In March, Bittrex Global opened trading on a EUR-BSV pair to its users in Europe’s Single Euro Payments Area (SEPA) and beyond, offering BSV-fiat trading to a new, larger market.
CoinGeek had the chance to catch up with Bittrex Global’s COO and CFO Stephen Stonberg to learn about the future of the digital asset industry, the regulatory atmosphere around blockchain and digital currency in various countries, and low-liquidity, no activity, digital currencies, and how likely they are to exist into the future.
What are some of the significant changes taking place (or that need to take place) that will shape the next phase of the digital asset space?
We are seeing the maturation of the digital asset space, driven by two mutually supporting trends. The first is the development of more robust regulatory frameworks, both in individual nations and trans-nationally. A greater focus on anti-money laundering, Know Your Customer and asset protection is helping improve the sector’s reputation, and providing confidence for more investors to enter the space.
That is driving the second trend, the involvement of corporations and institutional investors. With institutions generally increasing digital asset allocations, and big tech companies like Facebook and Samsung working on cryptocurrency projects, we are starting to see both digital asset investment and infrastructure develop at scale, something we expect to accelerate in the next few years, driving overall growth in the market.
Is there institutional interest and adoption in the digital currency markets? If so, what route are these institutions taking to establish their position in digital currency—are they buying the digital currencies themselves or are they more interested in the digital currency derivatives markets?
We are undoubtedly seeing institutional involvement in the digital asset space grow. We can see that both from sentiment and investment flows. A survey by Fidelity last year found that 47% of institutional investors believe digital assets have a place in their portfolios, and over a fifth (22%) already have allocation in the space. While Grayscale, which specializes in crypto asset management, has reported that it saw more inflows last year, $607m, than in the previous five combined. Over two-thirds (71%) of that investment came from institutions.
In terms of investment tools, we don’t have exact figures but it’s safe to say that institutions are using crypto derivatives as they would in any other asset class to manage risk and liquidity.
A number of blockchain projects struggle to stay afloat, what do you think will happen to the chains that aren’t seeing use and adoption?
Not every blockchain is going to remain viable over the medium to long term. As in any market, we would expect adoption and use to cluster around the blockchains that support digital assets with high trading volumes and liquidity. There is nothing inherently special or precious about any one blockchain: as with any technology, it will support both successful and unsuccessful products, depending on how well they are designed and marketed. That is a natural part of how what is still a nascent market will evolve and find its feet.
A number of exchanges don’t list Bitcoin SV even though it is often a top-five digital currency by market cap. However, many of these exchanges support a number of low-liquidity, no activity digital currencies. Do you have any insight on why this is the case, and why a number of digital currency exchanges refuse to list BSV even though it is one of the only digital currencies where businesses are being built and where consumers are using BSV-based apps (like Twetch)?
We have BSV listed on Bittrex Global, offering four currency pairs for greater user experience. Every exchange will make its own decisions and speak for itself, but liquidity isn’t the only criterion when deciding what to list. Something innovative projects in early development will have low liquidity, using native coins to incentivize its developer community. We will work with projects and coins where we see an opportunity to meet the needs of our customers and support innovation. In some cases that means helping projects of differing size tap into additional liquidity.
Recently, a lot of exchanges have been delisting low-liquidity, no-activity digital currencies. Why would an exchange list a digital currency that fit that description in the first place?
This is a natural part of working in an early-stage market, where not every good idea will turn out to be a long-term success. Sometimes an exchange will list a project or protocol that seems to hold significant potential. It might have a strong developer community behind it, have letters of interest signed with large corporates, or impressive proofs-of-concept in the pipeline. All of those are good indicators, but none guarantee success.
We’ve seen our fair share of great ideas that haven’t come to fruition. So when you see de-listings due to lack of activity that doesn’t mean it was necessarily a bad decision for the exchange to back a project in the first place.
Is there an industry-wide change taking place regarding which digital currency assets get listed on an exchange and the vetting process a coin or token goes through before it is listed?
In our case, we work with different regulators to ensure projects meet internal criteria for a successful listing. That means passing our strict due diligence processes, in some cases requiring a legal opinion or no-action letter from a regulator, among other measures.
We can’t be sure how other exchanges carry out their onboarding, but the direction of travel in the industry is certainly towards stricter criteria and diligence processes, as regulation becomes more stringent. That is a positive development that will lead to more robust exchanges and better protection for investors.
Will we see an industry-wide framework for how digital currency exchanges operate and list tokens in the future?
It’s possible that regulators will impose a specific framework, though at the moment we are seeing exchanges do much of the work of ensuring stringent due diligence independently. We know that regulation is on the rise, so it wouldn’t be a surprise to see more specifics be imposed, though this shouldn’t represent a sea-change from exchanges that are already taking a responsible approach. Ultimately regulators and robust exchanges are moving in the same direction on this issue.
How has local and federal government regulation affected digital currency exchanges? Which states/countries/reaches/continents have the most stringent regulations?
We’re seeing regulators across the world take a bigger interest in digital assets and exchanges. That’s happening both on a national level, and across trading blocs like the E.U., which recently required its member states to implement the terms of a new anti-money laundering framework, meaning crypto exchanges and custodians must register with their local regulator and comply with its AML and KYC requirements. We’ve also seen moves towards clarifying regulation of crypto assets in the U.S., with a new bill put before Congress, and Russia expanding its existing AML regulation to encompass cryptocurrency.
One important national story is Liechtenstein, where Bittrex Global is based. Here, the Government has introduced the so-called Blockchain Act, which allows for a wide variety of underlying assets to be tokenized without complex legal workarounds. We believe this is a pioneering regulatory framework that will do much to encourage innovation in the space, and is a model others are likely to adopt.
How will the regulation around digital currency exchanges look five years from now? What do you think the regulators have in store?
There is going to be more regulation, furthering existing KYC and AML measures that seek to offer consumer protection and verify the source of funds. We will also see regulators start to address more specific issues, such as whether retail investors should trade in crypto derivatives, something the U.K.’s Financial Conduct Authority has been deliberating.
Broadly, we welcome the prospect of a more regulated sector. This is a necessary part of the evolution of the market into a mature asset class that can support all types of investors. When done right, regulation can be a catalyst for innovation and we encourage regulators to work with the industry to ensure they are supporting rather than stifling innovators, as well as safeguarding the interests of consumers.
Where do you see the digital currency industry 10 years from now, how will it change, what will we see more of, what will we see less of, and what will a digital currency company need to do to survive 10 years into the future?
Cryptocurrencies are barely a decade old as we stand, so a 10-year timeframe is going to see massive evolution in the market. We expect that the next decade will mark their emergence as a mainstream asset class, and a significant part of both retail and institutional investment portfolios. Additional liquidity should also temper some of the volatility that has been a feature of the early days of cryptocurrency, though we expect the low correlation with other asset classes to continue.
The durability of companies in the space will depend on two things: their ability to support innovation and the security they provide. People who invest in digital assets are seeking new financial solutions that behave in a different way from mainstream asset classes, so innovation is crucial. But that is only sustainable if platforms can provide best-in-class security that allows investors to sleep at night. Every company in the space needs to juggle those two key factors to survive the next decade, but for those who do the opportunity is immense.
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.