Nickel Research Centre

Nickel News Roundup - Week 7

February 16th, 2023

Market Overview:

Digital assets experienced greater volatility than most of the year to date, growing thanks to a late surge after reaction to CPI figures outweighed concerns over SEC enforcements.

  • Bitcoin traded in a steady range between $21,600 and $22,500 for the majority of the week, hitting a low of $21,490 on Monday, before rapidly gaining momentum on Wednesday and Thursday for a weekly high of $24,770
  • Bitcoin’s current price of $24,560 equates to 8% weekly growth, and the asset’s highest value since mid-June 2022
  • Ether’s chart echoed Bitcoin’s, with a Monday low of $1,470 leading into a Thursday high of $1,701
  • Ether’s current price of $1,678 corresponds to a 2.7% increase
  • Total Ether supply since the Merge is now 23,550 ETH lower than it was just over 150 days ago, thanks to increased activity on the network leading to burns from transaction fees consistently outpacing new Ether issuance
  • Annual Ether issuance at current network usage remains deflationary, at -0.68% yearly
  • Overall market capitalisation briefly dropped below $1tn following widespread reporting on SEC enforcement, but recovered to $1.11tn
  • According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms crossed the $50bn mark, growing nearly $1.5bn to $50.6bn

Digital assets rallied despite early setbacks this week, recovering bullish momentum to achieve the highest Bitcoin prices since June, and largest overall market capitalisation since August. Credit Suisse, Deutsche Bank, DBS, Nomura, and Banco do Brasil were just some of the big banks to feature in digital asset adoption this week, whilst the UAE and Hong Kong continued their recent pushes to welcome digital asset business, Siemens issued a digital bond, China established a national blockchain research centre, and several startups achieved eight-figure VC raises.

What happened: Credit Suisse leads $65m investment in digital asset tokenisation platform

How is this significant?

  • Credit Suisse made a major investment in digital asset technology this week, leading a Series B round for Swiss-based asset tokenisation platform Taurus
  • Although valuation wasn’t made public, an anonymous source told Bloomberg that the deal valued Taurus at “several hundred million dollars”
  • Other contributors in the $65m round included Deutsche Bank AG, Pictet Group, Arab Bank Switzerland Ltd and Investis Holding SA
  • Taurus co-founder Sébastien Dessimoz said the fresh funding would go directly towards growth; increasing headcount and expanding their global footprint with new offices in Paris and Dubai
  • He also identified last year’s FTX meltdown as painful short-term, but “a positive medium-term trend”, demonstrating “the need for a regulated professional financial institution offering”
  • Daniel Gorrera, head of digital assets Switzerland at Credit Suisse, said that the investment would bolster the institution’s capabilities in the digital asset space; “The fact we are making such an investment is a clear testament that there is a future in digital assets. It is part of the overall strategy of Credit Suisse”
  • Additionally, Gorrera praised regulatory clarity within Switzerland, allowing the bank to embrace digital assets
  • Paul Maley of Deutsche Bank told Bloomberg that they would work alongside Taurus to launch crypto custody services; “Deutsche Bank has not been very visible on this particular topic and that has been deliberate. We have been searching for a technology partner to help us on the digital asset journey”

What happened: George Soros fund increases exposure to digital asset firms

How is this significant?

What happened: Abu Dhabi starts $2bn Web3 investment program

How is this significant?

  • Hub71—the official tech ecosystem of Abu Dhabi—revealed a new $2bn fund targeted at attracting and growing Web3 business within the Emirate this week
  • Based in the Abu Dhabi Global Market financial district, the Hub71+ Digital Assets ecosystem initiative will be supported by First Abu Dhabi Bank (FAB) as the anchor partner of the program, alongside established digital asset exchanges and service providers
  • The $2bn+ program will support both local startups and encourage businesses to relocate to Abu Dhabi, representing a continuation of the UAE’s push to become a major global hub for digital assets
  • Businesses will gain access to an “extensive range of programmes, initiatives, and corporate, government, and investment partners in the UAE and global markets”
  • In a press release, FAB chief operating officer Suhail bin Tarraf said the bank was backing the investment program to future-proof themselves; “to stay ahead of the curve when it comes to innovations such as blockchain, NFTs, and the metaverse, and fulfil their Customer First promise by leveraging new opportunities at the intersection of digital identity, ownership, and value”
  • In other UAE digital asset news, development and deployment of a Digital Dirham was featured as a key initiative in the UAE central bank’s new Financial Infrastructure Transformation Program
  • According to the announcement, CBDC development will “drive financial inclusion”, and “address the problems and inefficiency of cross-border payments and help drive innovation for domestic payments respectively”

What happened: Siemens issues first digital bond using blockchain

How is this significant?

