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TECH TUESDAY: Crypto is growing in popularity


Regulatory development and institutional buy-in are the tailwinds of the market.

There have been many elements to the “Crypto Winter” and falling valuations, but two recent developments suggest the fledgling asset class is here to stay. First, in August 2022, a bipartisan group of US senators proposed federal legislation to regulate digital products. And Coinbase, the US crypto exchange, has partnered with BlackRock to provide the asset manager’s institutional clients with direct access to crypto.

In the United States, digital assets are currently governed by a patchwork of state-level regulations, which can allow for gaps in consumer protection against fraud. The Digital Products Consumer Protection Act of 2022 would give the Commodity Futures Trading Commission exclusive jurisdiction over the digital commodities spot market, which senators say will lead to more consumer safeguards, integrity market and innovation.

Crypto market participants hailed the law for providing clear federal oversight of digital asset commodity markets. Sam Bankman-Fried, CEO of FTX, said the crypto venue will find the regime — which brings comprehensive client protections and oversight to scout U.S. crypto commodity markets — both constructive and prosperous. Similarly, Faryar Shirzad, Policy Director at Coinbase, pointed out that a federal regulatory regime for crypto is a big deal. This ensures that the United States will follow crypto policy in other jurisdictions.

According to a recent webinar co-hosted by Regulation Asia and the Nasdaq, Hong Kong and Singapore have taken the lead in creating the regulatory frameworks necessary for resilience and trust in the crypto markets. The Hong Kong government has included amendments to its Anti-Money Laundering and Anti-Terrorist Financing Ordinance, which include a new licensing regime for Virtual Asset Service Providers (VASPs). In Hong Kong, “virtual assets” apply to Bitcoin and other altcoins, as well as specific stablecoins and governance tokens.

Angelina Kwan, Managing Director of Stratford Finance Ltd., said: “All existing guidelines for other financial institutions – internal control guidelines, funds management code of conduct, regulation of automated trading services – will apply to cardholders. virtual asset license.

Singapore is also preparing its own legislation in a new Financial Services and Markets Bill. Janice Goh, partner at Cavenagh Law LLP, an alliance with Clifford Chance in Singapore, pointed out: “There is a gap in the sense that the Payment Services Act does not regulate providers who locate in Singapore but does do not offer services in Singapore. The new law will require all VASPs with an establishment in Singapore to be licensed.

An investor in Singapore also successfully appealed to the courts to freeze the transfer of a non-fungible token (NFT). Goh said, “This is a first in Singapore and Asia and the first in the world in the context of a trade dispute where he recognizes an NFT as an asset.”

Institutional interest

Regulatory frameworks are needed to gain the confidence of institutional investors in the new asset class. David Kwan, Asia Pacific Sales and Business Development Manager at Nasdaq Market Surveillance, said, “Many large institutional banks and investment firms have been preparing for this development for a very long time. When this kind of regulation comes into effect, we will see an increasing number of market participants and crypto markets mature.

Kwan then explained how the crypto industry could learn from traditional capital markets, such as their proven risk models and controls to protect investors.

“Maybe there are changes we need to apply specifically to crypto assets, but ultimately, as far as investors are concerned, they want the same protections no matter what asset class they are trading. “Kwan added. “They want to make sure that when they invest in something, the integrity of the market is there, and that’s only going to help get more institutional adoption.”

According to the webcast, around 6.5% of all Bitcoin was held by institutions in June 2022, compared to zero a few years ago. Continued institutional demand was highlighted by Coinbase’s partnership with BlackRock to give institutional clients of Aladdin, the asset manager’s end-to-end investment management platform, direct access to crypto, starting with bitcoin. Coinbase Prime will provide crypto trading, custody, prime brokerage, and reporting capabilities to Aladdin’s institutional clients, who are also Coinbase clients.

Joseph Chalom, Global Head of Strategic Ecosystem Partnerships at BlackRock, said: “Our institutional clients are increasingly interested in exposure to digital asset markets and focused on how to effectively manage the operational lifecycle of these assets. .

We may be living in a “Crypto Winter”, but as the poet Percy Bysshe Shelley wrote in his “Ode to the West Wind”, “If winter comes, can spring be far behind?”

For more information on market surveillance, please see a recent online seminar hosted jointly by Regulation Asia and Nasdaq and Nasdaq MarketInsite article, “The Role of Market Watch: Building Trust in Crypto Markets.”

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Originally posted on Traders Magazine.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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