The cryptoasset market will, by design or default, soon enter into the next phase of development. From record highs at the start of the year, prices have declined dramatically over the year. At the same time, we have seen more market participants entering the space, with periods of lower volumes and lower volatility. Most recently, we have seen volumes pick up quite a bit – with month over month volumes up 253% in December compared to November of this year.[1]
Despite the change in market conditions, more sophisticated players are entering the market and cryptoassets are continuing to benefit from the next wave of development. This is evident in the introduction of solutions from traditional service providers, such as the announcement by Fidelity to offer digital asset custody services, and Goldman Sachs’ investment in BitGo, a crypto custody startup.[2]
Also announced was ErisX, a fully-regulated crypto spot and futures trading platform, which has financial backing from several companies, including TD Ameritrade, Fidelity, Digital Currency Group and DRW Venture Capital.
This marks yet another turn in the market – one that with thoughtful and positive dialogue has the opportunity to increase acceptance and accessibility of the market, allowing a broader range of investors to benefit from the value propositions of cryptoassets.
The crypto asset market is at an important juncture – continuing to nurture trust and confidence in the market will significantly contribute to its widespread acceptance. This sentiment was shared at a Summit we ran in Singapore recently where over 100 cryptoasset market leaders discussed a range of topics ranging from current and future regulation to security tokens and the token economy.
The entrance of professional traders with hedge fund and private banking experience has contributed to the growth of the cryptoasset mining and trading markets in Asia, as well as the development of new market segments such as cryptoasset funds. Seeing traders with this profile enter the market indicates a growing institutionalization of cryptoassets. We also expect that family offices may start to enter the market, following a similar trend to what has occurred in the US.
Asia remains a critically important market for crypto markets. For example, the total average bitcoin futures volumes on CME and Cboe which is traded during Asia hours is estimated as being around 72% of the volume traded during US hours.[3]
Further, the daily volume of bitcoin futures traded on Asia-based exchange BitMex as of December 5, 2018 was more than $1.6 billion, approximately 20 times greater than the combined volume of bitcoin futures traded on CME and Cboe.[4] Our own relative trading volumes also suggests there is significant interest in the market in Asia, with one third of all our trading volumes during Asia hours.
Given the size of the cryptoasset market in Asia, responsible development of the market will be essential to ensuring its longevity. Key to this is the creation of a safe and secure market and a clear regulatory framework. The movement towards enabling access to 24-hour liquidity in the cryptoasset market also highlights the importance of developing products and tools to provide safeguards and allow investors to manage their risks.
A number of jurisdictions in Asia have taken initial steps to implement a regulatory framework for the market. For example, in Hong Kong, the Securities & Futures Commission published rules governing initial coin offerings to stabilise the market. Japan was one of the first jurisdictions to come out with clear guidelines to regulate crypto exchanges and just recently Japan’s Financial Services Agency (FSA) gave the cryptoasset industry self-regulatory status. These thoughtful approaches could pave the way for these markets to mature and advance.
I’m excited about the opportunities for the cryptoasset market in Asia, and from the reaction of the Summit participants just recently and from what we hear elsewhere in the market, it’s clear that the feeling is mutual.
However careful nurturing is needed to make sure that the market reaches the tipping point that takes it to the next level of its development and evolution. By working closely together, and alongside regulators in the region, we can all help create a safe and robust market for all investors.
[1] The Bitcoin Volatility Index
[2] Disclosure: DRW Venture Capital is also an investor in BitGo.
[3] Source: CME and Cboe
[4] Source: Coinmarketcap
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