Nickel Research Centre

Nickel News Roundup - Week 27

July 5th, 2024

Market Overview:

Digital assets continued recent bearish momentum, after an early-week rally was erased by renewed gloomy interest rate forecasts from the Federal Reserve and late Mt. Gox movements.
  • Bitcoin endured another negative week in the markets, as continued interest rate stagnation, Mt. Gox Bitcoin distribution, and government sell-offs combined to cause sustained downward pressure during the second half of the week
  • Thursday hit the markets particularly hard when over 47,000 Bitcoins were moved in a Mt. Gox wallet, suggesting imminent distribution to customers; Bitcoin dropped from around $59,000 to nearly $55,000 within 24 hours
  • Bitcoin dropped from a Monday high of $63,660 to a Thursday low of $55,320, as Powell’s statements regarding interest rates on Tuesday kicked off a steep decline and erased an early ETF-led rally
  • This weekly drop puts current Bitcoin prices at levels last seen in late February
  • Even after this week’s considerable decline, Bitcoin currently sits more than 79% above its price of a year ago, with values still around $10,000 above pre-ETF approval levels
  • Ether similarly suffered, with steady trading towards a Monday high of $3,508 giving way to a sharp drop on Thursday back below the $3,000 mark, to a weekly low of $2,920
  • Additionally, some analysts suggest that the potential replacement of Joe Biden as Democratic candidate was concerning to traders, who view him as a weakened opponent to Donald Trump following his showing in the first presidential debate
  • Overall digital asset market capitalisation dropped significantly to exactly $2tn at the time of writing
  • The crypto industry fear/greed index was clearly affected by negative market movements and sentiment; returning into “fear” territory (at 38%) for the first time since September 2023
  • According to industry monitoring site DeFi Llama, total value locked in DeFi declined by nearly $10bn to $88bn

Digital assets endured one of their worst weeks in recent memory, as further Fed reluctance to lower interest rates was compounded by political concerns and large-scale Bitcoin sell-offs by addresses linked to the US and German governments, alongside large movements in Mt Gox wallets indicating imminent restitution for customers hacked over a decade ago. The SEC continued its crusade against the industry, but there was still some positive reporting; Japanese conglomerate Sony announced the launch of its own crypto exchange, several stablecoin firms secured major regulatory approval, and a Bitcoin miner made a $155m acquisition, amongst several other stories.

What happened: ETF news

How is this significant?

  • Bitcoin ETFs experienced mixed performance this week, with days of both strong inflows and outflows
  • Inflows were led by BlackRock’s IBIT ($82.4m on Friday) and Fidelity’s FBTC ($65m on Monday), with Monday proving the strongest overall day for inflows ($129.5m)
  • However, this momentum was reversed after Jerome Powell spoke on Tuesday, indicating that the Federal Reserve “need more evidence before lowering interest rates”
  • This affected risk-on assets such as crypto and gold, by prolonging historically-elevated bond yields
  • On Tuesday and Wednesday, inflows into spot ETFs stagnated—although this was primarily a symptom of large continued outflows from Grayscale’s high-fee GBTC (nearly $60m across both days), whilst most other funds displayed modest inflows or net zero flows
  • Digital asset investment products (led by Bitcoin ETFs) saw a third consecutive week of outflows in the week ending June 29th, according to CoinShares data
  • However, the overall scale of outflows did shrink considerably; $30m last week versus around $600m the previous two weeks
  • Volume of ETF trading has declined since May, but new data from Kaiko research indicates the influence that spot products have had; Bitcoin weekend trading volume [i.e. when ETF markets are closed] has dropped to record lows this year
  • Bloomberg senior ETF analyst Eric Balchunas voiced (positive) surprise at the fact that Bitcoin ETFs maintained their year-to-date flow during the significant recent Bitcoin price drop, noting “Good sign that number held strong during a 'step back' phase”
  • He also pointed out that “the ‘New Nine’ Bitcoin ETFs [i.e. excluding GBTC, which was a conversion of an existing trust]: make up 3% of the 296 ETFs launched in the first half of 2024 but account for 66% of the assets and about 75% of the organic flows”
  • Regarding the awaited launch for spot Ether ETFs, analysts pushed back estimates on launch dates towards later in July, after the SEC added late requests for comment to issuers
  • Balchunas noted that issuers Bitwise filed their amended S-1 form well ahead of the 8th July deadline, stating “from what I hear the last round of comments were 'literally nothing' = took zero time to update”
  • Bloomberg analysts maintain a July launch window for spot Ether ETFs, with a possibility of launch during the week of the 15th

What happened: SEC sues blockchain development firm Consensys

How is this significant?

