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Royal Gazette Bermuda:- BSX CEO : Shift happening in crypto exchanges

Hamilton Bermuda: October 23, 2018:


BSX CEO: shift happening in crypto exchanges

Scott Neil, Assistant Business Editor


While traditional stock exchanges and crypto exchanges have not melded together, Greg Wojciechowski senses a shift happening with digital exchanges moving towards more traditional exchange models “but with a modern flair”.

That was a view expressed by the Bermuda Stock Exchange chief executive officer during a discussion on crypto-asset exchanges at the Liquidity Summit.

He was on a panel with Ted Pendleton, head of business development at AlphaPoint, which runs trading infrastructure for some of the world’s biggest digital exchanges.

There are more than 200 cryptocurrency and crypto-asset exchanges in the world that collectively generate daily trading volumes of about $10 billion.

But that pales to the billions of dollars traded daily in global stock markets, and the trillions traded on foreign currency markets.

The question of how institutional investors and others can be enticed to place more capital on digital-asset and crypto exchanges was a central talking point for the conference panel.

Moderator Fennie Wang, co-founder of IxO, said institutional investors are thinking of cryptocurrencies as a new alternative asset class, but she wondered what needs to happen from a market, regulatory or technology perspective to get more of them involved.

Mr Pendleton noted that while the cryptomarket represents only 0.8 per cent of global GDP, it has taken just two years to reach that level, compared to the 20 years high yield bonds took to achieve the same.

“Yes, it is still small, but it is significant that it took only two years to do what took 20 years before,” he said, adding that the evolution AlphaPoint is seeing in its customers is a movement from the exchange of cryptocurrencies to using the technology to invest in other assets. He said more customers, including private equity firms, are digitising assets such as real estate.

“It is very much a fundamental model, but it is happening at a rapid rate,” he said.

The Bermuda Stock Exchange has a place on the board of the World Federation of Exchanges, a trade association of more than 60 publicly regulated exchanges. Mr Wojciechowski said discussions are taking place among his peers on crypto and digital assets, and “trying to figure out where the intersection point is with the old infrastructure”.

Some traditional exchanges that are in the process of completely digitising, while others are steering clear out of fear about the uncertainty associated with the digital-asset class. Mr Wojciechowski said: “There is a middle ground, a small niche of stock exchanges that say ‘we kind of get it’. We fit into that category.”

He spoke about Bermuda’s innovation, evidenced by new asset classes such as insurance-linked securities, which he said had taken hold because of the innovative and regulatory framework that exists on the island.

“I look at what we can do as a regulated exchange platform, and I’m excited because Bermuda can become the convergence capital,” he said.

Ms Wang asked what he thought about decentralised, non-custodial exchanges that apply blockchain principles and do away with the need for an intermediary.

Acknowledging there will be challenges to traditional exchange models, Mr Wojciechowski said: “I don’t agree with market place applications with digital-asset exchanges walking around saying ‘we’re exchanges’.

“They are applications in their market place. From where we sit an exchange conveys a very different thing [with] market infrastructure and a sense of regulation around the infrastructure.

“That creates a certain level of integrity, and a platform that gives comfort for users, that there is equal access and really solid price discovery — you can determine the value of the asset you are trading, and there are inherent protections on the pre- and post-trade side, and security around the custodianship of the asset.”

He said that until there is a regulatory framework that deals with placement of an asset all the way through the trading process and custodianship, digital exchanges would remain a peer to peer market. However, he noted there appears to be a shift happening towards more traditional models, “but with a modern flair to it”.

“The writing’s on the wall. We know how regulators are feeling on ICOs (initial coin offerings) or cybersecurity tokens. We are doing it in Bermuda, the SEC has been very clear about it. Some of these platforms are going to feel the pressure to act more like a centralised market,” he said.

Mr Pendleton said he tended to agree, and explained that one of the things that has to happen is for greater “trust and faith”, because investment institutions putting their money and investors’ money at risk “need the type of structures of the traditional exchanges to protect them from those risks”.

He noted that the promise of liquidity is one of the biggest needs for the new securities. Mr Wojciechowski agreed, and said: “Liquidity is the Holy Grail. That is the issue that is going to separate those that are successful and those that aren’t.”

Ms Wang asked: “Crypto exchanges are probably the biggest moneymakers in this space. Binance is probably the fastest profitable unicorn in history, and you have all these other exchanges that are making money whether the market is up or down as people move in and out of positions. They have their DNA in crypto exchanges, but with their infrastructure they can easily move into STOs (security-backed tokens) to directly compete. How do you think about competition from these new kids on the block?”

Mr Wojciechowski said it was a collaborative type of situation, and STOs will be looked at. He said the Bermuda Stock Exchange would protect what it has achieved, but it would also like to see a hybrid between the traditional exchange model and the new digital asset exchanges.

“We have to look at systemic risk. Regulators are very careful at looking at anything that has wholesale systemic risk,” he added, noting that while there is still some scepticism there is “real discussion” going on.

He said: “It is not going to go away. It is evolving. The train has left the station.”

The Liquidity Summit was held at the Hamilton Princess & Beach Club, and was the finale of the two-week Bermuda Innovation Sprint hosted by Hub Culture



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