Nickel News Roundup - Week 31

4th August, 2022

Market Overview:

• Bitcoin spent the majority of the week trading between $22,900 and $24,000, with a peak of $24,570 on Sunday providing its highest price since mid-June
• Values did drop steeply on Sunday night into Monday, ensuring that the monthly candle closed below the $24,000 mark
• Nevertheless, July was Bitcoin’s best month of 2022, increasing 16.8%
• Bitcoin bounced off a weekly low around $22,720 three times this week
• Bitcoin’s current price of $22,905 leaves performance on a par with last week
• Ether peaked earlier in the week than Bitcoin, reaching $1,771 on Thursday, before trading between $1,660 and $1,720 for the majority of the week, before falling early in the week amidst wider market tensions around the US and China
• Ether’s weekly low of $1,570 came amidst those conditions on Tuesday, recovering on Wednesday after tensions dissipated
• Overall market capitalisation grew slightly for a current value of $1.08tn
• Total value locked in DeFi likewise increased marginally, to $40.7bn, according to industry monitor DeFi Pulse

How is this significant?

• Contrary to oft-heard complaints from crypto-sceptics, researchers at Bank of America (BofA) believe that blockchains carry significant intrinsic value
• In particular, the report cited transaction fees on blockchains as compelling evidence of intrinsic value
• BofA researchers cited year-to-date transaction fees (in a bear market) on Ethereum being worth $3.9bn, and $9.9bn in the year prior (which included a period before the deployment of the EIP 1559 network upgrade that significantly reduced potential transaction fees)
• The 2021 total was particularly indicative of growth in network adoption and intrinsic value, worth 1,558% more than in 2020
• Bitcoin likewise demonstrated significant value in the form of transaction fees last year, worth more than $1bn (but also reduced in 2022 due to prevailing crypto winter conditions and increased adoption of the Lightning Network scalability solution)
• The research note further posited that cash flows via transaction fees could accelerate significantly for “blockchains that have strong user growth and development in addition to a clear use case”

How is this significant?

• Noted financial institution The Charles Schwab Corporation made their first major move towards digital assets this week, announcing the launch of a crypto thematic ETF on the New York Stock Exchange
• Expected to launch on August 4th, the Schwab Crypto Thematic ETF doesn’t directly invest in digital assets, but rather firms with exposure to them as part of their business models, providing “access to the growing global crypto ecosystem”
• According to their press release, investors receive “global exposure to companies that may benefit from the development or utilisation of cryptocurrencies and other digital assets”, with a 0.3% management fee
• The ETF tracks the firm’s Schwab Crypto Thematic Index, developed in-house by Schwab’s thematic research team

How is this significant?

• Unravelling of the crypto contagion crisis continued this week as several companies moved through the processes of protecting their assets
• ASEAN-focused exchange Zipmex filed for bankruptcy protection in Singapore on Thursday, but also re-enabled withdrawals for select altcoins from Tuesday onwards
• Larger coins like Bitcoin and Ethereum will remain locked on their platform until further notice, and the bankruptcy protection is intended to provide the team a protection window from third party claims whilst they seek to concentrate on “resolving the liquidity situation”
• Singapore’s high court also provided local lender Vauld with a three month protection from creditors, enabling enough time for rival company Nexo to complete its 60 day due diligence process with a view to purchasing the firm
• On Thursday, 3AC liquidators announced intentions to force co-founders Kyle Davies and Zhu Su into greater cooperation around recovery efforts, noting they had provided only “rather selective and piecemeal disclosures” thus far
• A restructuring plan for distressed lender Babel Finance, seen by Bloomberg, indicated the company had suffered major losses in June whilst using client funds for proprietary trading
• The company’s trading desk effectively served as a “single point of failure” due to “uncapped” capital access from the firm’s wealth management team
• A Babel spokesperson wouldn’t comment on the restructuring plan document, but stated the firm is “working closely with clients, investors and other stakeholders and external advisers during this very difficult time in the industry as we believe that is the best path for a full recovery and value maximisation for all the parties”
• A former executive of bankrupt lender Voyager (who last week rejected a bid from exchange FTX) this week proposed a full restructuring and change in business model
• Shingo Lavine, who left the company in early 2021, submitted a proposal to bankruptcy court involving a business shift from lender to trading and security, along with an ouster of existing management

How is this significant?

