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June 11, 2020

Episode 007

FalconX, Bitstamp, CoinList & BCB Group


In Conversation With

Digital asset trading platform FalconX recently raised GBP 17 million in a funding round. Backed by the likes of Accel, Accomplice and Coinbase, the firm services institutional investors including some of the largest hedge funds, prop trading funds, OTC desks, payment gateways and miners around the world. They exist to deliver best-in-class pricing, which is very tight spreads with zero slippage and no hidden fees primarily to institutional investors.

FalconX Co-Founder Prabhakar Reddy commented on whether or not institutional investors have arrived, saying:

“We’ve all heard that narrative since perhaps late 2017, 2018 right? So when we entered the market there were lots of inefficiencies and they were quite glaring and visible. But I think that ever since FalconX has entered the space, we have actually seen quite a difference… For example, if you look at spreads of OTC for institutional investors, about a year ago they were 10x of what they are today. That made it very difficult for a sophisticated institution to see the industry as a mature market. We still have a long way to go,” said Reddy, adding that FalconX provides a level of trust and transparency that experienced institutions looking to come into the space need.

Reddy also explained how institutional investors are mostly interested in BTCD (Ck) and stablecoins, saying:

“If you look at what the majority of our institutional clientele have been trading, it’s primarily BTC-ETH and mostly stablecoins. So we offer probably the top five in stablecoins. But as the market expands, we’ll have to see. You know because the market needs liquidity and depth in order to cater to institutions. A lot of the other coins don’t. So it’s primarily concentrated more heavily on BTC and ETH right now.”

FalconX’s core business is spot trading and they will have some announcements soon. They plan to enable new use cases that build on the firm’s liquidity. Reddy commented on the global economic slowdown due to COVID and what it means for crypto.

“From an overall industry perspective, you’re right, we are in a very interesting economic environment. Investors around the world are starting to look for protection against what I would say is inevitably monetary inflation….So big players like Paul Tudor Jones…are starting to dip their toes into the market as a hedge against the macro conditions.”

Banking Crypto Exchanges/Governance and Guardrails

Bitstamp and BCB Group recently announced a partnership for providing exchange deposits and withdrawals in GBP. Both Miha Grcar, head of business development at Bitstamp, and Oliver von Landsberg-Sadie, CEO at BCB Group discussed the venture, saying conversations were going for over a year and they are both excited to get this one off the ground. They also addressed the difficulties surrounding banking relationships for crypto.

“Well banking being an issue is an understatement in itself. It was extremely hard to get banking especially in the early days when bitcoin itself was viewed in a very antagonistic fashion by the banks. But I must say that over the years as the industry grew and became more mature, the easier it got. And now I think with a lot of institutional interest as well as more mature regulatory environments, banking is becoming easier. Now when I say easier, this needs to be viewed from a longer time period. It is still not simple, not by far not simple. But it is day and night compared to let’s say early 2014/15,” said Grcar.

Bitstamp is a regulated cryptocurrency exchange, but that doesn’t necessarily mean this dynamic has impacted volumes or customers.

“I would say that it impacted the way we are being perceived by the industry as well as the banking partners or more mature new entrants to this space, that’s for sure. It certainly helped establishing banking rails. And today I think Bitstamp is one of the best exchanges in the space. But that still does not mean that you win business simply by being regulated. We are competing against regulated as well as unregulated businesses and products, ease of use, user friendliness, good service, and also reliability and stability is what gets you reputation and business ultimately,” said Grcar.

Von Landsberg-Sadie addressed challenges for GBP processing, saying:

“So GBP is a special beast because the expectation among people sending and receiving GBP is that it’s instant. People are used to paying their friends and their friend receiving the money instantly, which is not really the case for EURO and USD. So in an environment where we’re trying to control risks, we have to provide that real-time service while at the same time being able to analyze and monitor those transactions. When you’re processing dollar and euro, there is a small lag, which buys you time to understand, is this transaction legit? You can put it through your ops teams or some kind of AI-based automation to understand those risks. But the biggest challenge in enabling GBP is making sure that you’re still processing all those transactions safely at scale while maintaining that kind of real-time component.”

Onchain Reaction

Philip Gradwell, chief economist at Chainalysis, discussed this week’s onchain data.

  • The market is quiet. Bitcoin inflows to exchanges are now at their lowest level in six months.
  • Bitcoin exchange balances appear to continue to be increasing. A large outflow is from Coinbase, but much of that BTC is likely in a hot wallet.
  • Leverage on derivatives is likely increasing, as open interest increases but underlying assets decrease.
  • Tether exchange balances continue to increase. Ethereum exchange balances have increased as the price has risen.
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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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