Flovtec CEO Anton Golub joined Coinscrum host Paul Gordon to discuss the cryptocurrency market’s incredible start to the year. The froth has come off bitcoin slightly, but Ethereum has managed to attain a new all-time high this week, where the price has since paused.
While hitting all-time highs has been exciting, the price got way ahead of industry infrastructure and technology, according to Anton. There is a great deal of demand for digital assets, and the prices ran up very fast. The kind of correction is just business as usual, and a 30-40% pullback is part of an overall bigger trend.
(1:44) “If I have to put my name out, I think this is just a normal correction. There is a really, really strong uptrend. I couldn’t be more bullish. Of course, the prices go up and down as well and the more they go up, there is more liquidity pressure that they move down as well…For crypto OGs, this is just a minor correction,” said Anton.
The CME plans to launch CME ETH futures next month. In 2017, when the exchange launched BTC futures, it marked the then all-time high in the bitcoin price. It would be three years before the BTC price broke those highs again. This was a bit of a coincidence, according to Anton, and he doesn’t expect there will be any impact around where the price is going this time around.
It is also useful to have futures on ether. This is because one of the hardest things to do in terms of getting institutional investors on board is to get them from zero to bitcoin.
(3:21) “But as soon as they get their first BTC allocation, they ask, ‘what’s next to play with?’ We have to have something for those institutional investors, and Ethereum is actually the next logical choice,” said Anton, adding that Litecoin will be the next logical choice after that.
The CME’s expansion into ether futures is a great evolution not only for the blockchain industry but also for the broader financial industry. BlackRock, for instance, recently updated its prospectus so that one of its funds can invest in bitcoin futures on the CME.
(3:52) “There will be a great opportunity now for ether futures to be added to that digital asset composition where they can trade,” said Anton.
Regulation is currently a mixed bag. The U.S. Treasury consultation about no longer allowing non-custodial wallets to continue without having to adhere to KYC standards has been in the spotlight. After a huge and successful response from the industry, the Treasury pulled back and hit the pause button on that. On the other side of the spectrum, the OCC is permitting U.S. banks to use public networks for clearing and settling, which is a very positive development.
Meanwhile, ECB President Christine Lagarde has been critical, saying that crypto is only used for money laundering and criminal activities without providing any evidence of this. In the U.S., Janet Yellen, who is nominated as Treasury Secretary, is saying the same thing. Chainalysis has put out a report showing that criminal activity on the Bitcoin network is falling, disproving the regulators’ concerns. But with the cryptocurrency market cap on the rise, it seems the regulators will continue pushing this negative narrative.
(7:13) “Everybody who has been in the industry for quite some time, like you have been, knows what kind of strong checks and balances that are actually in place…If I have to look ahead, I think this number of classified transactions that were used for illicit [activity] will continue dropping and will actually in a positive way beat the traditional industry very soon,” said Anton.
Monetary policymakers are concerned about the retail client touching digital assets. In traditional finance, no individual has ever had direct access to a currency. There is an entity in between that manages the wholesale currency system and the end-user never touches it. The cryptocurrency industry brought the innovation that for the first time, you own your own assets. There is no intermediary, like the Swiss National Bank or the Bank of England, which is not part of the plans of monetary institutions.
(8:40) “They see the digital assets, cryptocurrencies, more where you have regulated and selected intermediaries that operate these networks. I personally don’t think that’s the way to go forward. I don’t think that’s part of our DNA as an industry,” said Anton.
Tether a Systemic Risk?
Tether (USDT), a USD-backed stablecoin, was the first of its kind and it’s been around for a long time. It has also managed to attract a great deal of negative press. A recent article suggested that there is a huge amount of risk in the system, pointing to the ongoing legal battle with the New York Attorney General over its operations. There is also the issue of possible systemic risk, and if the plug were to be pulled on Tether, the whole ecosystem could crumble.
Tether is primarily used by traders and market makers who have a need to move assets very quickly between various exchanges and marketplaces. If a trader wants to move dollars from a bank in Europe to a bank in the US, and they are a market maker, it will take three days. Tether, meanwhile, is very fast. So this is why it is so useful and growing and why there is an appetite for it in the industry, explained Anton.
People wonder why Tether is not audited. But practically speaking, it is impossible to get an audit done by one of the four big audit companies on a stablecoin. That is not how the industry works, and a lot of this misunderstanding is because people don’t understand the market structure.
(12:40) “No, bitcoin will not collapse if anything happens with any stablecoin but in particular Tether. The opposite will happen, actually. If we have doubts about stablecoins, what will people do? They will get out of them and into something else and they will buy bitcoin. I’m not saying that volatility won’t go up.”
DeFi in 2021
Last year, the story was all around DeFi, which generated a great deal of interest in the market. Some froth has come off but there is still a lot of activity and interest in or coming to market. DeFi seemingly emerged out of nowhere, revolving around yield farming. Projects took off and there are a number of success stories. Uniswap, for example, is doing volume that is equivalent to 2% of what is happening on the Nasdaq, which is “highly, highly impressive,” said Anton.
(15:12) “If I have to think about what would be the next step, let me try to be provocative, and I think the next success story in the DeFi space will be the unnatural marriages where you have actually the DeFi component and the CeFi component. So if I have to label it in our language, I think layer two solutions will actually be maybe a trend this year in the context of the DeFi space,” said Anton.