Nickel Research Centre

Nickel News Roundup - Week 36

8th September, 2022

Market Overview:

Digital assets suffered as wider global macroeconomic stresses continue to drive investors away from risk-on assets.

  • Bitcoin traded in a narrow range between $19,700 and $20,100 for the majority of the week, hitting a weekly high of $20,400 on Friday, before dropping sharply on Tuesday as the ongoing global cost-of-living and energy crisis continued to dominate news coverage
  • Bitcoin displayed downside volatility on Tuesday and Wednesday, hitting a weekly low of $18,660 on Wednesday
  • Bitcoin’s current price of $19,120 equates to a 4.1% weekly drop
  • Ether broke Bitcoin’s chart pattern, hitting a high of $1,680 on Tuesday, as investor enthusiasm over the forthcoming transition to proof-of-stake increased following the last pre-Merge network upgrade
  • Ether did decline sharply on Wednesday in line with global risk-off investor behaviour, but despite this steep daily drop, current prices of $1,605 still represent a 4% weekly increase
  • Overall market capitalisation increased slightly thanks to Ether’s rally, to current levels of $975bn
  • Total value locked in DeFi increased to $42bn, according to industry monitor DeFi Pulse, buoyed by Ether’s relatively strong performance

Digital assets experienced a mixed week, with Bitcoin slumping as global economic conditions continue to intensify—but Ether experienced a week of growth, as the network’s forthcoming proof-of-stake upgrade dramatically reduces energy consumption concerns. Institutions globally still signal long-term support for the asset class; BlackRock deepened their involvement yet further, KPMG spoke of growing market maturity, DBS announced plans to drastically increase institutional access, and many other banks, businesses, and nation-states maintained a public interest in the asset class.

What happened:BlackRock partners with Kraken for new Bitcoin offering

How is this significant?
  • BlackRock—the world’s largest asset manager—has made several moves into digital assets recently; first by offering institutional users of its Aladdin platform access to Coinbase trading, and then through the creation of their own private spot Bitcoin trust product
  • This week, news emerged that the latter product will involve collaboration with another major digital asset exchange, Kraken
  • Specifically, BlackRock will pull their price data for Bitcoin from the Kraken-owned CF Banchmarks’ Bitcoin index
  • Kraken acquired Crypto Facilities, the creators of CF Benchmarks for $100m in 2019, and this collaboration with BlackRock represents an endorsement of crypto-native indexing products, above those created and provided by traditional exchanges
  • CF Benchmarks CEO Sui Chung told industry publication Coindesk “The launch of BlackRock’s bitcoin fund is a sign of how far crypto has matured as an asset-class… CF Benchmarks is proud to have played this integral role in helping facilitate the entrance of new investors and capital into the still-nascent asset class”
  • In an interview conducted with industry publication Blockworks before the BlackRock announcement, Chung called BlackRock’s private Bitcoin trust a “watershed moment”, indicative of growing institutional interest in the asset class
  • Chung said “Although it’s [crypto] winter, we’re fielding ever more calls from traditional financial institutions who are either contemplating launching a product in the space or have actually decided that they are going to do something — and obviously want to talk about licensing our indices and understanding the methodologies”

What happened: KPMG report says digital assets have become a mature market

How is this significant?
  • In their new Pulse of Fintech report, consultancy giant KPMG made several observations about the state of digital assets, both long- and short-term
  • One of their key conclusions was that the digital asset market has matured significantly; “Despite the crypto space collapsing significantly since midway through Q1 22 due to the unexpected Russia-Ukraine conflict, rising inflation and the challenges experienced by the Terra crypto ecosystem, investment at midyear remained well above all years prior to 2021. This highlights the growing maturity of the space and the breadth of technologies and solutions attracting investment”
  • They also believe that investment in the sector will decline for the rest of the year—but particularly in retail-facing categories of the asset class. They forecast that institutional investors will represent a larger proportion of total capital inflows going forwards
  • KPMG believes that for the remainder of 2022, investors will move away from direct token offerings and NFT investment, and towards blockchain infrastructure; “Crypto and blockchain investments will increasingly focus on infrastructure... there will likely be a continued focus on the use of blockchain in financial market modernization”
  • Additionally, the firm believes that the current crypto winter may be useful in separating the wheat from the chaff, ensuring that only the most legitimate companies benefit when the market recovers
  • Said KPMG France Director of Blockchain and Crypto Assets Alexandre Stachtchenko; “Of course, some cryptos will die out — particularly those that don’t have clear and strong value propositions. That could actually be quite healthy from an ecosystem point of view because it’ll clear away some of the mess that was created in the euphoria of a bull market”