  • The SEC moved back into litigation mode this week, suing Ethereum development firm Consensys on Friday, citing allegations that “it failed to register as a brokerage and improperly collected millions of dollars in fees”
  • Commission lawyers take umbrage with Consensys involvement in staking programs, where users can stake their tokens in order to act as validators on a blockchain network, earning fees or rewards when their validator node processes transactions
  • In the case of Consensys, this appears to point towards the MetaMask browser-based crypto wallet interface it developed, widely used across a range of DeFi applications, such as Lido and Rocketpool, popular staking and pooled staking platforms which the SEC alleges represent investment contracts
  • The SEC has precedent for suing over services that simplify staking, litigating against exchanges Kraken and Coinbase for the similar services
  • Consensys responded to the lawsuit, stating “This is just the latest example of its regulatory overreach—a transparent attempt to redefine well-established legal standards and expand the SEC’s jurisdiction via lawsuit. We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask. We will continue to vigorously pursue our case in Texas for ruling on these issues because it matters not only to our company but the future success of web3”
  • Meanwhile, Coinbase argued that Gary Gensler’s personal emails are an appropriate source of discovery within the exchange’s ongoing legal battle against the SEC, whilst the agency claims “it is an improper intrusion into a public official’s private life”
  • Ironically (given the SEC’s hostility against Coinbase and the wider industry), the exchange secured a $32.5m deal with the Justice Department’s US Marshals this week to securely store and trade its large cap portfolio of seized or forfeited digital assets—meaning that a government body has entered into a contract to use a service which the SEC attempts to argue is breaking US laws!
  • In other US legal news, the IRS completed new guidelines requiring centralised exchanges to report transactions from 2026 onwards, but decentralised exchanges which don’t directly hold user assets are exempt from the requirements

What happened: Sony launches digital asset exchange

How is this significant?

  • Japanese technology and media giant Sony revealed the launch of its own crypto asset exchange this week, building on the silent acquisition of a local exchange (Whalefin) run by Amber Japan (part of Singapore’s Amber Group) last August
  • According to a press release, the Whalefin trading platform has been rebranded to S.BLOX Co., and will be revamped with improved user interface and mobile app capabilities
  • Additionally, Sony indicated that S.BLOX will collaborate with other group businesses (Such as the Nuro Mobile telecoms company) to “generate additional value for its crypto trading services”
  • Sony Bank previously announced plans to “offer NFT entertainment rewards linked to financial products”, again leveraging the conglomerate’s multi-faceted business presences
  • Additionally, the bank has issued $1m of green finance security tokens aimed at retail customers, as well as tokenising real estate tokens a year ago in collaboration with banking giant Sumitomo Mitsui

What happened: Stablecoin news

How is this significant?

  • DBS, Singapore’s largest bank, agreed a stablecoin custody deal this week in partnership with the local unit of stablecoin issuers Paxos
  • In particular, the bank will custody the reserves backing assets issued by Paxos, alongside cash management services for the firm
  • This increases DBS’ involvement in the crypto space, after previously launching its own proprietary digital asset exchange
  • Evy Theunis, head of digital assets at the institutional banking group at DBS, commented that “We look forward to partnering leading stablecoin issuers for their cash management and reserve custody needs if they meet the regulatory requirements”
  • The agreement follows approval for Paxos from the Monetary Authority of Singapore to “offer digital payment token services as a major payments institution”
  • Grace Chong, head of the financial regulatory practice at Singapore’s Drew and Napier LLC stated that the involvement of established banks could help legitimise stablecoin usage; “banks are not only diversifying their offerings but also effectively managing the inherent risks associated with cryptocurrencies”
  • Additionally, Paxos appointed a former Meta executive to head its Singapore operations
  • New executive director Jeannie Lim was formerly head of messaging payments at Facebook’s parent company, and “will be responsible for developing and driving Paxos’ strategic vision and goals for the APAC region”
  • Elsewhere, USDC issuers Circle became the first global stablecoin issuers to secure an electronic money institution (EMI) licence, one of the requirements for EU operations within the new MiCA regulatory framework
  • According to industry publication Coindesk, this could put Circle in “pole position in grabbing market share among the 27-nation trading bloc's 450 million people”

What happened: German government continues sales of seized Bitcoin

How is this significant?

