DigitalX Funds Weekly Wrap (25 January 2023)

Statement on FTX, Alameda, BlockFi, Genesis, Grayscale or Gemini

The DigitalX Funds do not have any exposure to FTX, Alameda, BlockFi, Genesis, Grayscale or Gemini. This demonstrates our disciplined risk management strategy, using a combination of top down and bottom-up fundamental research to assess our portfolio composition. The majority of DigitalX Fund assets are secured with an institutional grade custodian with insurance.

Weekly Price Action?

*All figures below are in USD unless otherwise specified.

Week in review

The Shift List

• NAB creates a stablecoin in boost for the digital economy. DigitalX pledges to use the AUDN coin once launched to NAB customers.
• Ondo Finance launches three tokenized U.S. Treasuries and bonds.
• Samsung investment arm to launch Bitcoin Futures ETF amid rising crypto interest.
• Basel Committee finalises policy suggesting 2% Bitcoin exposure cap for banks.
• Global cryptocurrency owners grow to 425 million through 2022.
• Huobi announces plans to launch the Huobi Visa card.
• Fidelity plans NFT marketplace and financial services in the metaverse.
• Polygon's next web3 play is an NFT debit card.
• BMW taps Coinweb and BNB chain for blockchain loyalty program.
• Mastercard taps Polygon for Web3 Musical Artist Accelerator program.
• BitDAO launches testnet for Ethereum Layer 2 network Mantle.
• Polygon completes hard fork to reduce gas fee spikes, disruptive reorgs.
• You can now stake Ethereum on MetaMask.
• Tether’s 2022 settlement volume flips Visa and Mastercard.
• Bank of America says CBDCs and stablecoins are the future of money and payments.
• Rarible rolls out new Polygon marketplace builder amid chain's NFT boom.

Market Updates

• Crypto lender Genesis files for bankruptcy in latest blow to Barry Silbert’s DCG empire.
• The SEC files an action against Gemini and Genesis.
• Date set for oral arguments in Grayscale’s appeal of the SEC’s Bitcoin ETF decision.
• Gemini is laying off 10% of staff.
• Shiba Inu-themed BONK tokens are yielding nearly 1,000% for Solana liquidity providers.
• 3AC founders Zhu and Davies pitch to raise $25 million for new crypto exchange.
• Feds seize almost $700 million of FTX assets in Sam Bankman-Fried criminal case.
• Bitzlato founder arrested for allegedly processing $700 million in illicit funds.

Macro/Regulatory Updates

• CPI: US inflation falls to lowest in more than a year.
• US core consumer prices went up by 5.7 percent from a year earlier in December of 2022.
• Fed officials see higher rates for ‘some time’ ahead.
• World Bank warns global economy could tip into recession in 2023.
• US adds 223K jobs in December, unemployment rate falls to 3.5%.
• The ISM Manufacturing PMI for the US fell to 48.4 in December of 2022, slightly below forecasts of 48.5.
• Japan to lift the ban on foreign stablecoins like USDT in 2023: Report.

In the spotlight?

National Australia Bank has become the second of the major banks to create a stablecoin, called the AUDN, to allow its business customers to settle transactions on blockchain technology in real-time using Australian dollars and highlighting the role of banks driving innovation in the digital economy. It is aiming to launch mid-year for transactions, including trading carbon credits and sending money overseas. NAB’s minting of a stablecoin – which is fully backed, one-for-one with Australian fiat money held on trust in the bank – on the Ethereum network in December, comes nine months after Melbourne rival ANZ created a similar product, known as A$DC.

DigitalX, an ASX-listed digital asset specialist, has pledged to use the AUDN once it is launched to NAB customers.

DigitalX CEO Lisa Wade (she/her) : “Banks have the regulatory advantage.” It will use the NAB stablecoin to prove its reserves in its digital asset funds and to create real-time atomic settlement for Australian equities in partnership with Automic Group, a share registry.

“What we learnt from Luna last year is the look through of the back book of the stablecoin is the most important thing: if it is not constructed properly, there is counterparty risk,” said DigitalX CEO Lisa Wade, a former NAB executive.

“Stablecoins are the link in the chain for essential financial market infrastructure and, absolutely, banks have the regulatory advantage – I can trust my deposit.”