What happened: Contagion latest—Cash Relief and Asset Auctions

How is this significant?
  • Bankrupt lender Celsius requested permission to return $50m of digital assets held in their custody accounts—but this only represents a quarter of the assets in their custody accounts, and only a fraction of the assets in their (previously) interest-bearing “earn” accounts
  • Additionally, Celsius’ restructuring firm filed a document declaring $70m in cash relief to extend their operational runway for the rest of the year
  • This revelation about an extra $70m in funds was apparently due to the discovery of a USD-denominated loan repayment—erroneously believed before to have been repaid in stablecoins, which couldn’t be used for operational financing
  • Two months after filing for bankruptcy, lender Voyager Digital will hold an auction of their assets on September 13th
  • Qualified bidders for the auction submitted their bids on Tuesday, with a hearing to approve the results scheduled for September 29th
  • Voyager’s counsel previously disclosed that 22 different parties were in the process of submitting meaningful bids—Sam Bankman-Fried’s FTX previously went public with their proposed bid for the platform’s assets, leading to pushback from Voyager’s legal team
  • Failed hedge fund 3 Arrows Capital (3AC) made their first major withdrawal from a DeFi platform in almost a month, recovering about $45m in assets including approximately $4m each of Wrapped Ether, Wrapped Bitcoin, and USDT stablecoins, and over $33m in staked Ether (stETH)
  • At the time of writing, no further action has been taken with their recovered assets, but speculation amongst industry commenters mainly pointed towards an imminent liquidation of the highly-traded assets in order to pay off some of 3AC’s creditors

What happened: DBS chief sees bright future for digital assets despite crypto winter

How is this significant?
  • In a Financial Times interview this week, Piyush Gupta, CEO of Singapore’s largest bank, said that DBS “plans to grow its cryptocurrency and digital assets business despite the crypto bear market”
  • Whilst opining that current market conditions proved the need for more regulated access via banks providing “guardrails” for retail investors, he was keen to stress an imminent expansion of trading for the bank’s institutional and HNW clientele
  • In particular, Gupta plans to grow the banks proprietary digital asset exchange, forecasting growth from its current 1,000 members in Singapore “to 300,000 of its wealthy clients across Asia including private banks, accredited investors, other exchanges and funds through its DBS mobile banking app”
  • Expanding access via their app would streamline the process for their clients, many of whom are more used to traditional investment vehicles
  • Gupta told the FT that their exchange volumes have grown rapidly, doubling from April to June, with a quadrupling in volume of Bitcoin purchased

What happened: Saudi Central Bank hires new “Crypto Chief” to bolster digital asset appeal

How is this significant?
  • Saudi Arabia became one of the first nations to boast a “crypto chief” on a national level, appointing Mohsen AlZahrani to lead its virtual assets and central bank digital currency program
  • Some analysts view the move as an attempt to remain competitive with their gulf neighbours UAE, who have become a regional crypto hub, and even published a government metaverse strategy
  • Former Accenture MD AlZahrani’s remit in the new role includes “engaging with some of the world’s biggest crypto firms on future regulations”
  • If current restrictions are loosened in order to attract more global crypto businesses, Saudi Arabia could represent a significant trading opportunity as the largest economy in the Middle East
  • In other national-level news, Binance appointed former Brazilian Economy Minister and Central Bank president Henrique Meirelles to its advisory board
  • Additionally, industry lobbying group Blockchain Australia appointed a new CEO on Wednesday, announcing former BlackRock director Laura Mercutio to lead their industry advocacy efforts

