For cryptocurrency markets and 'Crypto' as an asset class to continue growing into the future, its landscape requires participation of both retail & institutional investors. Currently, we have some of the former and very very few (if any), of the latter.
Where are the Institutions?
Late last year, I personally monitored the order books of several notable trading platforms which were listed on CoinMarketcap.
By checking Coinmarketcap's listings for the most active exchanges, and visiting some of said platforms, I discovered how widespread the practice of faking volumes has become.
Anyone with zero trading experience can check the charts of hundreds of so called 'exchanges' and understand from the unusual price action you see, that there's something fishy going on.
With the benefit of 20 years trading equities, futures and market making stocks on Wall Street, I can tell you in no uncertain terms that numerous exchanges, many of which are considered, ahem Top 50 in the world, are guilty of faking volumes and manipulating prices.
In the traditional finance world, this is known as 'Painting-The-Tape'.
In short, it is a form of market manipulation, where market participants attempt to create the appearance of substantial trading activity. In the real world, this is a crime and traders found guilty of market manipulation can go to jail.
Looking back to when SINEGY first started, I questioned the legitimacy of these volumes and after being in the industry for a year and a half, I strongly believe more than half of what we see reported on unregulated sites like Coinmarketcap are blatantly false.
If I'm Mr. Public Pension Fund CEO (e.g. Employees Provident Fund, in short EPF), and my career and livelihood is dependent on being responsible and safeguarding the value of my customers retirement savings. What is my incentive to park any of their money into a market that is both volatile and potentially being manipulated?
Yes, the potential returns are very high, but there are laws and regulations that prevents me from subjecting my customers to such high risks.
Apart from 'stable-coins', there is very little that can be done about the volatility inherent to crypto. Regardless, as traders we do not perceive volatility as a bad thing. In fact it is the most attractive thing about this market as it provides opportunities for profit.
By contrast, there is plenty to do with respect to ridding the market of illegal trading practices. Improvements in infrastructure, transparency, education, ethics and oversight will undoubtedly provide positive benefits to the whole ecosystem.
Such improvements will make crypto much more attractive to institutional investors, whose entry would increase liquidity for all, improve the industry's reputation globally and in turn, foster adoption.
It is not possible for the industry to grow without these institutions, simply put, they control the majority of the world's money. To put this statement into perspective, as much as 80% of global savings are under the control of financial institutions i.e. banks, asset managers, pension funds (e.g. EPF) and insurance companies.
These institutions control trillions of dollars and are the real whales of traditional financial markets.
Ask anyone who owns Bitcoin: What would be the most positive development that could spark the next bull run?
The answer will be unequivocal - an approval of a Bitcoin Exchange-Traded Fund (ETF).
The reason why this should be the case is simple: An ETF is essentially the same as a stock. As they also tend to be a tax efficient and low cost method of investing into an asset class, they are very popular amongst passive investors, who would rather invest in an ETF instead of buying into an expensive unit trust, mutual or hedge fund.
Essentially, a Bitcoin ETF would enable millions of investors to put Bitcoin into their investment portfolios, without the need of managing their own private keys and dealing with all the hassle of being your own bank - A huge win for adoption.
If you've been following news in the space for the past 5 years, you will know that various parties have tried, and failed, to get SEC approval to list a Bitcoin ETF in US public equity markets.
The Winklevoss Twins (founders of Gemini Exchange) were the first to submit an application for an exchange traded product (COIN), which was denied by the SEC back in march 2017.
Since this most famous rejection, submissions from traditional financial institutions such as ProShares, Direxion, GraniteShares, and most recently the CBOE VanEck/SolidEx proposal, were all denied by the SEC.
After each failed attempt, the SEC explained that crypto markets remain far too susceptible to market manipulation for the regulator to allow the 'average Joe' on the street to invest his retirement account into an asset where prices would be determined by manipulated markets.
While creating falsified volumes creates awareness by churning market activity, public investors are at risk of both scams and ponzi schemes. Avoiding these pitfalls is possible through effective regulation and education. The rules must come from regulators, the lessons should come from the Trading Platform Operators.
Some may see regulations as an opposing force to the true nature of crypto being decentralized.
At SINEGY, we think otherwise. Besides creating a fair and orderly market, regulators are also responsible for maintaining competition. Competition ensures that the end user gets the best value for money and keeps businesses in the mindset of innovation.
As an example, I would point out the Securities Commission's recent successes with frameworks for Equity Crowd Funding (ECF) and Peer to Peer (P2P) financing platforms. In summary, they police and protect the hard working citizens against unregulated products and services which often leads to fraud.
When digital assets go mainstream in Malaysia, we will look back at this moment and understand that, this is where the journey really begins...