Nickel Research Centre

Nickel News Roundup - Week 8

February 23rd, 2023

Market Overview:

Digital assets experienced strong early trading, before pulling back alongside other markets following FOMC minutes that signalled continued rate hikes.

  • Bitcoin briefly broke above the $25,000 mark (for the first time since June 2022) on several occasions this week, but was unable to sustain a prolonged run at those prices, as sell pressure on such a landmark figure proved hard to overcome
  • Bitcoin registered its weekly high of $25,080 on Sunday, experiencing volatile trading throughout the week, with a Wednesday low of $23,650
  • The $25,000 level put Bitcoin’s year-to-date gain at 50%, greatly outpacing the S&P 500 (6% ytd), Nasdaq 100 (13% ytd), and gold (1% ytd)
  • This year-to-date outperformance also reduced Bitcoin’s correlation with the S&P 500 to its lowest levels since 2021, down from 0.8 in May to 0.3 now
  • Bitcoin’s current price of $24,420 represents a minor 0.5% drop
  • Ether’s chart once again echoed Bitcoin’s, with a Wednesday low of $1,608 following a Sunday high of $1,720
  • Ether’s current price of $1,668 equalling a 0.6% decrease
  • Total Ether supply continued its downward post-Merge trajectory, marking over 34,400 Ether removed from circulation over 160 days
  • Annual Ether issuance at current network usage remains deflationary, but increased slightly from last week’s record rates, to -0.62% yearly
  • Overall market capitalisation remains unchanged at $1.11tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms decreased slightly to $49.7bn

Digital assets maintained their strong year-to-date performance, hitting new yearly highs before a slight pullback. Whilst the USA remains cautious as the SEC raises regulatory concerns, adoption across Asia continues to heat up; Deutsche Bank ran a successful DeFi pilot program in Singapore, Hong Kong confirmed retail access to digital assets (with reports suggesting the backing of Beijing), Japan announced the next phase of their CBDC program, corporate giants Tencent and Saudi Aramco secured Web3 partnership agreements, and a former Binance executive revealed a $100m raise for a new VC fund in Dubai.

What happened: Deutsche Bank runs blockchain-based fund management pilot

How is this significant?

  • Deutsche Bank this week released a report confirming a successful collaboration on a digital fund management concept for tokenised assets with a blockchain project
  • Dubbed Project DAMA (Digital Assets Management Access), the partnership between Deutsche and the Memento blockchain was awarded a Financial Sector Technology and Innovation grant by the Monetary Authority of Singapore 6 months ago
  • Project DAMA aimed to address challenges and limitations currently present in digital fund management, utilising the benefits of blockchain to overcome issues associated with multiple intermediaries and service providers
  • Deutsche designed DAMA to act as a DeFi application on Ethereum; a “one-stop digital fund investment servicing platform where asset managers and their existing transfer agents, fund administrators, and custodians can plug in and play to significantly reduce the effort and cost required to launch and administer digital funds”
  • Key technological innovations included the use of Ethereum-based NFTs to act as markers of digital identity—”soulbound” (i.e. non-transferable) tokens that permanently associate a specific identity with a specific blockchain address, providing digital KYC
  • Additionally, access to the platform DApp (decentralised app) was provided through Metamask; the most popular blockchain wallet browser plugin, and a key tool for most Defi interactions
  • Funds could be created on the DApp, where fund managers were able to define factors like risk rating, underlying (tokenised) assets, weighting, investment strategy, and the fund’s passive/active management status
  • In total, funds with $12m in underlying assets were created over the course of the pilot program

What happened: Hong Kong confirms retail access as Beijing backs crypto hub push

How is this significant?

