Crypto Trading Infrastructure for Institutional Investors | European Blockchain Convention 9

[Music] 3 2 1 [Music] go hello everyone um welcome back again um after the break I am Bal Jaffer uh for those who were not here for the first session that I did earlier I'm crypto and fting correspondent at Dow Jones in London and today we do have a very very interesting topic to cover and we do have some of the prominent names in the industry to discuss the future of institutional crypto trading so first thing first um please introduce yourself and then we'll do the round of questions please with You Chris thanks Bel uh Chris rulia I'm with wincent we're a hedge fund and Market maker also have a OTC desk uh looking forward to the panel uh giving our perspective as traders in the market since 2017 crypto native but a regulated fund so really looking forward to discussion s thank you I'm s moini I'm the founder president and chairwoman of unicoin unicoin is a SE regulated public reporting company that is backed by assets and I am also the founder of unicorn Hunters a reality like TV that Scouts companies with unicorn potential and allow people from the audience to invest in them thank you very much my name is Christopher seop I run the institutional sales efforts at uphold we're not an exchange we're a liquidity aggregator and I guess liquidity is going to be one of the key Focus points for today's discussion in my previous live I spent 20 years trading equities so the infrastructure that we're hopefully building here in crypto is very familiar to me good afternoon everybody uh my name is Simon forer I am one of the co- heads of the digital assets business at tpic cap uh tpic cap are the world's largest inter dealer broker so we're middlemen uh intermediating the world's Financial energy and commodities markets uh the digital assets business within the firm uh began back in 2017 based on two key thesis one uh crypto would become an institutionally investable asset class and if that was to be the case our client s who are banks hedge funds asset managers and Pension funds would look to TPI cap to service them and the second area is around the technology that underpins the asset class we expected to see significant disruption to financial Market infrastructure for traditional asset classes uh through tokenization and that's something that we have a keen uh focus on as well so just to start with first thing first which I believe is really really important to understand how would you define an institution because I do believe that the definition of an institution has changed quite a lot in the last few years so how would you define an institution first uh I suppose that's a good place to start um for me I for the purpose of the conversation I think there's a spectrum so that Spectrum at one end is financial institutions that are regulated uh perhaps they're in the let's say traditional asset classes um going down the Spectrum or through the Spectrum corporations so prior to Winston I worked at an exchange during the bull run there were a large number of Corporations the most famous of it was Tesla with Elon buying Bitcoin and holding on the balance steep so I think they would count in that definition as well uh and then you've got Crypton native institutions that have been in this space for a while so for me that would be the Spectrum SV your thoughts please well I it allall as the opposite of retail and as a less educated with less access to to Resource institutions have more access and are consider in general to be much more educated investors Christopher yeah I agree with the um everything that's been named so far but to Savannah's Point um the everything except retail we regard as an institution um I'd like to throw family officers into the mix and Venture capitu firms that that look to trade and invest in this space I'll be a little controversial here and say we have a slightly tighter definition uh I think 2022 is a bit of a watershed moment for the crypto industry um what we deemed and considered an institution prior to that was I think quite vague and quite Broad and didn't really capture what truly institutional clients are and their needs uh institutions in our world are banks hedge funds asset managers Pension funds um and and I think that definition is now being more um it's better understood than it was previously and Simon starting with you about how institutional crypto trading has changed in the last few years yeah it's a I guess a very topical question um I think you know crypto was and still is to a large extent a retail driven Market so a lot of the exchanges and platforms and providers in the space were developed to service retail participants obviously then we started to see some high net worth individuals some family offices moving in and people started to talk about the institutionalization of crypto but unfortunately what we saw in 2022 is these vertically integrated exchanges that offer multiple servic Services I.E trading clearing settlement custody maybe some type of principal investment principal trading are really not fit for purpose especially for the institutional Marketplace so what we are starting to see develop is um people entering the space that are more acutely aware of the importance of Regulation you're starting to see Brands move into the space that are more traditional in nature that have maybe track record in servicing the wholesale Marketplace and you're also seeing operating models where people specialize in certain areas and the most obvious one that we are seeing is a segregation of execution from custody our view has always been that that is principal to any institutional client entering the space and it's nice to see exchanges unbundling I guess the question is how successful will they be and how easy is it to to take a retail platform