• Zodia Markets, an institution-focused digital asset exchange backed by Standard Chartered’s venture arm went live this week
• CEO Usman Ahmad said it was one of the first times a digital asset exchange has been directly backed by a bank, making for a compelling value proposition; “What most large financial institutions have done for now is entered crypto via the custody space, as has Standard Chartered with Zodia Custody. We looked around and saw a gap in the market when it comes to a crypto trading firm with the backing of a bank”
• The FCA-approved exchange offers a limited range of assets, only trading in Bitcoin and Ether
• Zodia has launched with a focus on the UK, Europe, and MENA, saying that the timezone feels “underserved” compared to established large-scale trading presences in Asia and North America

How is this significant?

• Payment processing giant mastercard believe they must move “beyond plastic” and into sectors like digital assets in order to remain competitive, according to an interview with CFO Sachin Mehra
• He identified the company’s role as an on- and off-ramp for fiat-to-crypto conversions as “a revenue-generating capability which has been fairly successful ever since crypto environments came up”
• Mehra also noted that due to fluctuations in value, not all digital assets may be viewed favourably as a payment mechanism by consumers; “we view crypto more as an asset class”
• He did however note that fiat-pegged digital assets such as stablecoins or pure CBDCs could prove a much more viable everyday payment mechanism

How is this significant?

• French hardware manufacturer Ledger became the latest digital asset firm to begin a significant funding round despite the bearish conditions of 2022
• The company produces hardware wallets—physical devices which hold private keys offline throughout all transactions, protecting user funds—making their business model reliant on continued investor appetite for crypto assets
• Just over a year ago, Ledger raised $380m in a Series C round, at an overall $1.5bn valuation
• Sources speaking to Bloomberg believe that although the new raise is significantly lower, at $100m, the overall valuation will exceed the June 2021 figure

How is this significant?

• Hashed, a prominent digital asset VC firm aims to raise a new investment fund in the first half of next year—despite being severely burned by the collapse of the Terra Luna blockchain ecosystem earlier this year
• CEO Simon Seojoon Kim, a leading South Korean digital asset investor, says the new fund will focus predominantly on GameFi, funding projects that integrate blockchain technology and digital assets such as NFTs within video game development
• Hashed has already invested half of the 280bn Won (180m USD) that it raised in December, with plans to start a new raise after the current funds are completely deployed
• Kim told Bloomberg that despite losing the majority of their Terra Luna investment, he remained bullish on the asset class at large; “In the tech sector, there’s no such thing as a portfolio that guarantees success, and we make our investments with that in mind. We believe in the community’s growth, and that has never changed”
• He believes that the rise of the nascent Metaverse, combined with the pervasiveness of gaming as a pastime, could create massive potential opportunities for value, creating “a vast number of jobs as assets are exchanged between the virtual and real worlds”

How is this significant?

• Unstoppable Domains—a Web3 firm that developed NFT domain name technology to simplify the complex randomised hexadecimal strings of blockchain addresses—became the latest digital asset startup to achieve a unicorn valuation ($1bn or more), showcasing continued appetite for investment in compelling ideas and teams
• Crunchbase reported the $1bn valuation came at the conclusion of a $65m Series A round led by Pantera Capital
• CEO Matthew Gould noted the need for simplified and memorable address technology as more users join the digital asset space; “As the digital economy becomes a larger part of our lives, it’s time for people to own their identity on the internet”

How is this significant?

• Dubai has positioned itself as a global digital asset hub over the last year, including strategies specifically tailored to attract Metaverse businesses
• Recently, this has involved an increase in over-the-counter (OTC) digital asset trading too, where users will buy digital assets locally, but cash them out for fiat at physical locations in Dubai
• This means that unlike conventional digital asset transactions, there is no public blockchain record for the assets being exchanged
• OTC shops rely on charging considerable commissions (like foreign exchange offices) rather than making large gains on the digital assets themselves
• Although much of this business is just geared towards regular traders, there have been some reports that—due to the UAE’s lack of international sanctions participation—some of these OTC trades may have been conducted by sanctioned Russian individuals
• This demonstrates a double-edged sword of digital assets; they provide the ability to move assets internationally, at speed and low cost, without the need for third parties or banks—but this freedom of movement also brings critics who fear widespread sanctions evasion
• According to Bloomberg reporting, this grey area may soon face challenges in UAE; “A spokesperson for the UAE executive office responsible for combating money laundering and terrorist financing (AML/CFT) said a framework governing virtual assets was being finalized, warning that any firm or individual that doesn’t comply risks being prosecuted, fined or having their licenses revoked”
• A government official stated that the UAE is “committed to working closely with international partners to combat the cross-border threats of illicit activity in the crypto industry and uphold the integrity of the financial system”