  • Hong Kong has pushed to position itself as a key international crypto asset hub in recent months, taking advantage of a more restrictive regulatory regime by regional rival Singapore in a post-FTX landscape
  • On Monday, Hong Kong’s government published a reporting outlining plans for retail investor trading of digital assets, 15 months after it was banned in mainland China
  • Individual investors will be able to trade large-cap digital assets like Bitcoin and Ether on licenced exchanges “providing safeguards such as knowledge tests, risk profiles and reasonable limits on exposure are put in place”
  • A consultation period on the government’s paper will run until 31st March, with trading scheduled to go live from 1st June onwards
  • In response, Gemini exchange co-founder Cameron Winklevoss stated “My working thesis is that the next bull run is going to start in the East. It will be a humbling reminder that crypto is a global asset class and that the West, really the US, always only ever had two options: embrace it or be left behind. It can't be stopped. That we know”
  • On Wednesday, finance secretary Paul Chan’s fiscal budget speech revealed the creation of “a task force on virtual asset development…“to provide recommendations on the sustainable and responsible development of the sector”
  • Sources speaking to Bloomberg noted that “Representatives from China’s Liaison Office and other officials have been frequent guests at the city’s crypto gatherings over the past months, swapping business cards and WeChat details”, and that “under-the-radar backing from Beijing [is] providing impetus for mainland Chinese firms to return”
  • This has resulted in a slew of applications by mainland firms to set up shop in Hong Kong, leading to double-digit rallies in Chinese blockchain- and crypto-linked stocks on Tuesday
  • Some observers identified this as the latest in a string of several signs that China may be softening their stance towards digital assets—at a time when the US appear to be hardening theirs—in order to ensure exposure to the potential of the asset class
  • Hong Kong lawmaker Duncan Chiu commented “There will always be competition from other places like Singapore and Dubai. It will only push us to do more and the most important thing is the balance on how to regulate, licence the industry and yet not to over-regulate it so that it hinders innovation”

What happened: Japanese central bank announces Digital Yen pilot

How is this significant?

  • Japan became the latest major economy to move a step closer towards a CBDC this week, as the Bank of Japan announced a Digital Yen pilot program beginning in April
  • The pilot will effectively act as phase 3 of the government’s CBDC research and experimentation thus far, following on from basic transactional testing in April 2021, and research on additional CBDC functions a year later
  • Bank of Japan executive director Uchida Shinichi said the latest phase will “utilise the skill and insights of private businesses in terms of technology and operation for designing a CBDC ecosystem in the possible event of social implementation”
  • He also revealed that all transactions during the pilot stage would be simulated, band that “Under the pilot program, we plan to develop a system for experiments, where a central system, intermediary network systems, intermediary systems and endpoint devices would be configured in an integrated manner”
  • Japan have reportedly set a final decision deadline of 2026 for CBDC integration
  • According to a report by the Atlantic Council, 114 countries were involved in CBDC development as of December last year, nearly quadruple the figure of May 2020
  • Other major economies to make recent strides in the space include India, which piloted a retail CBDC in December, and Russia, which this week announced a CBDC pilot in April featuring limited retail participation and 13 partner banks

What happened: Saudi Aramco signs agreement to develop Web3 technology

How is this significant?

  • $2tn state-owned energy giant Saudi Aramco increased their exposure to the digital asset space this week, signing a memorandum of understanding with Web3 firm droppGroup to “co-develop a range of Web3 technologies”
  • According to a press release shared with industry publication Coindesk, the primary focus will be developing Web3 applications targeted at Aramco’s nearly 69,000 employees; including “potential on-boarding, training ecosystems, as well as a tokenized network and rewards program”
  • This isn’t actually the first foray into the space for Aramco, one of the 10 largest businesses in the world by revenue—in 2020, they invested $5m into blockchain-based post-trade commodities processing platform Vakt

What happened: Contagion latest—Sam Bankman-Fried faces legal challenges

How is this significant?

  • Disgraced former FTX CEO Sam Bankman-Fried experienced numerous legal challenges and demands this week, as work continues ahead of his criminal trial
  • It was reported that former FTX head of engineering Nishad Singh is close to concluding a plea deal with prosecutors, which could potentially add insight not only into engineering chicanery, but also Bankman-Fried’s campaign finance violations
  • Singh personally donated $1m to a political action committee founded by Bankman-Fried’s mother
  • SBF’s lawyers attempted to block a subpoena compelling him to testify in the bankruptcy case of lender Voyager Digital (whom FTX pledged to rescue before their own collapse, after which Binance.US secured a deal to save Voyager)
  • Lawyer Mark R Lewis argued the subpoena was null and void for reasons including that it “may require the FTX chief executive officer to invoke his Fifth Amendment constitutional right to avoid incriminating himself”
  • Another disgraced founder, Do Kwon, was in the news again as the SEC sued him and development company Terraform Labs, alleging that collapsed algorithmic stablecoin UST was fraudulent
  • The SEC also alleged that Kwon, currently a fugitive, transferred 10,000 Bitcoins out of Terra’s reserves before transferring them to a Swiss bank account and converting to cash
  • Layer-2 scaling solution Polygon became the latest digital asset business to make mass layoffs amidst crypto winter conditions, cutting their workforce by 20% “as part of a consolidation of business units”
  • Zipmex announced a rescue deal has been “signed but not closed”, requiring approval from creditors before they can recover their assets
  • Hedge fund Galois Capital closed their business this week after “losing almost half” their assets “in the FTX disaster”
  • Co-founder Kevin Zhou stated “Given the severity of the FTX situation, we do not think it is tenable to continue operating the fund both financially and culturally”, but noted that the firm still had a positive inception-to-date performance upon closing shop
  • FTX Japan became the first unit of the broken empire to reopen withdrawals on Tuesday, allowing customers to recover their fiat and crypto funds
  • Unlike the main FTX global exchange, headquartered in the Bahamas with lax regulatory oversight, FTX Japan had to comply with more stringent Japanese protocols, ultimately protecting local investors
  • FTX Japan is listed for sale as part of the FTX Group’s ongoing bankruptcy proceedings, and has reportedly attracted interest from 41 separate bidders

What happened: Tencent announces entry into blockchain space

How is this significant?