and retrofit that to an Institutional client Christopher your thoughts on this yeah I think Simon made a very key point there and that's liquidity um if we look at Bitcoin and e um by far the most two liquid tokens if we want institutional investors to come into the space and it's a bit of a chicken and egg situation where we want them to come in but they need to liquidity but they will bring the liquidity so we we're focusing on old coins uh we're not an exchange we're not a custodian and again to to Simon's point we focus on um a core service um and that is bundling liquidity across centralized and decentralized venues and we see that as an extremely beneficial service to trading old coins because if you think about the trading size is that institutions want to trade in and probably just as importantly out of positions um liquidity in all coins is drying up very quickly when you move down the ladder Vina well we came from crypto where it started as a solution for a niche who was seeking anonymity founded by an anonymous people into the wild west and we went through several Downs to come to realization that we need to put the larger pants and grow up as a as an industry and we saw that not only with the evolution in regulation and the need for regulation but also into the in the crypto space as in our case the opportunity to build more complex financial instruments that leverage from the best of the financial world but also the back from blockchain technology so I think that this is going to to bring a a many opportunities the ETF is going to bring institutional money into crypto that will bring the legitimacy that many of the people out there didn't see and the stability that will address the volatility of the traditional cryptocurrencies we'll definitely discuss uh the ETF the upcoming the potential uh Bitcoin ETF in the US and how it can impact the markets but moving on uh Chris how different is institutional crypto trading infrastructure compared to the retail one um it's it's very different and I think if we look at the journey that the Market's been on so uh you know to what we've already talked about you know we've got we've got crypto that's grown up as primarily started as retail trading and you have the exchanges that were designed to serve that market but what we're now seeing I think is um the emergence of you know the likes of TPI cap and Fidelity and others coming in the space or have been in the space a while building out solution we're seeing Banks exploring how they come in the space um certainly banking as a part of the whole infrastructure is still still something to be solved and something I think I hope certainly hope tier One banks are looking at and looking at how they come in I think the other side is prime Brokers you've got you know the prime broker model that exists in the traditional space uh not so fully built out to date in the crypto space but coming that way as well and then there's a whole settlement and Simon's point about um you know segregation of assets and you know we've all been through the storm you know concentration risk and counterparty risk were things that we didn't let's say from a coming from a crypto native side didn't necessarily think about before but now it's top of everyone's agenda who am I trading with how are my assets being stored how are my assets being moved you know what are the sort of protections around that so you know all of those types of things coming in on the institutional side versus let's say the retail side Christopher I would like to ask you what sort of advantages you get when you come into the crypto institutional Side Market having that traditional Financial background what sort of what sorry but what advantages you get uh when you're coming from the traditional Financial yeah so look it's a very good point and there was a large influx of people I don't want to call them necessarily talent but people from traditional Finance coming into crypto and and there is a certain level of credibility in order to then speak to institutions and and convince them or bring them across the line and by that I mean um we've talked about segregation of assets we talked about liquidity we need to be able to assess the impact that an Institutional trade will have on the price it's called you know pre-trade analysis post-trade analysis trading cost analysis and those kind of tools and data and we're going to touch on reporting later we basically need to make it feel just like trading equities or bonds and by that I don't just mean the user interface I mean the reporting obligations I mean the um the analysis of the actual trading and and coming across from equities it definitely makes it makes it easier to have these conversations with the institutions that are looking to enter the space Simon um I think if we um compare what the landscape looked like pre 2022 and and what it looks like today I think you can already see how things are changing I mean the ETF that we touched on it's been discussed a few times today that is a product that institutions are very comfortable with and familiar with so by definition their access point into crypto via an ETF is much easier it's much more comfortable because it fits within their existing framework you know at tpap we are we are a big operator of venues so mtfs and otfs in Europe and the UK they are regulated marketplaces for the trading of equities fixed income money Market instruments FX so all of that expertise that we have developed and has evolved over the last 10 or 20 years really does put us in a strong position to understand what our client base are looking for in crypto but today some of the basic building blocks haven't been uh in place we haven't seen u a really well serviced custody landscape although that is changing with firms like uh Fidelity in in the in the