What happened: Binance to consolidate stablecoin trading

How is this significant?
  • Binance—the world’s largest digital asset exchange—issued a surprise announcement this week, stating that on September 29th, they will begin converting several major stablecoins (including 2nd-ranked stablecoin USDC), into the company’s proprietary stablecoin (third-largest such asset by market cap) BUSD
  • In their announcement, Binance said the move is intended to “enhance liquidity and capital-efficiency for users”, consolidating multiple different stablecoin trading pairs with split liquidity into larger BUSD trading pairs with deeper liquidity
  • Since the purpose of stablecoins is specifically to maintain a value pegged directly to a fiat currency (usually the US dollar), there is less risk of users feeling short-changed by such a conversion than there would be for other digital assets
  • According to Bloomberg, Binance don’t expect any regulatory implications from this consolidation, and some analysts hailed it as a savvy move; Hagen Rooke, of Singaporean law firm Reed Smith LLP said “Commercially it is a smart move for Binance because its service offering will now increasingly converge around its house-own BUSD product”
  • Although the changes include the second-largest stablecoin on the market, they do not however include the largest; Tether (currently the third-largest of all digital assets by market capitalisation)
  • In other Tether-related stablecoin news, the company recently recruited auditing firm BDO Italia to take over their attestation reports, moving from a quarterly publication to a monthly publication schedule in a bid to enhance their transparency

What happened: VC news—eight figure raises across industries

How is this significant?
  • Former Revolut Chief Revenue Officer Alan Chang became the latest figure to make the leap from banking to Web3, raising $78m for a new energy startup called Tesseract
  • Tesseract seeks to tokenise energy, operating as a “vertically integrated renewable energy company that buys energy from generators at fixed prices that are then offered to consumers”
  • The company used a split strategy for their funding, raising $30m with traditional equity, and the remainder through sale of its native token
  • Investors included “Balderton, Lakestar, Accel, Low Carbon, Ribit Capital, Box Group and former Formula One racing driver Nico Rosberg”
  • Decentralised credit marketplace Credix secured $11.25m in Series A funding from VCs including Abra, Circle Ventures, Motive Partners, and ParaFi Capital, helping to connect Brazilian banks and institutional investors with fintech companies in search of capital via stablecoin financing
  • NFT Collective Proof secured $50m in funding from investors including Andreessen Horowitz (a16z), Seven Seven Six, and VaynerFund, funding future projects in their development portfolio

What happened: MicroStrategy comments on Bitcoin plans during market slump

How is this significant?
  • Prominent Bitcoin advocate and former MicroStrategy CEO Michael Saylor spoke at a conference this week about MicroStrategy’s digital asset efforts during the current “crypto winter” market downturn
  • Saylor, who stepped into an executive chairman role a month ago to concentrate more fully on the company’s Bitcoin strategy, said that developers at the world’s largest corporate Bitcoin holder are currently engaged with Bitcoin Lightning Network efforts
  • The Lightning Network is a Bitcoin scaling solution aimed at increasing the asset’s utility as a means of payment; a solution which Saylor calls “the most important thing going on in the world in technology”
  • User-friendliness is a key facet of the company’s work towards increasing Lightning Network usage, with Saylor explaining “The advantage of Lightning is not just that you could scale up Bitcoin for billions of people, or drive the transaction cost to nearly nothing, but also, the ethos of Bitcoin is to go very carefully and not move fast on the base layer without the universal consensus, but in Lightning, you can move much more aggressively developing functionality and take more risks with the applications than you can with the underlying Bitcoin layer”
  • In other MicroStrategy news, Saylor and the company were recently charged with alleged tax evasion in Washington DC, leading some to fear they could liquidate a portion of their Bitcoin holdings if found guilty
  • Saylor disputes the charges, claiming residence in Florida rather than the District of Columbia
News Roundups