Binance VIP Voices: Balancing Crypto Innovation & Regulation - The Future of Institutional Adoption
Main Takeaways
Major global financial institutions are increasingly viewing cryptocurrencies and blockchain as legitimate and beneficial due to advantages like speed and transparency.
Recent regulatory developments are viewed positively as they can enhance trust, and user protection and enable greater crypto adoption.
Traditional financial entities consider crypto integration a growth opportunity, with regulatory frameworks essential for building trust among institutional investors and encouraging their adoption.
Our second episode of Binance VIP Voices for 2024 explores the balance required between cryptocurrency innovation and regulation to continue bringing to market best-in-class crypto solutions while ensuring they adhere to regulatory and compliance standards. Hosted by Adam Bull, Head of APAC & MENA Sales at Binance VIP & Institutional; this session delves into the growing trend of global financial institutions embracing cryptocurrencies and blockchain technology, also exploring the benefits that come with this adoption.
We draw on the wisdom of our CEO, Richard Teng who brings deep understanding from his tenure at organizations like MAS, SGX, and ADGM. Accompanied by Henri Arslanian who, after serving as the head of Crypto at PWC, co-founded Nine Blocks Capital, a crypto hedge fund. We are also joined by John Cahill, a seasoned veteran with two decades at Goldman Sachs, who now propels Galaxy Digital Asia as its COO.
Read on for key highlights from this webinar.
Disclaimer: The material below has been edited for length and clarity. These insights represent the views of our guests only and are not officially endorsed by Binance.
1 / On Regulatory Developments in the Crypto Space
What are your thoughts on the recent regulatory developments in the crypto space and the jurisdictions leading this push?
Richard Teng: As with all regulations, the first draft is going to be more stringent and onerous but it will be subjected to refinement later on as regulators invest more time, energy, and resources to understand the industry better. For example, anti-money laundering (AML) has vilified crypto on that front. However, unlike Fiat which is untraceable, law enforcement can utilize crypto’s traceability to a great effect and we work closely with international law enforcement agencies on that front.
Henri Arslanian: Absolutely, and Richard you have raised a good point, but often I think the market does not appreciate how a lot of the jurisdictions that have crypto regulations are very stringent. A good example would be here in Dubai, as a crypto hedge fund, we have weekly information reporting such as wallet addresses and monthly financial reporting to the regulators, which is way more than any Tradfi fund would give to their own regulator. I would argue that the top tier crypto exchanges in the world have better KYC AML than many other traditional banks, because we are better able to leverage technology and tools, as well as back-end transaction action monitoring.
John Cahill: I think about regulators in three parts for jurisdictions. Firstly, politicians and the people leading the regulatory oversight must make their stated intentions clear. Secondly, as market makers, we have to engage with the market, finding out who the stakeholders are, what is the market outlook and the product demand. It is incredibly important that you get undesirable outcomes. In this space that evolves quickly, it is essential to educate ourselves. Finally, regulators need to think of the incentives that will encourage people to want to be regulated.
2 / Challenges and Opportunities in Crypto Regulatory Space
What are the main challenges that you have faced in this space?
Richard Teng: Regulatory ambiguity is a big challenge. We have seen in many jurisdictions where the government says “I want to be a crypto hub” but when regulators start to come through it does not pan out. For example, when you have too few pairs, only allowing spot trading with no derivatives and no other asset classes. When Banks become a main hurdle, in terms of on-off ramp, to allow for new investors coming into the space.
Henri Arslanian: Building an institutional grade business in crypto, as a hedge fund lawyer by background and having been involved in dozens of hedge funds launches over the years, I’ve found that launching a crypto hedge fund took us two to three times more money and time than we thought and various elements which was really difficult.
3 / On Regulatory Changes and Innovation
How to keep pace with regulatory changes without hampering innovation?
Richard Teng: It is going to be tough. Regulations are always meant to be half a step behind. I am all for smart regulation. What I believe is that regulation should not be one dimensional looking solely at risk, but also how regulation can support innovation. This affects the attraction of talent pools and institutions to support the growth in this industry.
John Cahill: There is no path to global adoption that does not go through a regulated channel. There are a lot of ways that need to be hit before anything like real decentralization on a globally adopted scale is feasible.
4 /The Path Forward for Institutional Crypto Investment
In light of the recent spot Bitcoin ETF approval in the U.S. by the SEC, how do you anticipate this development will impact the regulatory landscape for digital assets moving forward?
Henri Arslanian: Firstly, there is awareness on the mass public perspective. Secondly, it enables people to access the asset class in an easy and convenient way. Thirdly, a lot of these investment advisors who were not very keen to encourage crypto investments before, are now interested as they are able to earn commission or AUM revenues through the sale of an ETF. Finally, it brings crypto mainstream and increases credibility for the whole industry.
John Cahill: I would echo that 100%. It is a bridge into the traditional financial market. For example, if you have a prime brokerage account, you can borrow and get leverage on an ETF in a bank or normal trading accounts. Now, I think we are a long way from banks holding crypto on their balance sheet and regulators being okay with it, but it is an access to more capital for our industry.
Richard Teng: If you think about it, the ETF itself is an innovation that is supposed to be low-cost in terms of holding assets compared to mutual funds in the states. But in the crypto industry, it is much cheaper for an individual to buy and hold crypto assets versus buying an ETF that ensues fees. But it is still a great platform for individuals who want to do some asset allocation and have crypto exposure. It also helps to reach a new set of clientele and user base such as endowments, other institutional investors that have not delved into crypto, financial advisors, private bankers and more.
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