market and have been for a while so I think over time you're going to start to see these Brands come in you're going to start to see regulation potentially become more harmonized across the globe and as that happens you'll start to see an ecosystem that looks more familiar to firms in the traditional space uh and maybe less kind of crypto specific svina your thoughts you mentioned before ER if there were difference between retail and institution and and and I think that they are different but more and more through technology they are getting equal because one of the big differentiators in the past is that retail investors didn't have access to tools for making educated decisions and today information is quite pervasive so what brings the the background into the crypto wall as an advantage having a financial background in my case h my partner is a former Banker so when we approached the creation of a crypto we went the regulatory way thinking as Bankers so we created a coin that was plan to be backed by assets that were purchased by using the coin so and created through that assets supporting the the coin thinking as a finance here on different instrument like high notes uh buy now pay later ER collaterals and the traditional instruments that are done done by Bankers but we sold to Consumers we sold to retail so we saw that there was an opportunity to build using crypto something similar CH will democratize the access to investment opportunities for the masses giving the people the same access that institutional investors will have and through that bridging this Gap so for me the contribution of having a financial background into the crypto wall is to basically connect the dots making it for the retail investors giving the power to the retail investors to basically transact almost at the same level and with the same capabilities that institutional investors are doing it's something similar to what we are seeing now with the ETF if you create the asset that are back in what you see in the market GIS uh yeah I don't think I've got much more to add I think um one thing that comes to mind in the points that have been made um just thinking about institutions coming in um you know we we talk about the ETF that's a spot ETF but um as these larger institutions come in particular if we take Simon's definition of those institutions they're going to look for other more complex financial instruments and it's are we ready for that we do have markets where we I mean we trade perss we trade Futures and there are markets for that but let's say they're more crypto native markets so obviously we've got CME and you know others but and and and more are coming in terms of regulated Futures exchanges but these types of Institutions will expect to be able to trade those types of instruments Futures and options particularly hedge funds and so you know we'd expect to see the development of those and we'd want to see the development of those as well so in the last few years especially during the last Bull Run what we saw an influx of people from traditional financial backgrounds from Banks from Asset Management from hedge fund firms coming into the crypto side as of now where do you see opportunities for crypto Talent when we talk about the institutional side of crypto business you can start Chris yeah I think that's an interesting question um we kind of I guess touched on it with Christophers but you know we've seen people from traditional Finance coming into crypto um but I think the same might happen the other way so people who've been in crypto for a while and as the traditional firms come in you know again Simon's definition they may need expertise they may need people who've been in the trenches a little bit so I think we'll get to this point where we won't see a distinction we'll just see firms that are trading in the space and we'll see Talent going between them and hopefully it'll be a better bigger market for all of us and more opportunity so yeah s your thoughts I think that the financial industry hadn't changed much since the medes so it was a time uh about time to to get a a transformation so we see that a lot of people now are from the finances getting into crypto because they saw the power of the blockchain technology to provide a better platform for Investments but also for transactions globally but also because when it started crypto was about the technology it was about the creators of er the technology behind and now it's about having a solid financial model where it will make a crypto company successful Christopher yeah I guess um it it it it it's a mix of Both Worlds and I mean sometimes I wish I was a student again who could now learn of all about blockchain and and Degen trade my way through University but at the same time having having worked in traditional Finance can can also be beneficial as I mentioned before but um with regards to the the people working in crypto now and the connection to the financial institutions we had a panel earlier today about tokenization and that's that that will take up a huge part and and and a lot of effort to to lift it off the ground even though we we're already pushing ahead with really interesting proof of concept but just the blockchain technology I mean for me personally it's been an educational journey and and long may it last and and I'm I'm really excited and and grateful to be working in this space Simon uh not a huge amount so add but adding to Chris's Point around uh the flow of talent between the traditional space and the crypto space um we have historically attracted some quite senior and significant names from Banks from big hedge funds into the crypto ecosystem which is fantastic because they bring a level of expertise and experience and credibility that the industry certainly looked for but we're we are actually seeing the