Altcoins

Polygon (MATIC) - Polygon has partnered with the neo-banking app Hi to introduce a platform that allows users to mint NFTs for a web3-focused debit card. Called the NFT Debit Mastercard, card holders can spend either crypto or fiat currencies at 90 million global merchants. Users can also mint any personal NFT, whether a holiday photo or profile picture, for the cover of their debit card without paying gas fees. The move marks the latest strategic partnership for Polygon, which is trying to become the face of gasless fees for NFTs. Polygon undergirds the Starbucks NFT loyalty rewards beta as well as new blockchain gaming features from Solana's biggest NFT marketplace, Magic Eden. Though Ethereum still dominates NFT trade volume by blockchain, Polygon has seen NFT transactions rise 1,648% from the first week of December to the second, according to The Block's Data Dashboard.?

?itcoin (BTC)

Core Scientific, the largest Bitcoin miner by computing power, filed for Chapter 11 bankruptcy protection as this year's slump in crypto prices claimed another victim. The company estimated its assets and liabilities at between $1 billion and $10 billion, according to the filing with the U.S. Bankruptcy Court for the Southern District of Texas on Wednesday. Core’s struggles reflect those of the entire mining industry, which has seen profit margins continuously shrink, as Bitcoin prices decline and energy costs go up. Revenues fell 20% just last month, according to data from The Block Research. Core Scientific estimated it had between 1,000 and 5,000 creditors, with $42.4 million owed to its largest creditor, financial services firm B. Riley. The company runs its own machines and acts as a hosting provider for others. Between the two sides, it operates about 24.4 EH/s, according to an October update, compared to the roughly 244 EH/s of the entire network.?

Ethereum (ETH)

Developers successfully launched a "shadow fork" of the Shanghai upgrade to test it on a version of the main Ethereum network. A shadow fork is a test version of the actual mainnet, allowing developers to see if a piece of code from the proposed upgrade will work correctly on the real blockchain. The test for the Shanghai upgrade took place around 5:30 am ET. There were a few minor technical issues, with Ethereum's nodes using Geth clients after the fork, as reported by Marius Van Der Wijden, a Geth developer. But developers were able to fix the issues, and now all nodes are in agreement. They will be testing more to ensure everything works properly, Van Der Wijden added.

CEO Comment

While the jury seems to still be out on whether this impressive rally is the age old January effect taking hold of our markets or a new bull run forming? it is pretty clear that Crypto still has the ability to close the underperformance gap of 2022 which we find encouraging and will hold firm on our 2022 view that Crypto will close the Gap of its circa 57% - from the lows in December until time of writing this gap has closed from 57% to 47%. We believe this is due to a multitude of factors including a lot of shorts in the market and a lot of the bad news in Crypto being priced in.?

In terms of the shift list (structural shifts happening in financial infrastructure moving us from Web2 to Web3 financial rails) it is hard to pick the top 3 from all of the announcements, so I will keep the January vibe and pick my favourites

1. L’Oreal making use of Soulbound tokens to create a DAO here - it speaks to the power of DAO’s AND a big shift in how digital identity will be valued in the future.
2. This Bitcoin Lightning use case also ticks a great social impact use case as an extra positive also the Lightning Network is to be used in fiat transfers between EU and Africa.
3. Lastly this deal shows there is still investment appetite for core themes in 2023 and ultimately the availability of capital remains the unwavering driver of markets - a16z leads $100 million raise for web3 privacy firm Aztec Network.
4. And slightly talking our book - the NAB stablecoin is great news for real world asset tokenisation strategies as stablecoins are a huge link in the value chain and having credible bank backed stable coins is vital - we are proud to test it.

Lisa Wade (she/her) , CEO

About DigitalX

DigitalX Ltd (ASX:DCC) is a leading ASX-Listed Bitcoin and digital asset funds management business. The Company has a 9 year track record mining Bitcoin, blockchain and smart contract development. DigitalX Asset Management is the investment manager of digital asset investment products that provide qualified investors with highly secure and streamlined access to digital asset exposure. To learn more contact the team at [email protected] or visit our website https://digitalx.fund/.