyst Eric Balchunas, who noted half a billion of inflows on Tuesday; “an unusually strong second wind for a new launch, now over $5b which puts it in Top 7% of all ETFs by size in just 23 trading days”
  • ARK Investments also achieved a significant milestone this week, becoming the third ETF to exceed $1bn worth of Bitcoin holdings
  • In total, over 710,656 BTC are now held in ETFs, out of Bitcoin’s current circulating supply of 19.63m coins
  • Based on recent flows, the total proportion of Bitcoin held by ETFs could increase from the current 3.6% to 6.9% on an annualised basis
  • Meanwhile, Franklin Templeton became the latest trillion-dollar asset manager to file for a spot Ether ETF, following BlackRock, Fidelity, and Invesco (among others)
  • However, the growth of spot ETFs has been to the detriment of older futures ETFs; Bloomberg notes that “ProShares futures-based BITO has seen a $254 million net outflow since the spot rivals began trading… Until December BITO made up 92% of trading volume for US Bitcoin-linked ETFs. That’s down to 15% with the new spot ETFs commanding much of the rest”
  • SEC chair Gary Gensler however cautioned against expectations that spot Bitcoin approvals automatically indicate future spot Ether approvals; in a CNBC interview, he said “What we did in January was cabined to one set of filings. We have other filings… in front of us, but I'm not going to prejudge it for you or the audience. That's something that a five member commission discusses and reviews”

What happened: StoneX expands crypto trading team

How is this significant?

  • Broker-dealers StoneX expanded their digital asset capabilities this week, “building out services in crypto trading, lending and research in a sign of renewed Wall Street interest in crypto markets”
  • This includes the recent recruitment of five TD Cowen digital asset unit veterans, “to provide institutional coverage with white-glove, high-touch treatment”
  • StoneX head of digital assets, Eric Rose, said that the firm wishes to move beyond just providing crypto exposure through ETFs; “The ETF structures are certainly going to provide price appreciation or access to price, but they don’t actually provide you access to the ecosystem itself. Our goal is to open up digital assets to a wider audience”
  • According to Bloomberg reports, the company wants to offer more options to its institutional clientele, and“plans to launch non-custodial trading of Bitcoin and Ether soon, allowing clients to execute trading strategies using spot, listed derivatives and ETFs through one desk”

What happened: Gerber Kawasaki outline investor interest in digital asset exposure

How is this significant?

  • Wealth management firm Gerber Kawasaki revealed growing client interest in digital asset exposure this week, “as long as they’re comfortable with that risk profile”
  • Investment advisor Brett Sifling told industry publication TheBlock “A lot of them [i.e. clients] are interested… I think it’s just another tool for the toolbox as far as portfolio management is concerned”
  • Franklin Templeton Head of Digital Assets Roger Bayston told the same publication that new exposure via ETFs could follow several months down the line, following ongoing due diligence processes; “platforms are doing their fiduciary responsibilities to filter through those providers and find differentiations that end up making sure that their clients have the best long-term results … that’s the process that is occurring right now”
  • $2.3bn AUM Gerber Kawasaki recently made an investment in BlackRocks’s IBIT Bitcoin ETF, through its own AdvisorShares ETF
  • In emailed comments to Forbes, he also outlined continuing catalysts for Bitcoin interest; namely upcoming changes to supply issuance; “Bitcoin remains in favour with investors, after the ETF approval perked new public interest in the industry. The next major catalyst is the halving that should happen in the next few months”

What happened: Digital asset money laundering decreased 30% year-on-year

How is this significant?