opposite happen now and there's been recently a couple of very high-profile names that have left trading firms in the crypto ecosystem to go back to the commodi space so it's certainly not one directional uh crypto is obviously has been a little bit depressed uh other asset classes are potentially looking stronger Commodities being one or oil in particular I think obviously the shiny new toy is AI um so I think as we have seen in previous Cycles the people that remain in this space during the depressed periods are the ones that are potentially helping Define the next cycle and you talked about some of the prominent hedge fund managers and asset managers actually coming into the institutional side of crypto what do you think attracts them if I ask you yeah I mean volatility is certainly something that we have seen that we're quite heavily involved in CME uh products uh the Futures and options on bitcoin and ether we have teams that provide price Discovery and execution to our Global client base across the three main regions um and we see clients from the traditional space Banks asset manager and hedge fronts the the multi strats coming in and looking to test their models uh deploy Capital into this space Trade volatility but do so through regulated products that they are comfortable with and familiar with I.E the CME but if we look at the derivatives landscape the CME is still a very very small percentage of overall derivatives volume um on the option side derit dominates and think that is a reflection or a data point that suggests actual institutional adoption still hasn't really started to take hold but if you look at the trajectory of CME products in terms of volumes it looks like it's heading in a direction that would indicate we are seeing more meaningful adoption and we see that firsthand with the clients we're servicing Christopher you have anything to add yeah I think uh that's a very good point what what attracts a hedge fund is the opportunity that comes with volatility right and and all the strategies that have been applied in in traditional assets are now visible in crypto whether that's long short uh certain tokens or or Arbitrage or Market neutral strategies using derivatives I mean derivatives were invented to for risk management purposes but they can obviously also be used to to to enhance returns but these hedge funds that are coming in and some really prominent names you know whether it's bhow digital or 72 that are really active in the space um the the initial attraction is is the outsized returns and we see again even though we're in a winter it it seems but we we cannot forget that Bitcoin is the best performing asset class again this year so um yeah it's it's exciting to see these players come in I mean to Simon's point we need multiple um derivatives exchanges offering these these products it can't be such a concentrated risk and speaking of concentration risk I mean we need the same for the prime brokerage landscape for for all pillar of service providers um there need to be more players entering the space which will come over time yeah s I don't come from a hedge found background so that's not the the proper question for me to to answer but one thing that I would like to to bring to to the attention is that crypto is the second asset class for investment after fiat currency for women so it's allowing women which is a very strong powerful economy to get into investment it's the first entry point and I think it also brings a massive opportunity through the generational shift to have more women taking control of their financial future and this is going to be done I believe through crypto Chris I yeah I think um to Christopher's Point uh Bitcoin is for me the window into the overall asset class so Bitcoin is a natural point of entry I think for a lot of Hench funds attractive in terms of the returns you've seen um I'd say much more obviously mature than other assets but um perhaps just like the QQQ was the window into you know the NASDAQ you know stocks maybe back in the dot days you know that was the entry point at the time and then that gave institutions hedge funds the ability to then explore other assets so I think there is a curiosity entry point being BTC and then the beauty of the crypto space is that you have so many more assets existing today and then if we take into account Tok to iation and the tokenization of real world assets and you know you've got the likes of you know archak and others who are out there where you can trade you know tokenize equities and you know all these sorts of things then becomes attractive as the market grows potentially for those hedge funds to come in so for me it's entry point and the beacon is BTC and then we go from there and how institutions can build a solid trading infrastructure when you talk about crypto uh quite a broad question I think uh We've touched on some of it I think uh the question of well so number one I think we've leared that custody needs to be segregated and that custody needs to be in the hands of a trusted custodian and you know it's great to see the likes of Fidelity in the space it's great to see you know others coming in um so that's number one second settlement another one how am I going to settle who am I going to settle with um what are your settlement times and then sort of behind that I've touched on already what's the banking infrastructure in that I think you know from a trading perspective if we look at the exchanges that are there today you know the ones that we're all familiar with are they the ones that institutions are going to trade on possibly not it's all you know for some time now we've been looking at you know uh other exchanges like London Stock Exchange and as that will they be listing assets crypto assets Deutsche boss has been in the market for some time so you know I