  • Siemens became one of the first (and definitely one of the biggest) companies in Germany to issue a digital bond on blockchain this week, according to an announcement on Monday
  • It was also the first digital bond issued on a public (rather than permissioned) blockchain, in accordance with the nation’s 2021 Electronic Securities Act (Gesetz über elektronische Wertpapiere, eWpG)
  • Valued at €60m with a one year maturity, the bond was sold directly to investors without the need for an intermediary
  • Siemens promoted numerous benefits of blockchain-based bond issuance, including increased efficiencies through elimination of paper-based global certificates and central clearing
  • Ralf P. Thomas, CFO of Siemens, commented that “It is only logical that we test and utilise the latest digital solutions in finance. We are proud to be one of the first German companies to have successfully issued a blockchain-based bond. This makes Siemens a pioneer in development of digital solutions for the capital and securities markets”
  • Investors included numerous heavyweights of the German financial industry; Dekabank (€360bn AUM), DZ Bank (the second largest bank by asset size), and Union Investment (the investment arm of DV Bank)

What happened: Contagion latest—Celsius secures sale offer

How is this significant?

  • Bankrupt digital asset lender Celsius secured a deal to sell its lending platform to NovaWulf Digital Management LP this week—pending approval from creditors and bankruptcy court
  • The deal would return a share of liquid digital assets to customers, and was selected as the preferred option out of six separate bids, according to court paper filed on Wednesday
  • Liquidators in the Bahamas began the process of selling off a vehicle fleet formerly owned by FTX, with a total book value of $2.4m
  • A New York Times report (citing four separate inside sources) revealed that current FTX leadership are negotiating the return of $400m invested in little-known hedge fund Modulo Capital—which also happened to be based in the Bahamas and operated out of the same luxury Albany condominium complex as FTX and Alameda leadership
  • The NYT states that upon FTX’s collapse, Modulo converted its holdings into cash and stored them in an interest-bearing JP Morgan bank account
  • According to sources, the fund—which hasn’t been accused of any wrongdoing—is prepared to return the money in exchange for FTX releasing it from certain legal liabilities
  • Tuesday court filings revealed subpoenas obliging their subjects to provide requested documents this week as part of the ongoing bankruptcy process
  • Subpoenas were issued to Sam Bankman-Fried, ex-FTX executives Gary Wang and Nishad Singh, former Alameda Research CEO Caroline Ellison, and Bankman-Fried’s father Joseph
  • On Monday, Sam Bankman-Fried was barred from using VPNs (Virtual Private Networks; services which hide or re-route a user’s IP address in order to circumvent geo-blocked content) whilst out on bail
  • Bankman-Fried claimed he only used VPNs to watch American Football coverage from the Bahamas, but prosecutors argued that they could be used to mask access to messaging services or digital asset exchanges

What happened: Nomura invests in DeFi protocol

How is this significant?

  • Japanese banking giant Nomura—through its crypto asset arm Laser Digital—made an investment in decentralised finance (DeFi) protocol Infinity this week, demonstrating a continued interest in crypto assets from traditional finance despite crypto winter
  • They didn’t disclose terms of the investment, but in a joint statement the two firms identified the investment as a move towards institutional lending and borrowing in DeFi
  • Nomura’s investment in Infinity contributes to a protocol that “gives firms a basis benchmark interest rates, lending, borrowing and risk management in decentralised finance”
  • As DeFi allows people and institutions to trade, lend, and borrow directly without third parties, investment from banks could be seen as a particular vote of confidence for DeFi’s potential, since it directly opposes most banking models
  • Infinity head of ventures Oliver Dang said that the investment and partnership would help further institutional standards within the space; “Infinity’s groundwork paves the way for institutional flows on-chain, new levels of rates and risk innovation”

What happened: DBS experiences significant growth in Bitcoin sales despite crypto winter

How is this significant?

