CoinMetro’s CEO, Kevin Murcko brings you the most recent crypto market news during the weekly AMA every Friday.
Crypto Market News Highlights
BlockQuake is a new crypto exchange in beta, who cares. Prime Trust a custody agent. In this article they say “banking”, but you can’t actually do banking if you’re not a bank.
What they’re doing is instead of a client depositing directly with their exchange, they instead deposit it with a custody agent, and the custody agents alerts the brokerage.
Kevin doesn’t know much about Prime Trust, but knows several other custody agents from the FX days. The problem with trust agents is that the fiat needs to move sometimes, to liquidity providers for example. That can become onerous and slow with a custody agent.
Exchanges making use of these services — more than likely do not care about that, because it is not part of their business flow. Why? Because they are either market making their client book, or they simply do not understand the implication of having money stuck for days where you have settlement from a trust account into a liquidity provider’s account, which basically completely screws the way that you are able to maintain margin/credit or your ability to keep on pricing through that market maker.
Kevin thinks services of this kind will get better over kind, especially with the implementation of smart tokens and stablecoins, when more of the institutional liquidity providers start to allow movements of deposits with that type of asset.
We often talk about this. A year ago, people were so convinced that no KYC/AML would ever touch crypto, because crypto is awesome and the governments suck. Slowly but surely, that has changed.
This is an example of a government setting a threshold. So, in Switzerland, under 1k, you are not obliged to do KYC. Does that mean you as a company shouldn’t do KYC? Maybe not.
A company like CoinMetro, let’s say with our volume now — 700k EUR, and for simplicity, lLet’s assume it’s 700 clients doing that volume, 1k per client. If 70 people made questionable deposits that weren’t screened initially, that means 10% of your active clients are now trading with money that is questionable.
The government may say that you don’t have to screen those guys, but your banking partners, and the government entities you are supposed to report these type of transactions to, will come down on you and say “How is it that 10% of your clientbase is involved in scams, human trafficking, and drugs?”.
We are obliged to look into these things. Internally, for a company that wants to protect itself and its clients, it makes sense to do these things even with thresholds set by the government.
A scenario: When (not if) a company gets screened, and are found to be negligent in one way, shape or form — their controlled wallets and bank accounts get frozen by the government. What happens then? There are no withdrawals. Even if you are a client who’s clean, if you happen to be using this exchange — your funds get locked. Those investigations can take months, and they can take years. Just because you wanted to join an exchange without having to take 5 minutes and upload a document.
Want to read more about Why KYC is Important?
You notice a lot of companies getting into this. Kevin has mentioned before that all these major companies are going to have some type of blockchain/token over time.
These companies are ploughing money into this technology — small money for them, $35m in this case — because they don’t want to miss out. They may lose on this investment and make money on another, but they will plough money into blockchain, tokens, tokenization over the next few years, because they realize it’s the future. They just don’t know why it’s the future yet.
Curious about What is Blockchain?
Let’s see how long BTSE can stay stable.
Kevin knows from personal experience how it is to go through licensing processes when licensing is already way too cumbersome. It’s not cumbersome yet for crypto. It was for FX.
FXPig made the decision to go to Vanuatu, and operated fine there for years. What it did do was make things like banking, extremely difficult. And you are placed into a box which makes it hard to operate and do things, things that your competitors can do.
It’s too early in crypto to start moving to offshore paradises, when it’s still easy to operate within a regulated sphere. It will simply lead to them not being able to scale. That’s it.
Sustainable Development Goals is a list by the UN. Smart cities are kinda cool. But all of this is really at stage zero right now. To have a smart city, you need smart inhabitants. Even the smartest city in the world would not function the way it was supposed to function because the inhabitants wouldn’t live up to par.
It’s cool to read about, but Kevin doesn’t see smart cities becoming the norm within his lifetime at least. Eventually, it is going to happen. But it’s not going to become a mega industry in the short term.
Answer is, Asians are gamblers. Gamblers like to see big and quick gains. They love token sales because you lose 99% of the time, but when you win, you win 1000x.
With tokenized securities, you are basically buying into plain vanilla stocks or bonds. You can pick a winner like Amazon or Apple and go up thousands of percent. It’s possible. But the vast majority of these things are going to gain single digits every year. Maybe double digits year in the first.
They’re not as exciting, and Asians are risk takers. Not very good ones.
It’s a big yawn in parts of Asia for crypto people, but they are not a big yawn for people who are savvy about capital markets. They are a little off-putting to capital markets people so far, because there is no infrastructure. Ding ding, CSD and MTF.
With those pieces in place, institutional and retail investors will be gobbling them up in Asia. Maybe not crypto people. And what’s that, 0.000025% of the world population?
Check out the January 2020 Crypto Market Review.
Circle is breaking themselves up. They want to get away from retail. Institutional means no marketing, for the most part.
Retail is difficult, but it’s an underserved market and it’s a big reason to be in retail.
Because of who owns Circle, they are much better suited for B2B, institutional. So they are trying to sell pieces to regain the money they lost, which makes sense.
Nasdaq, Morgan Stanley and “trading veterans”. A trading veteran on a desk is a guy that follows a risk parameter set by the bank, to not lose money. It means he knows how to move money quickly, according to parameters set up by his boss.
Morgan Stanley, one of the worst makers makers in the history of market makers — probably lost more money market making than even JP Morgan, which is pretty shitty. And Nasdaq. Nasdaq just makes technology. And not necessarily that great technology.
So these are guys who left their jobs to make something that supposedly provides liquidity, by “uniting crypto market price ranges”. Kevin thinks this means that they pull liquidity/quotes from many different exchanges, to get one Non-OTC quote. Basically aggregating quotes to try and find where liquidity sits, where there are pockets of liquidity that aren’t being hit, because they are probably inside the spread, or something along those lines.
It sounds nice on paper, but in reality, it probably won’t do much. You need liquidity inside of those ranges to be able to aggregate it and provide more liquidity. Just aggregating doesn’t actually provide liquidity.
Suffice to say, when tools are made for institutional players like exchanges, that actually help them create a better market, there is no need to release a PR statement about that — because it’s B2B — and as soon as it works for one, everyone will use it.
Kevin thinks this is probably accurate, and it’s not too surprising. What it means is that the rest of the world, meaning entities like OFAC and FATF, will dislike Monero even more.
Again, pseudo anonymous. This is actually good news, for all the regulators and banks that have been saying that “Bitcoin is anonymous, and if you touch Bitcoin we’re scared because you can’t track the money”.
Well, obviously you can. This guy used “Bitcoin privacy tools” and was arrested with enough evidence for laundering money. So the pseudo anonymity of Bitcoin actually makes it more difficult to launder money, than it would be to do in cash.
Kevin thinks this is a blessing in disguise. It’s meant to get peoples’ attention, but it proves the point that Kevin has been telling regulators and banks for the last year or two — you should be happy that we are working with Bitcoin, because it allows us to give you more data and information on our clients and transactions, to make sure that we are not accepting illegal funds.
Tune in every Friday for “This Week in Crypto” with CoinMetro’s CEO Kevin Murcko on our Youtube channel: https://www.youtube.com/coinmetro