think these are the sort of infrastructure pieces that institutions are going to look for S I will take a a a different road I'll say two things one is working with Regulators to educate them because uh many times Regulators have no clue what they're regulating about so I I think that institutions play a very important role at getting close to the public sector to truly help them to understand how the industry is going to be beneficial for for for the the population as a whole and the other thing is to work with entrepreneurs to support them to make sure that they are backing them accelerating them so they build the right companies and that they comply with the right protocols and that they coach them into their development of the solutions that that the more institutional more conservative need but they cannot build internally so so they can bring more efficiently the disruption inside their organizations and help the the entrepreneurs on the other side bu Simon you wanted to add yeah just I think Chris touched on a really poignant point which is the trading of these Assets in terms of whether that's an exchange whether it's a central imit order book or an RFQ or a uh dark pool matching mechanism that is very very mature wellestablished technology the electronification of markets has unfolded over the last 30 years so that end of the life cycle of a trade is pretty mature and in our opinion doesn't have a huge room for material changes it's really on the issuance and settlement side of the equation or the life cycle of an asset and a trade and that's where we think all of the value is to be unlocked and that's where a lot of the complexity lies but it isn't very sexy it isn't a huge amount of fun you need the regulation to S sven's point which is key but really the work is required to create robust and scalable settlement of crypto as opposed to a new exchange or a new order book because that is totally an utterly commoditized as a product and that's where I think we need to see more work and time uh because that's what what's going to enable institutions to uh more meaningfully engage with this asset class Christoper yeah I think um my three colleagues have mentioned a long list of things um maybe what I'd like to add is um the need for transparency and reference pricing like we we don't really know when derivatives contracts settle you know what what in in traditional finances you've got the various different reference prices I think the jury is still out there what those are in crypto um best execution how you measure that I've touched on that a little bit I think reporting is key um institutions that are entering the space they've got a fiduciary responsibility to their end clients to um get the best possible price in the market so that needs to be proper um properly reported and um then um to uh to the point of yeah just coming back to liquidity really that's that's just one element that needs to grow over time and next question is how regulations will impact institutional crypto because institutions always keep an eye on how Regulators are responding around the world now we have some sort of clarity in EU um UK is making progress some of the Emerging Markets like Middle East and couple of other Emerging Markets are drafting like strong regulations where do you see I mean Regulators coming up in the next few years and how it will impact institutional crypto trading going forward yeah I think when regulations crucial uh we always talk about it uh it's the topic that you know I guess the crypto Community is divided on but from an Institutional perspective it's absolutely necessary institutions need Clarity um and they need you know if we take that Spectrum again when we go along that Spectrum at one end they need absolute Clarity you know as we go through that spectrum of Institutions that I mentioned before it's you know perhaps less so in terms of clarity but if we if we're expecting this institutional wave to come in then that wave can't really participate unless they've got clear clear guidance on how they can operate within this market and that can only come from The Regulators as you say bow we see that happening in Europe I think the one place we need to see it happening is in the US uh Still Remains unclear in the US market and typically that's been the largest market in terms of the dollar market for crypto so hopefully we'll see you know this uh evolving we do I think there was a point made about uh on another panel I saw where um you've still got this fragmented regulation and you know crypto is a global market and it makes it difficult for firms to operate in a market where you have this fragmentation in Europe I think that gets solved with MAA to some extent um but yeah to answer the question very important s well we went the regulatory Road and we started in the US ER which is probably the toughest in in terms of Regulation so er in the spirit of being transparent to the ER money that we receive from our investors I think it's extremely important uh but when you operate from the US you also have to keep in mind that there will be invest that will come from all over the places and if you start to receive a lot of investment and actively participate in other markets you also have to comply with the local regulations some markets are more advanced on that in our case we are applying for licenses in Canada and in Dubai and in Brazil but some others is still a lot of opportunity but think if you exercise in the US to get to to compliance and hire a lot of technical accountants and very good compliance people it's doable as an entrepreneur I went through that and we we found it also to be our strategic weapon to Market ourself and to to have a much more solid value proposition than than otherwise so I do believe that it's doable but it's also very important