At a recent buy side event hosted by Profit & Loss and CME Group in New York, a panel of cryptocurrency experts discussed how institutional investors and traders should think about these assets within a portfolio.
Interest in cryptocurrencies has skyrocketed amongst investors and trading firms over the past year, as the market capitalisation for this nascent asset class has increased dramatically and volatile price action has offered the potential for outsized returns compared to many traditional asset classes.
Yet some firms still consider cryptocurrencies to be too risky to include in their portfolio, a position that Ari Paul, managing partner and CIO of the hedge fund BlockTower Capital, took issue with on the panel.
The US Securities and Exchange Commission (SEC) has said that certain exchanges listing crypto-assets need to register with the agency because they offer trading in products that meet the definition of a “security”.
In particular, it is targeting exchanges that list crypto-assets linked to Initial Coin Offerings (ICOs).
“A number of these platforms provide a mechanism for trading assets that meet the definition of a "security" under the federal securities laws. If a platform offers trading of digital assets that are securities and operates as an "exchange," as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration,” says the SEC in a statement today.
Uncertainty about regulations, a lack of trusted custodians and concerns about security are key factors that continue to deter many large financial institutions from trading cryptoassets, says Kevin Beardsley, a managing partner at B2C2.
Amongst these three factors, Beardsley cited the lack of regulatory clarity around cryptoassets as the biggest issue for these firms right now, pointing out that no major bank wants to clash with their regulators for trading in what is, relatively speaking, still a small marketplace.
“The large institutions are all waiting for the regulations to become clear, which is a very rational approach,” he says.
From a regulatory perspective, one of the challenges around operating in the crypto markets is that different regulators appear to define cryptoassets in different ways.
For example, the Commodity Futures Trading Commission (CFTC) has defined digital currencies as commodities, while the Securities and Exchange Commission (SEC) seems to think that at least some of them might be securities.
Speaking at Profit & Loss Forex Network New York, Mike Gill, chief of staff to US CFTC chairman, Christopher Giancarlo, and the CFTC’s COO, discussed some of the challenges facing regulators when it comes to defining these products.
How have crypto markets in Asia evolved in comparison to those in the US and Europe? And will these markets look more or less different in the future? Galen Stops takes a look.
T aking a glance at the biggest crypto exchanges by volume and a clear pattern emerges: according to data from coinmarketcap.com, a website that tracks crypto trading volumes, at least seven of the top 10 ranked exchanges are based in the APAC region.
By contrast, some of the more better known US-based exchanges are found much further down the list.
At a recent OnTheBlock event in New York, Daniel Gorfine, chief innovation officer and director of LabCFTC, talked to Galen Stops, editor of Profit & Loss, about the challenges facing regulators overseeing crypto markets, why the rules in this space are often more clearly delineated than many will admit, and the key technology trends he sees shaping financial markets in the future.
Galen Stops: As a regulator, how does the CFTC approach the crypto space? Because it seems to me like there’s a fairly fine line to walk between allowing and encouraging innovation and new markets on the one hand, but ensuring that there are protections against potential bad actors on the other…