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May 14, 2020

Episode 003

Wintermute Trading, Texture Capital & CryptoUK


In Conversation With: Crypto Market Integrity

Yoann Turpin, head of trading at Wintermute, discussed how institutional investors are approaching crypto.

“I was talking to some large institutional brokers this week who were telling me that they’ve just opened shop. They mostly opened shop, and it could be an interesting point for Solidus on the regulatory aspect, we see institutions coming more on the CME side or where things are really strongly regulated. Most likely it’s also because these brokers can cross trade, it’s easier for them to cross things and it’s easier for them to convince management. But there’s more and more traditional money coming into the space and I think the movements in the markets the last few months have helped that.”

The crypto market has come a long way since the third halvening event four years ago. JPMorgan is now accepting Coinbase and Gemini’s money, and it’s clear that crypto is here to stay. Chen Arad, COO of Solidus Labs, discussed what the industry needs to grow, saying the answer is integrity.

“Another thing that’s unique to crypto is that you can see for example what we call hybrid forms of manipulation. I mean we all know wash trading, and we all know layering and spoofing that are common and are completely illegal in traditional markets, that happens a lot in crypto because there isn’t enough surveillance right now. By the way, it’s hard to know exactly how much it happens. But there’s a lot of reason to believe…that it happens very often,” said Arad.

Richard Johnson, founder and CEO of Texture Capital, asked Arad what changes the crypto market can expect to see in the next four years from an integrity point of view. Arad said that there is a desire among exchanges to grow integrity but there also challenges, saying:

“More and more exchanges are talking about deploying market surveillance. At the same time, if you look at the CryptoCompare benchmarking report that I believe came out about a month and a half ago, last month, it ranks exchanges based on volume credibility. Out of 160 exchanges it ranks, only about 10% had a surveillance system in place and many of those were self developed, which by the way is becoming more and more of a regulatory challenge with locations like Hong Kong where the securities and futures commission there actually requires an independent reputable provider of market surveillance so that they can trust it better. So I think the recognition is there, it took a while and we’re there. And in the next couple of years we’re going to see more and more of those systems implemented. I expect that within the next year or two, almost every place in the world where you want to operate an exchange will require some sort of a license and those licenses will require similar checks and balances we see in traditional markets. What we need to do as a crypto ecosystem is make sure that we…develop the tailored tools that will enable and empower the exchanges vs. slow them down and then work together as a community to develop the tailored rules.”

Onchain Reaction

Philip Gradwell, chief economist at Chainalysis, discussed what happened on the blockchain last week, which was the week before the bitcoin halving.

  • The BTC price has been above its long-term averages between April 27-May 10. “Throughout that week, we’ve seen prices we haven’t seen for a long time,” said Gradwell.
  • Exchange flows are also above long-term averages. “The fact that the price remained high even as we had these large inflows really suggests that demand was strong ahead of the halving,” said Gradwell.
  • “What’s going to happen after the halving? Well, people are worried about the reduction in supply. There’s about 900 BTC fewer a day now being mined than there were last week. I actually don’t think that is going to create such a big problem in terms of supply. The reason why is because there are many, many millions of bitcoin that have been mined. And 11.4 million of those are actually in the hands of longer-term investors.”

Governance and Guardrails: Policymaker Consultation Update From Crypto UK

Crypto UK formed a working group to respond to the European Commission’s comprehensive public consultation of more than 150 questions covering topics including taxonomy, a bespoke regime, security tokens, stablecoins, market participants and market integrity. Ian Taylor, Chair of Crypto UK, described the content of the consultation and the nonprofit trade organization’s response.

“It did seem that the Commission was seeking clarity on taxonomy…Most folks in the community would agree that we’ve gotten to a place now where there are three key classifications, which you can agree on the terminology — a payment token, utility token and security token. That’s generally what everyone believes is the right classification…From Crypto UK, we were clear on where we stand with the taxonomy. What they seemed to be seeking some clarity around was security tokens and how security tokens would fit into existing securities law, for example MiFID II, and whether those tokens, the security tokens, would constitute e-money. And we believe as a membership body that crypto assets generally do not fall in an existing regulatory perimeters. Therefore we advocated within this consultation for a new classification to be created as opposed to a potential awkward attempt being made by the folks at the European Parliament to retrofit crypto assets into existing frameworks where an actual fit may not exist…We broadly believe that making sub-classifications based on a particular token’s economic purpose and function is more beneficial and more relevant as technology features develop.”

The Commision was also seeking clarity on the bespoke regime idea, in response to which Ian Taylor said:

“The bespoke regime…was an interesting area as to how the European Commission are thinking about this and their question gave us an insight as to the seriousness of this. So our response was generally around security tokens pretty much will fit into the existing perimeter. However when we’re looking at other tokens, whether it’s payment or utility tokens, this is this is where we think the bespoke regime for crypto assets is relevant…We would like to see a proportionate response that would not stifle innovation…The other major sections after that were around stablecoins, which one would assume has been a hot topic after Libra in the last 12 months, and then market participants – there’s a big section on trading exchanges…and then finally market integrity, which I personally believe is very important for this industry to develop.”

It’s going to be a while before the Commission issues its response.

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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