  • Chinese technology giant Tencent marked their official entry into the world of digital assets on Wednesday, hosting their first global Web3 summit in Singapore
  • This came just after Hong Kong’s announcement of retail access to crypto assets, leading to speculation on China softening hostility towards the sector
  • Tencent has previously dabbled in NFT marketplaces on permissioned (i.e. private) blockchains, but under the mainland-approved euphemism of “digital collectibles”
  • The summit in Singapore however involved news of partnerships with a variety of public blockchains backed by digital assets
  • The cloud computing arm of the company announced a memorandum of understanding with Web3 infrastructure firm Ankr to develop Web3 API services; positioning them against other cloud giants like AWS, which partnered with the Avalanche blockchain last month
  • Tencent also announced an Avalanche partnership, alongside collaborations with Layer-2 project Scroll, and Sui, the blockchain headed by Meta veterans

What happened: Coinbase posts better-than-expected results

How is this significant?

  • Although Coinbase’s most recent financial results reflected the harsh reality of 2022’s digital asset market collapse, they nonetheless outperformed expectations, leading to a rally in share values
  • In Q4 22 earnings released on Tuesday, Coinbase generated $605m in revenue, beating analyst forecasts by almost $25m
  • This outperformance was particularly notable as it came amidst a backdrop of declined trading volumes, a key source of income for the exchange; “subscription and services revenue” in particular increased by 34% over a single quarter, accounting for nearly half the total revenue
  • However, the $605m is down significantly on the $2.49bn revenues in Q4 2021, symptomatic of the wider market decline
  • Coinbase has been a beneficiary of 2023’s relative market recovery; prior to results being published, their shares were already up 86% year-to-date
  • The firm announced 2023 will be a “year of regulatory focus and we believe our strong foundation will make us a net beneficiary of this new environment”

What happened: Binance veteran raises for $100m Asian crypto VC fund

How is this significant?

  • Former Binance M&A chief Bill Qian is bucking VC industry trends by seeking a 9-figure raise for a new fund focused on digital assets
  • Qian left Binance last year to head up Cypher Capital in Dubai, with a focus on securing Asian investment capital
  • He says Cypher will target tech tycoons in the region as part of their raise, bolstered by positive market performance in 2023; “The macro backdrop for us is way better now than my expectations half a year ago”
  • Cypher are currently growing headcount as part of their planned expansion within the UAE, which itself recently revealed a local hiring spree to handle increased interest from the Web3 industry following official regulatory frameworks
  • In other VC news, PayPal led a $20m seed funding round for crypto security firm Chaos Labs
  • Chaos Labs aims to offer on-chain risk management solutions for DeFi platforms, to help ensure protection of user funds in the event of hacks
  • Binance Labs and Polychain Capital co-led a $10m strategic funding round for crypto infrastructure firm Polyhedra
  • Polyhedra is focused on the cryptographic privacy system known as zero-knowledge (zk) proofs, “building a full suite of systems focusing on blockchain interoperability, scalability and privacy”

What happened: BlackRock launches metaverse ETF

How is this significant?

  • BlackRock, the world’s largest asset manager, launched a metaverse-themed ETF on Tuesday, becoming the latest major player to address the space despite media attention this year transitioning more towards A.I. hype
  • The iShares Future Metaverse Tech and Communications ETF launched on the NYSE with a net asset value of $5m, and will seek exposure to firms with metaverse exposure across a variety of metrics, “including virtual platforms, social media, gaming, 3D software, digital assets, and virtual and augmented reality”
  • A recent survey by KPMG found that 90% of investors still view the metaverse as the next phase of the internet although many “remain cautious due to regulatory, privacy and adoption concerns”
  • In a BlackRock blog post from February 8th, co-portfolio manager Reid Menge stated “[The metaverse] at this juncture, it is much like the internet of the early 1990s or the smartphone of the early 2000s. We expect it is going to be big, and very likely change people's daily lives”
News Roundups