Nickel News Roundup - November 18, 2021

Market Overview:

Digital assets performed solidly throughout the majority of the week, before a sharp correction on Tuesday caused by concerns over language in the new US infrastructure bill, a Bitcoin spot ETF rejection, possible Mt. Gox Bitcoins re-entering the market, and resultant cascading liquidations of over-leveraged traders.

• Bitcoin traded the majority of the week in the $63,500 to $66,300 range, before significant sell-offs on Tuesday led to a double-digit retrace on the weekly timeframe
• On Tuesday, Bitcoin dropped from nearly $64,000 to a weekly low of $59,020, and currently trades at $59,600—a 8.4% weekly drop
• Ether followed in line with Bitcoin’s movements, dropping from a weekly high of $4,809 on Friday to a low of $4,144 early on Wednesday
• Ether is currently trading at $4,238; a 9.7% weekly loss
• Overall market capitalisation dropped as low as $2.5tn, before recovering to a current $2.6tn
• Despite the sharp drop this week, overall market capitalisation remains approximately $120bn higher than a month ago
• Total value locked in DeFi experienced a decline, dropping to $108.2bn, according to industry analytics platform DeFi Pulse

Digital assets reversed momentum after last week’s record values, as a combination of concerns about regulation and regulatory attitudes in the United States were exacerbated by cascading liquidations. However, although regulatory clarity in the US currently remains uncertain, what remains clear is that adoption of digital assets by investors continues to grow; this week saw the launch of the world’s largest crypto VC fund, new digital asset unicorns, a long-awaited technical upgrade to the Bitcoin network, global stablecoin expansion, and more major sponsorship deals to bring new eyes onto the asset class.

News:

What happened: Paradigm launches world’s largest digital asset venture capital fund

How is this significant?:

• On Monday, San Francisco-based VC firm Paradigm announced the launch of Paradigm One, a $2.5bn fund dedicated to investments in digital asset companies and protocols
• Founded by Sequoia Capital veteran Matt Huang, and Coinbase co-founder Fred Ehrsam, Paradigm One will be the largest single VC fund in the crypto asset space, exceeding the $2.2bn Andreessen Horowitz (a16z) Crypto Fund III
• The fund will invest across a broad range of allocations, from $1m to $100m
• In a blog post announcing the new fund, the co-founders noted that “this new fund and its size are indicative of crypto being the most exciting frontier in technology. Over the last decade, crypto has come a long way”

What happened: United States SEC rejects VanEck Bitcoin spot ETF

How is this significant?:

• Despite the success of recent Bitcoin futures ETF launches, the SEC signalled continued caution regarding any physical exchange products by rejecting VanEck’s application for a spot ETF on Tuesday
• Although widely expected due to SEC chair Gary Gensler’s previously stated preferences for a Bitcoin futures ETF, the news did nevertheless appear to cause some sell-offs and profit-taking
• VanEck CEO Jan van Eck said in response to the judgement; “We are obviously disappointed in today’s update from the SEC declining approval of our physical Bitcoin ETF… We continue to believe that investors should have the ability to gain exposure to Bitcoin through a regulated investment product and that a non-futures ETF structure is the superior approach”
• However, this rejection didn’t extend to VanEck’s Bitcoin futures ETF, which began trading this week to “respectable” volume, whilst aiming to gain ground on competitors in the long run thanks to lower trading fees
• Michael Hsu, acting chief of the Office of the Comptroller of Currency, also released a statement this week that American regulators could continue a stifling stance across the board for the foreseeable future, saying “The agencies are approaching crypto activities very carefully with a high degree of caution… We will proceed carefully and cautiously and will hold banks to the same”

What happened: Digital asset scaling firm StarkWare valued at $2bn after $50m raise

How is this significant?:

• StarkWare, a blockchain firm primarily dedicated to the creation of scaling technology for Ethereum and Ethereum-compatible infrastructure, announced the successful conclusion of a funding round led by Sequoia Capital
• The $50m round took the company’s total raises thus far to over $160m, and values StarkWare at $2bn, confirming them as the latest digital asset unicorn
• Founded in 2018, StarkWare have settled over $200bn in transactions for clients using their technology, enabling transactions to be settled together in batches, rather than processing each individually and thus creating demand bottlenecks on the blockchain
• According to a report by research firm Marketsandmarkets, the value of demand for blockchain services such as those offered by StarkWare is set to surge, potentially growing from $4.9bn this year to $67.4bn by 2026