  • According to a new report by research firm Chainalysis, crypto-based money laundering—oft cited by digital asset opponents (including SEC chair Gary Gensler) as an argument against the asset class—is actively decreasing
  • A total of $22.2bn was laundered, down from $31bn the year before; crucially, this decline was proportionally larger than the drop in overall transaction volumes “suggesting that factors beyond just the general market downturn may have contributed to the reduction in illicit activity”
  • According to a June 2023 Deloitte report, around $2tn in illicit funds are laundered every year, meaning that digital assets only account for around 1% of such volumes
  • As Chainalysis points out, blockchain technology’s status as an open ledger makes it harder to hide money trails than with traditional cash; “DeFi’s inherent transparency generally makes it a poor choice for obfuscating the movement of funds”
  • This sentiment was backed by Brian Nelson, US Treasury Undersecretary for Terrorism and Financial Intelligence, testifying before the House Financial Services Committee
  • Nelson debunked previous media claims that terrorist groups such as Hamas significantly leveraged digital assets as a source of funding; “We don't expect the number is very high”
  • When rep. Tom Emmer asked whether media reports had grossly exaggerated the role of crypto in terrorist funding, Nelson answered,”That's our assessment… We also assess that terrorists still prefer, frankly, to use traditional products and services”
  • Speaking to the inherent drawbacks of traditional financial services, Coinbase’s newest “State of Crypto” report revealed that “In 2022, consumers could have saved at least $74 billion in credit card transaction fees by using blockchain technology (an average of $600 per household” and “at least three in five Americans want updates to the [financial] system that make it cheaper, faster, and more accessible”
  • Coinbase also argued for business-side adoption; “Merchants spent more than $126 billion on fees to process credit card transactions [their second largest cost after labour]... By using blockchain technology instead, they could have paid next to nothing”
  • Meanwhile, market sheriffs at the SEC received pushback from their recent request to dismiss a lawsuit against crypto firm DEBT Box without prejudice, after it was revealed the SEC made major misrepresentations in court to force an asset freeze
  • DEBT Box lawyers argued on Wednesday “The SEC wants a double standard—it wants to be treated differently before federal courts than those that it regulates or attempts to regulate. When an individual or entity is suspected of making materially false and misleading statements in the securities market, the SEC brings charges under the anti-fraud provisions of the federal securities laws and seeks the heaviest monetary and non-monetary sanctions that it believes it can obtain in court”

What happened: MicroStrategy Bitcoin profit exceeds $4bn

How is this significant?

  • Following Bitcoin’s recent surge in value, the (unrealised) profit on MicroStrategy’s vast Bitcoin investments also soared; to the tune of $4bn
  • As per their most recent investor presentation, the company held 190,000 Bitcoin at the end of January, acquired at an average cost of just over $31,220 per coin; for a total of $5.93bn
  • At a $52,000 Bitcoin valuation, the firm’s holdings are worth just over $10bn; more than $4bn in profit
  • Thanks to additional acquisitions, this profit is around double what it was in December, fuelled by Bitcoin’s 2024 momentum
  • MicroStrategy began its Bitcoin acquisition strategy in 2020, and recently framed themselves as a “Bitcoin development company” following years of their stock (up 21% YTD) acting as a proxy for (pre-ETF) Bitcoin exposure

What happened: Crypto VC funding climbs for the first time in two years
How is this significant?

  • Following “a big bounceback” in 2023, CNBC reported this week that “investors are returning” to the digital asset venture capital scene, reversing two years of decline
  • According to a new report by VC publication Pitchbook, Q4 VC funding within digital assets was worth $1.9bn; marking a 2.5% increase on the previous quarter
  • Although this growth may appear relatively modest, it nonetheless represents a reversal of momentum following a prolongedand drastic—period of declines that featured a 70% year-on-year drop in funding from July 2022 to July 2023
  • Pitchbook’s senior research analyst Robert Le told CNBC “It’s no secret investors have been writing more checks. Now we’re starting to see it in the data”
  • He added “Generally a lot of times we see there’s a correlation between investments in private markets and the public markets. There’s a lot of publicly-traded crypto companies that are up in the last year; we’re starting to see on the private side that trend as well”
  • Le also believes the renewed attention from spot ETFs has helped put the industry back on investors’ radar; “The ETFs got approved, there’s a lot of money, I think you’re going to see a lot of passive money flowing into Bitcoin. In the US, you’ve got trillions of dollars from big funds and wealth advisors that did not invest in Bitcoin traditionally and now they can”
News Roundups