The saga of the institutionalization and regulation of digital asset markets is one of the most important and compelling storylines in financial services today, with massive implications for the future of investing. And while market participants and the regulators that oversee them have demonstrated a remarkable willingness to engage on these topics, voices from around the industry have been clear in their demands for more: more discussion, more clarity and, above all, more opportunities to lend their perspective.
That’s why we at Eventus, in partnership with the Association for Digital Asset Markets (ADAM), were proud to host Shining a Light on Digital Asset Markets 2021, a two-day virtual conference that assembled leading names from top regulators, exchanges, trading firms, asset managers, media outlets and more. Over the course of more than a dozen panels and interviews, these individuals discussed a wide variety of issues concerning digital asset institutionalization and regulation, helping to drive forward some of the most important ongoing industry-wide conversations in this space.
The agenda was a who’s who of digital asset thought leaders. Participants included:
- SEC Commissioner Hester Peirce
- CFTC Commissioner Dawn Stump
- European Commission Advisor Peter Kerstens
- MicroStrategy Chairman and CEO Michael Saylor
- Galaxy Digital Chairman and CEO Mike Novogratz
It was an honor to bring together so many prominent individuals, especially as they provided incredible insight into the state of the digital asset space today.
One idea that came up repeatedly was that regardless of the specific issues playing out right now, the current environment is markedly different from just a few years ago. Investors have been consistent in their demand for ways to access digital assets, and institutions and regulators alike are responding with an appropriate level of focus.
“Even a few years ago, ‘crypto’ was a four-letter word. We came out of crypto winter two years ago asking if crypto was going to survive,” said Brad Vopni, Head of Digital Assets at Hudson River Trading. “Now here we are on this panel, and we’ve seen events like Fidelity Digital Assets getting into crypto, MicroStrategy putting crypto on the balance sheet, Coinbase and Silvergate are public companies and Paxos operates under a registered trust. Each of those things, while not tipping points themselves, add to the ever-growing narrative that crypto is here and legitimate.”
Saylor echoed this sentiment with a prediction: “You are going to see the bigger banks and insurance companies begin to integrate digital assets more closely into their business.”
Another overarching theme was the unprecedented level of engagement that regulators have shown in gathering information to provide guidance and frameworks for digital asset markets. While casual observers and even some eager institutional entities may feel frustration at the seemingly slow pace of this regulatory activity, there was a general consensus that agencies are working quickly amid timing and budget constraints, have an expert understanding of the issues and are committed to helping investors access digital assets in a fair and secure manner.
Commissioner Stump provided a great analogy that illustrates the importance of balancing innovation with regulation. She talked about how grain farmers established early exchanges to have more certainty in pricing and settlement, and how years ago electronic markets were initially banned, but ultimately accepted because of efficiencies and innovations. Both examples point to the importance of taking the long view when it comes to new ways to conduct markets and invest.
This includes the prospect of a Bitcoin ETF, a longstanding goal for digital asset players that has failed to gain SEC approval despite numerous attempts. “Ultimately this process isn’t any different for a Bitcoin ETP than it is for other products that don’t meet those generic listing standards,” said Ryan Louvar, General Counsel at WisdomTree Asset Management.
At the same time, Commissioner Peirce did express some concern that too much of the focus on crypto markets stems from enforcement actions and not enough from policy proposals, noting that the issue did not make the SEC agenda for this year. While suggesting caution as participants evaluate DeFi projects, Commissioner Peirce posed thoughtful questions wondering whether software initiatives could ultimately enhance regulatory efforts and whether we could promulgate regulation in innovative ways.
Meanwhile, Peter Kerstens touched upon some of the top reasons for the EU’s movement on digital asset regulation, which included industry demands for clarity, incentivizing responsible innovation and the need to homogenize rules as member states began to implement their own regulatory frameworks.
Regardless of jurisdiction, robust market surveillance and risk management systems are needed to both protect investors and satisfy regulators. This was discussed on our panel on surveilling the digital asset markets, where panelists tackled topics from the FATF Travel Rule to the surveillance processes in place at their respective firms.
In addition to commenting on macro storylines, participants didn’t shy away from current events. Saylor shared his views on China’s recent crackdown on crypto mining, predicting significant implications for the industry at large.
“China had more than 50% of the bitcoin mining industry,” said Saylor. “They were converting wasted energy into hundreds of billions of dollars, and the government drove miners out of the country. [Now] bitcoin miners elsewhere will be more profitable.”
For Novogratz these developments hardly altered his long-term view of the asset class.
“The markets have sold off, but Bitcoin is still closing the day above $30,000,” said Novogratz. “The system didn’t break. The mining will get redistributed away from China, which I think is a positive thing. It leaves me more bullish. I think this is an amazing opportunity now because we’re in a transition.”
That concept of the industry in transition can be applied to digital assets more broadly, not just the mining crackdown. We’re in the process of moving from the old way of doing things to the new, where the possibilities seem endless. The story of digital asset institutionalization continues, and by having discussions such as these, we can help ensure regulators and market participants alike are better equipped to move it forward.
Recordings from the conference can be found HERE.
About Eventus Systems
Eventus Systems is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.