  • Singapore’s Business Times newspaper reported on positive results for leading local bank DBS’ digital asset venture this week, despite 2022’s inclement market performance
  • Bitcoin trading on the bank’s digital asset exchange nearly doubled year-on-year, up 80% from 2021
  • A statement on Wednesday also disclosed that the amount of Bitcoin custodied by the bank more than doubled year-on-year
  • Lionel Lim, CEO of DBS Digital Exchange said that as the city-state’s largest financial institution, they were a beneficiary of a “flight to safety” following the FTX collapse
  • Lim stated “The market has decisively shifted its focus towards trust and stability especially in the wake of multiple scandals that have rocked the industry”
  • He also reported that DBS would work towards “high-quality Security Token Offering listings in 2023”
  • In other DBS news, they confirmed plans on Monday to apply for a digital asset licence in Hong Kong to take advantage of recent trading liberalisation and offer digital assets to clients there

What happened: Interactive Brokers opens Bitcoin and Ether trading to Hong Kong investors

How is this significant?

  • Interactive Brokers announced its entry into the Hong Kong digital asset market on Monday, allowing eligible clients to trade Bitcoin and Ether directly through their existing brokerage platform
  • The offering was developed in partnership with digital asset exchange OSL digital securities
  • It follows a recent push by Hong Kong to become a regional digital asset hub, with wider investor access planned than in Singapore, where retail access has been curtailed
  • Interactive Brokers APAC head David Friedland cited continued—and growing—investor demand as key to their market entry; “Investor demand for digital assets continues to grow in Hong Kong and around the world, and we are pleased to introduce crypto to address the trading objectives of clients in this important market”
  • Huobi, one of the largest global digital asset exchanges, announced plans to expand its operations in Hong Kong
  • Huobi advisor (and Tron blockchain founder) Justin Sun stated his belief that relaxation of regulations in Hong Kong could act as a testbed for an official reintroduction of digital assets to China
  • In other Hong Kong news, blockchain project Conflux announced a partnership with China Telecom—the second-largest wireless carrier in China—to develop blockchain-based SIM cards (enabling secure digital asset storage via mobile phone), with a pilot program to launch in Hong Kong

What happened: SEC announces enforcement actions against Kraken and Paxos

How is this significant?

  • The United States SEC made headlines for several enforcement actions this week; firstly reaching a $30m settlement with digital asset exchange Kraken, followed by an order for New York-based Paxos to cease the minting and issuance of any new Binance-branded BUSD stablecoin
  • On Thursday, the SEC announced a settlement with Kraken exchange, involving a fine and the immediate shutdown of any staking-as-a-service programs for US customers
  • Previously, American customers would have been able to deposit digital assets from proof-of-stake protocols into staking contracts, acting as validators (akin to miners in proof-of-work) and thus earning returns in exchange for helping to secure the network
  • It should be noted that the SEC weren’t unanimous on this enforcement action; commissioner Hester Pierce (known for a more progressive stance towards digital assets) publicly dissented and decried what she identified as a “paternalistic”, “lazy”, and hostile” regulatory approach
  • Pierce said “Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating”, and argued the US was harming investors by adopting overly-broad restrictions without full understanding
  • On Monday, the SEC issued a Wells Notice ordering Paxos to end their partnership with Binance and stop minting any more BUSD stablecoin, alleging it to be a security
  • Paxos “categorically disagree” that the fiat-backed BUSD is a security, and several industry observers sided with them; noting that a key aspect of the Howey Test (classically used to determine if an asset is a security) is “the expectation of profit”—a property which directly contravenes an asset specifically designed not to gain value versus the US dollar
  • Later on Monday, it was reported that rival stablecoin issuers Circle had previously reported Paxos to the New York State Department of Financial Services, claiming mismanagement of reserves
  • In the aftermath, all liquidation of BUSD was managed without incident, involving $1.4bn in redemptions over just two days
  • A Paxos spokesperson said on Wednesday “We have not seen extreme redemption levels and Paxos will continue to support BUSD in circulation for at least one year”
  • Binance CEO Changpeng “CZ” Zhao speculated that increased pressure on fiat-backed stablecoins could lead to the return of algorithmic stablecoins, alongside alternative fiat options
  • Speaking to Bloomberg, he said “That’s going to shrink the USD stablecoin market, so the industry is exploring its options… I think we’ll see more euro- or other, Japanese yen, Singapore dollar-based stablecoins”
  • Tether, the largest stablecoin by market capitalisation, was a key beneficiary of BUSD’s travails, growing by $1bn in 24 hours as investors moved away from both BUSD and Circle’s USDC
  • In a Wall Street Journal interview, Binance’s chief strategy officer Patrick Hillmann seemed resigned to a fine from the SEC regarding investigations of their Binance.US subsidiary; “[we’re] working with regulators to figure out what are the remediations we have to go through now to make amends for that…likely a fine, could be more.…We just don’t know. That is for regulators to decide”
  • PayPal suspended development of their own stablecoin, developed in partnership with Paxos, citing a need to understand the changing regulatory landscape
  • On Wednesday, the SEC also proposed a revision to “qualified custodian” regulations, expanding requirements across a broader range of assets, including crypto
  • This could make it more difficult for digital asset exchanges to hold digital assets on behalf of investors and investment advisors
  • Commissioner Hester Pierce opposed the proposal, claiming it could “put crypto investors at greater risk of fraud or loss by restricting the number of firms who can safely hold their assets”—but she was in the minority, and the proposal is now open for public comment
  • Leading US exchange Coinbase seemed to welcome the move however, claiming they already qualify and operate as a qualified custodian, saying that “In a lot of ways, this is about bringing the rest of the industry to the standard Coinbase has set for itself”