  • Crypto has become an asset class large and legitimate enough to gain the attention not just of institutions, but nation states—a new status quo which can cause market pressure when governments leverage the industry’s growth to cash in on assets which they seized, rather than purchased
  • A couple of weeks ago, it became apparent that addresses linked to the federal government of Germany were liquidating large amounts of Bitcoin—coins which had been effectively out of circulation since being seized from operators of a piracy site active a decade ago
  • The US government has been doing likewise with many of the digital assets acquired from police seizures; according to industry publication Blockworks on Wednesday, the two governments have liquidated $737.6m of Bitcoin over the last two weeks, with German authorities accounting for about two-thirds of that amount
  • Additionally, the US government was identified as selling significant amounts of Ether
  • On Thursday, the German addresses transferred an additional $175m of Bitcoin (3,000 Bitcoins) to exchanges amidst falling prices, raising market concerns that they would intensify their liquidation efforts as their sales may have caused cascading liquidations
  • As of Thursday, German government addresses still held just over 40,000 Bitcoins, whilst the US government addresses hold over 213,000 Bitcoins (and over 50,000 Ether)
  • Controversial digital asset billionaire (and Tron blockchain founder) Justin Sun made an open offer to purchase the German government’s $2.3bn Bitcoin holdings directly, in order to mitigate the impact of them being dumped on the retail market
  • However, even as large sells from governments caused trader concern, certain data suggests potential seller’s remorse; Blockworks calculated that “the US sold 15,903 BTC for approximately $37,000 on average since 2020. Had the US held all that Bitcoin until now, it could’ve netted $958.7 million. The US missed out on an estimated $370 million by selling too soon”
  • Regardless of how well (or not) governments may time their sells, several industry observers believe it is not just their sell volumes that matter, but the psychological signal of knowing that they are selling and how much more they have remaining to potentially liquidate
  • In other news of potential increased sell pressure, addresses associated with the trustees for historic Bitcoin exchange Mt. Gox moved over 47,000 Bitcoins (valued at $2.7bn) to a new wallet late on Thursday, triggering a market dip amidst concerns that they could soon be distributed and sold after more than a decade’s dormancy
  • This follows an announcement by the defunct Japanese exchange last week that distribution of 142,000 Bitcoins to customers affected by a hack in 2014 would commence in July

What happened: Bitcoin mining news

How is this significant?

  • Bitcoin mining giant Riot Platforms increased its Bitcoin generation by 19% month-on-month, aided by several miners exiting or reallocating hashpower following diminished block rewards after the network’s recent “halving” issuance reduction
  • Other major miners such as CleanSpark and Bitfarms also reported month-on-month increases
  • Data from analytics firm CryptoQuant suggested that miners may be near capitulation in terms of sell-offs
  • CryptoQuant write that daily miner revenues have dropped from $79m pre-halving to $29m now; “Miners have been hit by a 63% decline in daily revenues due to the halving and the collapse of transaction fees to 3.2% of total revenue”
  • Current levels of miner sell-offs were last seen during the 2022 collapse of FTX, an event which tarnished the industry’s image in wider media
  • However, there was also some good news in terms of miner finances; Bloomberg reported that the firm Genesis Digital Assets is considering an IPO after opening several new facilities internationally since April, and CleanSpark agreed a $155m-valued all-stock deal to buy competitors GRIID Infrastructure
  • CleanSpark's CEO Zach Bradford commented “This acquisition would give us a clear and steady path over the next three years to accomplish in Tennessee what we proudly achieved in Georgia over the past three years… build out over 400 MW of infrastructure backed by valuable, long-term power contracts”

What happened: Leading Indian crypto exchange expands into UAE via acquisition

How is this significant?

  • CoinCDX, India’s largest digital asset exchange, acquired the Dubai-based BitOasis exchange as part of its international expansion goals
  • Terms were not disclosed, but co-founder Sumit Gupta stated it provided CoinCDX a “formidable foothold across the MENA region, catering to a diverse range of retail and institutional clients”
  • BitOasis is licenced by Dubai’s local VARA regulators, and currently claims 750,000 customers with $6bn of volume generated over the last year and a half
  • The acquisition also gives CoinCDX access to a more welcoming regulatory environment; India instituted a 1% tax on every crypto trade—squeezing margins for professional traders—whilst the UAE has no such tax

What happened: South Korean government unveils real-time anti-fraud monitoring

How is this significant?

  • South Korean regulators are tightening up controls on local trading platforms in an effort to monitor and mitigate unusual trading activity, according to a government statement issued on Thursday
  • According to the Financial Supervisory Service, its new system will flag “trades outside of normal volume and price ranges, big transactions and unusually slow execution” for scrutiny
  • South Korea is one of the largest digital asset trading markets in the world, showcased by the Korean Won overtaking the US Dollar earlier this year as the largest direct fiat (i.e. non-stablecoin) currency pair volume in the world
  • However, local market conditions (which include a ban on non-Korean exchanges) have also created a unique trading culture dominated by altcoins; projects with smaller market capitalisation that provide higher risks, but potentially higher returns
  • Matt Younghoon Mok, senior foreign attorney and partner with Lee & Ko in Seoul, told Bloomberg that the new guidelines “could pose significant challenges for altcoins that cannot swiftly comply with regulatory requirements!
News Roundups