Christopher well luckily there's a world outside of the US I know we're all kind of looking to the US and and I think the SEC is SL slowly pivoting uh and I'm very excited for the Bitcoin approval uh I'm I'm I'm not saying if I'm just saying when um being based in the UK and even though we're originally a US firm uh we we now um brought the majority of of the sea Suite over to the UK uh where FCA regulated the FCA listens and you know that they're really Cooperative so I think we as an industry probably need to make um even a stronger effort to educate The Regulators but with meiker around the corner next year and and like I said with the FCA and Switzerland we also have a Canadian license to your point there's Juris out there that are rolling out the red carpet um to to to crypto firms and and sooner or later the US will pivot so I'm actually extremely confident around the topic of Regulation and I look forward to not having to discuss it on every single panel in future years for now I guess we had to Simon please agree with everything the uh the the rest of the panel have said uh regulation is Paramount to any institution I think what is interesting is the spectrum of regulators that exist um we're a FCA registered uh Exchange in the UK the UK are a a traditional Financial Services jurisdiction and the regulator has been operating there for many many many many decades and I think that gives investors a level of trust and a level of confidence for any provider that operates within the purview and under the Reg framework of the FCA what we saw unfold last year in terms of some of the events um there are Regulators that are looking to attract crypto firms uh and they see that as a huge opportunity and it absolutely is I think the question the institutional investors have to ask themselves is in the event something happens how confident am I that the regulator that is overseeing the plat for I'm engaging with is in a position to understand the risks and to monitor them and track them effectively and I think there is absolutely a spectrum there uh and I think for traditional investors they generally are still looking to more traditional jurisdictions where there is precedent where there is a track record of enforcing regulation and doing so effectively I know we don't have any crystal ball to predict the future but with a potential Bitcoin ETF approval in the US as well as hedge funds and all the prominent names coming in the crypto side where do you see the future of institutional crypto trading going forward starting with You Chris uh so I feel like I've got a bit of PTSD here because the last Bull Run I was on an exchange and we were having the same conversations about the institutions are coming institutions are coming we couldn't on board quick enough the number of Institutions that were coming our way uh we did the first direct deal with it was a billion yen deal with a Japanese corporation wanted to hold BTC on their balance sheet when I look at the ETF and I think about liquidity to Christopher's point do where is that liquidity today you know the crypto Market you know in terms of size compared to the equities Market you know yards apart and you know if these ETFs come in and then we've got this demand from hedge funds there's going to be a need to source that liquidity from strong liquidity venues and those institutions are also then going to have to hold those assets in with strong custodians so you know I think um very bullish like Christopher about the ETFs I think we've got a job on our hands as and when they do come s well I'm backing in my colleagues here to make things happen but when I I look at crypto I see Bitcoin have died 500 times and always surviv some came back is stronger so if things continue to be in the direction that that is going we believe that it will reach 30 trillion dollars and we believe that this will happen because we saw first generation of the do com companies back in 2000 I was the opportunity to be part of the leadership team of an online bank that was all to Bank of s Ander in$ 785 million uh a few weeks before the market collaps and we saw alav Vista turn into Google we saw Myspace turn into Facebook meta so we do believe that the next generation of crypto companies is coming well as well and that they are going to be significantly bigger than what we used to and this is going to be much more regulated also for the crypto because now we are considering the Bitcoins or the non-regulated crypto into the ETF I think there will be like a lot more variety and different products that are going to be created around this space and this is going to make this if everything goes well exponential Christopher yeah I think we got a great taste of what's to come uh last Monday was it with the with the fake news from the coin Telegraph around the approval of the Bitcoin ETP and Market just ramping up um in in quick succession it kind of shows also the lack of liquidity and I I know I'll use that word a lot so generally the the the adoption of of etps got me very excited and and there's a bright feature head Simon uh I think when you have the CEO of the world's largest asset manager talking favorably around crypto and and probably more specifically about Bitcoin without being able to name it given their uh ETF filing that is a data point that suggests on the institutional side of the market there's a lot to be positive about and we feel very optimistic I think that has to be tempered with pragmatism uh building infrastructure in this space takes time if you're doing it in the right way so I think it's uh hugely optimistic in terms of the next chapter but it'll still take some time and maybe we don't see quite the extreme um cycles that we have to date thank you very much um for all your insights and your views and thank you very much everyone thank