What happened: China approves national blockchain research centre

How is this significant?

  • Although the country officially maintains a ban on crypto assets, Chinese officials this week approved the establishment of a National Blockchain Technology Innovation Centre
  • This maintains China’s current status of adopting blockchain technology whilst avoiding the trading of digital assets
  • Government-run newspaper Beijing Daily reported that “The centre will focus on areas of blockchain regarding fundamental theory, software and hardware, with the aim of developing related key technologies and industrial applications”
  • Additionally, the paper reported that economic integration would be a key aspect, without offering precise details; “The new centre will also focus on major use cases related to the national economy and personal livelihoods, making blockchain an important foundation for China’s new digital infrastructure”
  • Chinese president Xi Jinping previously declared that blockchain plays “an important role in the next round of technological innovation and industrial transformation”, and government guidelines published in 2021 stated “China will seek to use blockchain broadly across a range of industries by 2030”

What happened: VC news

How is this significant?

  • Several digital asset startups achieved successful funding rounds this week, albeit at lower levels than during the 2021 bull market
  • Crypto index platform Alongside raised $11m in a seed round led by Andreessen Horowitz (a16z)
  • Alongside CEO Austin Diamond described the business as “an on-chain Vanguard… low-fee index products designed to enable total market exposure to crypto as a whole”
  • Other investors in the seed round included Franklin Templeton and Coinbase Ventures
  • Monad Labs, developers of layer-1 smart contract blockchain Monad, raised $19m in seed capital led by VC firm Dragonfly
  • The Ethereum-compatible blockchain aims to build a platform enabling Web3 app development
  • The seed round featured 70 investors, including Placeholder Capital, Shima Capital and Finality Capital
  • Digital asset security firm Coincover raised $30m to fund products and mechanisms designed to protect crypto assets from loss through both hacks and human error
  • One of the investors, Charles Moldow of Foundation Capital noted “ We made this investment not in spite of the tumultuous year in crypto, but precisely because of it.One of the most significant limitations to digital asset adoption, at both the individual and institutional levels, is the fear of loss or theft of assets”
  • Coincover co-founder David Janczewski said “We’ve reached an inflection point in the industry; as a result, we’ve seen demand for our product increase dramatically”

What happened: Brazil’s largest bank enables tax payments via crypto assets

How is this significant?

  • Banco do Brasil (BB), the largest public bank in Brazil, announced on Friday that customers will be able to pay their taxes directly via digital assets, marking one of the first federal applications of the asset class
  • At the time of payment, the digital assets will be instantly converted into Brazilian reals
  • The capability doesn’t automatically extend to all Banco do Brasil customers however—it’s only available to those with digital assets deposited on Bitfy, a local blockchain solution and beneficiary of investment from BB’s venture arm
  • Institutions and fintech firms can also enable digital asset payment via agreements between Banco do Brasil and other public service entities, according to the announcement
  • Lucas Schoch, founder and CEO of Bitfy stated “The new digital economy is a catalyst for a future full of advantages. This partnership makes it possible to expand the use of and access to the ecosystem of digital assets with national coverage and with the seal of security and reliability of Banco do Brasil”
News Roundups