What happened: Stablecoin issuer Circle plans expansion into Asia, including JPY integration

How is this significant?:

• Circle, the developers of the USDC stablecoin revealed plans for expansion into Asia this week, with a regional base in Singapore and the development of a new stablecoin pegged to the Japanese Yen
• Circle CEO Jeremy Allaire revealed the move was driven by current macroeconomic conditions and DeFi presenting more opportunities in the stablecoin field; “Especially in the inflation environment we’re in and the search for yield, this is going to be a big, big theme… While a lot of people want to focus on people hedging by buying Bitcoin directly, we think for stewards of capital within corporations and corporate treasurers and so on, that an allocation into stablecoin yield is actually going to be really, really attractive”
• The USDC stablecoin’s market capitalisation has grown from $3.7bn last year to over $35bn this year, thanks to increased demand for stablecoins in decentralised finance applications and protocols, but opportunities for expansion in the United States may be limited due to possible regulatory restrictions
• The JPY stablecoin will be developed by the newly-established Circle Ventures, and could increase Asian participation in DeFi

What happened: Biden signs infrastructure bill with ambiguous digital asset provisions

How is this significant?:

• President Biden signed a massive infrastructure bill into law this week; but some senators are already seeking to fix the ambiguous language concerning crypto asset taxation and reporting obligations
• Taxation of crypto assets is forecast to earn the United States government $28bn over the next decade
• The current wording of the bill, which doesn’t clarify which entities are defined as “brokers” of digital assets is the result of a lone senator’s objection in August
• Now, a bipartisan team of senators including Senate Finance Committee chairman Ron Wyden seek to fix the language to preserve American competitiveness in the field
• Wyden stated “Our bill makes clear that the new reporting requirements do not apply to individuals developing blockchain technology and wallets… This will protect American innovation while at the same time ensuring those who buy and sell cryptocurrency pay the taxes they already owe”
• Senator Cynthia Lumis added “Digital assets are here to stay in our financial system and the decisions we make now will have impacts far into the future… We need to be fostering innovation, not stifling it”

What happened: Mt. Gox Bitcoin repayment plan gains final approval from trustee

How is this significant?:

• This week seemingly witnessed the conclusion of a process that began more than seven years ago in the digital asset sphere, as the trustee of defunct Bitcoin exchange Mt. Gox settled on a reimbursement plan for creditors
• Mt. Gox was the largest Bitcoin exchange in the world, before shutting down in 2014 after a major hacking incident
• According to documents related to the case in 2019, the trustee of the exchange holds around 141,686 Bitcoins, a fraction of the 850,000 that were stolen in the hack
• Specific timings, procedures, and amounts of restitution have not been publicly disclosed, but trustee Nobuaki Kobayashi did confirm the plan as “final and binding”
• Nevertheless, due to Bitcoin’s price appreciation since 2014, some are wary of creditors having coins returned to them, even in a fraction of their original holdings, since they could constitute around $8.5bn in fresh value entering the market

What happened: Grayscale surpasses world’s largest gold fund as AUM reach $60bn

How is this significant?:

• Earlier this week, Grayscale Investments overtook the world’s largest gold fund, as Grayscale’s (digital) assets under management reached $60bn; $1.7bn ahead of SDPR gold shares
• Although Grayscale’s AUM has since dipped in line with the market correction this week, it represents a long-term trend of growth in digital assets versus decline in gold
• The Financial Times noted last month that investors are increasingly “fleeing” gold as a hedge asset against inflation, choosing to allocate such capital towards crypto assets instead

What happened: Galaxy Digital expects public listing in early 2022

How is this significant?:

• Galaxy Digital, the digital asset fund founded by Silicon Valley VC veteran Mike Novogratz, expects to go public in Q1 of 2022, according to reports by Bloomberg this week
• Galaxy already trades on the Toronto stock exchange, but the New York-based firm would be in very select company when it goes public in the US
• The company appears to be waiting until they conclude the acquisition of crypto custodians BitGo in Q1 next year, according to a statement on Galaxy Digital’s website
• As of October 31st, Galaxy was managing $3.2bn in assets, and has benefited greatly this year from appreciation in crypto asset value; Q3 recorded $517m in net comprehensive income (including unrealised gains on digital assets held)
• Net comprehensive income for Q4 already stands at $400m, thanks to new all-time highs in the digital asset market

