Raakhee Miller On Crypto Pain Points09.19.2018
What do you think are the pain points of this market for institutional investors?
We’ve been looking at this new evolution of Blockchain and crypto and I think some of our internal theses on what’s going on in this marketplace and why aren’t the banks getting into it. First, It’s interesting to see some of that now come to fruition. Regulatory scrutiny was a big one and obviously the banks have to operate in … and then institutions, large institutions have to operate in a very clear, regulatory framework environment. If anything, sometimes maybe a overtly regulated framework environment, as we’ve seen with Dodd-Frank and MiFID etc, globally.
Then crypto comes in and there’s been a little bit of wait and see. First of all, it has to be an investable asset and it has to provide some value from that perspective. So, I think the initial stages were kind of this wait and see. But now, we’re finding with the clients that we’re talking to is that they just can’t wait to see anymore. Their clients are calling them and want to get in. People in family offices, private wealth clients and also prop traders all want to get into it and get in on this action.
Also, volatility is a bad word here and in a lot of instances – such as crypto and Blockchain circles – there’s a lot of talk about bad volatility is and the like. And this manifests in prices of Bitcoin and that becomes a big focus. But, volatility is where institutions start to gravitate towards. That’s where most of them will make their money (on the volatility trade.)
We feel like right now is the right time to get involved here and is why we’ve come to market given these problems facing these institutions. First, it’s great they’re convinced crypto is it. It’s not going anywhere. And we want to be in this. We want to have the upside and provide our clients upside exposure. Now I think a major issue is infrastructure. So, for institutions to get into anything they need an infrastructure that they are familiar with or similar kinds of structures that they’re used to operating under. A lot of the organizations are large with hundreds and thousands of people and a lot of inbuilt systems and infrastructure in place. For them to add an asset class into that mix, to support it is challenging. They need to support it from a compliance perspective and provide to their customers with simple things like reports, evaluation, custody, even best prices and that’s the challenge. We’ve been asked well how does a customer ensure they get best price?
Then we have a marketplace that has 200 odd exchanges and traders playing what we’re calling ‘Jurisdictional Arbitration’ at this point, it’s even more of a challenge. Here are some of the jurisdictional hurdles. If you are New York-based, you can’t always connect with some exchanges. But if you’re in Oklahoma, you can. You might get a better price if you’re in Oklahoma. Something seems odd about that equation. Now If you extend that out globally and look at the exchanges global fragmentation, connection prices to exchanges in Japan versus Korea or China or the United States or Eastern Europe are all drastically different. So, you have these differences and people are trying to exploit them. But at the end of the day, from an institutional perspective, they need more clarity and greater ability to answer some of these questions for their customers. Customers who want to get into this space want the assurances and the surety of the organization that they can provide best prices. Also, that they can securely hold or transfer their assets as well as provide them the same types of services they’re used to when trading equities or other traditional asset classes.
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