What happened: Bitcoin deploys first technological upgrade in four years with “Taproot” update

How is this significant?:

• The famously-immutable Bitcoin blockchain deployed its first set of upgrades in four years this week
• The Taproot upgrade had high levels of support across the Bitcoin community, with benefits including greater transaction efficiency, privacy, and—perhaps most notably—the potential for smart contract integration
• Changes to the way the blockchain processes account signatures could theoretically open up smart contract functionality for things like automated payments, giving Bitcoin more utility
• According to Fred Thiel, CEO of mining company Marathon Digital, “The most important thing for Taproot is...smart contracts… It’s already the primary driver of innovation on the Ethereum network. Smart contracts essentially give you the opportunity to really build applications and businesses on the blockchain”

What happened: Blockchain gaming firm Forte concludes $725m Series B funding round

How is this significant?:

• Forte, a developer in the growing field of blockchain gaming, raised $725m in funding this week, from investors including Andreessen Horowitz (a16z), Tiger Global, Warner Music Group, and Animoca brands
• This round brought their total funding in 2021 to over $900m
• Rather than operating its own blockchain, Forte’s plan is to conduct separate game development efforts across a range of Layer 1 and Layer 2 blockchains and scaling solutions
• Forte currently claims 10 released gaming titles with 20 million active monthly users
• Forte CEO Josh Williams noted the growth potential of gaming within a blockchain context, saying “The games industry has grown at each turn as it aligns more and more closely with players, and today it is the largest form of entertainment globally—larger than film and music combined—with nearly $180 billion in annual revenue. We believe we are at the forefront of a new technological wave, and blockchain gaming will be even bigger than all the shifts we’ve seen before”
• Blockchain gaming is increasingly seeing more attention, from investment by traditional VCs to legacy gaming studios entering the space. According to industry publication TheBlock, nearly half of $3.4bn in digital asset VC funding during October was dedicated to blockchain gaming

What happened: Pew Research finds 16% of Americans have interacted with crypto assets

How is this significant?:

• On Thursday, polling company Pew Research released the findings of a new survey, revealing a rising tide of awareness and interest in digital assets amongst US residents
• 86% of total respondents deemed themselves at least somewhat aware of digital assets like Bitcoin and Ether, up from 48% when similar research was conducted in 2015
• 16% of all Americans surveyed had actually interacted with digital assets, through investing, trading, or transactional usage
• On a demographic level, there was a pronounced split, with men more than twice as likely than women to have digital asset exposure
• Younger cohorts were also significantly more likely to have interacted with crypto, including 43% of men aged 18-29, and 30% of men aged 30-49
• Upper income and middle income respondents were equally likely (17%) to have interacted with digital assets, putting them both ahead of lower income respondents

What happened: Sotheby’s to accept real-time Ether bids in Banksy auction

How is this significant?:

• Sotheby’s have been at the forefront of digital asset adoption in the art world, and this week announced a further shift into adoption of blockchain technology
• The auctioneers will be accepting bids in real-time via Ether—a move which they identify as a first in the industry
• According to a statement on their website, Sotheby’s says “The paradigm-shifting move marks the first time that a cryptocurrency will be used as the standard currency for bidding on physical artworks in real-time during a live auction”
• Although bids will be accepted in fiat, Bitcoin, and the Tether stablecoin, prices will be demarcated in Ether
• Real-time bids will be accepted for two works by Banksy, one of the most valued names in contemporary art

What happened: Indian government to regulate crypto as an asset, ban it as payment method

How is this significant?:

• According to reports in the Economic Times of India, the government of the world’s second-most populous nation appears set to approve of (and regulate) crypto as an asset class, but not as a currency
• The paper identified the move as a “nuanced approach”, legally likening digital assets to assets like “shares, gold, or bonds”
• Government sources speaking to the Economic Times said that there could also be restrictions on advertising for the industry; “Active solicitation would not be permitted... Details of the bill are being finalised”
• Sources told them that a “middle path” approach is most likely for the asset class, rather than wholesale restrictions and bans as seen in China; “A person aware of discussions at a meeting chaired by Prime Minister Narendra Modi on cryptocurrency Saturday said that the overall view within the government is that the steps taken should be proactive, ‘progressive and forward-looking’ as it was an evolving technology”