With regulation beginning to encompass cryptocurrency and crypto exchanges we look at the doors that are opening as well as closing within this marketplace.
Cryptocurrencies have been making news headlines for a number of years now, often with catchy or entertaining headlines (Dogecoin taking off after Elon Musk’s tweets and losing 7,500 bitcoins in a landfill). The subsequent rise of cryptocurrency exchanges, like Binance, Coinbase or Gemini, which allow consumers to easily buy and sell cryptocurrencies, showcases the consumer appeal of this type of investment. In the first six months of 2021 alone, the global number of cryptocurrency owners more than doubled from 100m to 221m. And just like in other fast-moving sectors such as tech, social media and the sharing economy, the regulators have struggled to keep pace and are now playing catch-up
When we say a quick timeline, it is not to over summarise or skip important details, it is because the rise of crypto has become one of the most debated finance topics of recent times and happened extremely quickly. Bitcoin was only created in 2009 and whilst it peaked to a USD 60,000 valuation in 2021, it was merely eleven years ago that two pizzas were bought for 10,000 BTC. The race to dominate the crypto market featured the entry of many players like Namecoin, Swiftcoin and Litecoin in 2011, Ethereum in 2015 (today the second highest valued cryptocurrency) and many others, surpassing the benchmark of 1,000 cryptocurrencies in the market in 2017.
As consumer demand for crypto soared, so did cryptocurrency exchanges. Exchanges started emerging in the early 2010s, with the most notorious example being the Mt Gox exchange (now closed). The first ones only sold Bitcoin and, as more cryptocurrencies emerged, the portfolio of crypto exchanges expanded. Today, there are over 100 exchanges, offering a wide variety of crypto investments. Gemini, for example, offers over 30 cryptocurrencies whilst Binance offers over 500.
Cryptocurrencies and crypto exchanges are subject to increasing regulatory scrutiny. After growing exponentially in the last decade, governments have woken up to their largely unregulated operations and countries are responding to crypto and exchanges to different extents.
In the US, for example, cryptocurrencies are not considered legal tender and while exchanges are legal, they require additional licensing from the regulators. Similarly, the UK does not recognise crypto as a legal tender but as an asset, and requires exchanges to be registered with the FCA. Other nations like Japan are much more open with Bitcoin being legalised as a payment method in 2017, whereas China sits at the opposite end of the spectrum having made crypto exchanges illegal that same year. Just this week, in September 2021, El Salvador became the first country to adopt Bitcoin as an official currency.
Sudden changes to laws or new interpretations of existing ones are common in an evolving regulatory environment. The most talked about example is Binance. In the UK, the platform was banned from operating for not meeting AML requirements, and banks are stopping customers from depositing money on the platform. Other regulatory bodies are cracking down on the business for not having a clear headquarters and allowing customers to sign-up even when they are resident in a country where they do not hold a license to operate. This opens the market to other competitors, like Bitstamp, Gemini and Coinbase. These have all gained users in the UK following the FCA ban on Binance. Bitstamp especially saw a 138% increase in new customer applications.
This shows that the lack of regulatory compliance of some platforms creates a huge opportunity for those proactive enough to anticipate regulatory shake-ups and comply to stricter frameworks. Bitstamp, for example, moved all its customer accounts from London to Luxembourg in 2020 ahead of Brexit to remain compliant with European Union laws and, by doing so, it ensured its operations would remain sustainable across both the British and the EU market. Unlike Binance, it has an established headquarters and has a temporary registration under the 2017 AML requirements. Similarly, Gemini, headquartered in the USA, acts in compliance with AML, capital reserve and cybersecurity requirements.
Exploiting a low regulatory environment worked for exchanges to gain customers quickly, but it is not a viable strategy for the long-term. Exchanges play a key role in the cryptocurrency market, and they are increasingly involved with traditional financial services. Preparing to comply to a stricter regulatory framework is the right move to maintain sustainable operations and avoid regulatory scrutiny or restrictions. Customer trust will also improve if exchanges become a safer and more stable place to store individuals’ assets, while compliant platforms will see more growth opportunities by avoiding operational limitations.
Spotlight on Women: Olive Farrell
At Valentia Partners we focus on making our workplace a more diverse and inclusive environment for everyone. Operating in a male dominated industry, we wanted to shine a spotlight on our women and enable them to tell their stories of success and what inspired them to pursue a role in Management Consulting. Below you can read more about Olive’s experience.
Meet our people: Donal Campion
Donal is a hands-on transformation specialist who has led strategic business and technology change in Financial Institutions of all sizes, working across Europe and North America. In his 18+ year career, he has also designed and led large enterprise change and delivery functions. He spent a decade living in Canada, braving the cold and exploring life in the Great White North, before returning to Ireland in 2019.
Don’t Call Me ‘Crypto’
Digital assets hold a significant yet uncertain place in the future of finance and they are worthy of the controversy they attract. Yet, vague language and sweeping generalisations have become commonplace amongst commentators - decreasing comprehension and stifling discourse.
Meet our people: Viviana Morariu
Leading mission critical projects in Wealth & Asset Management, Banking, and Capital Markets, Viviana's experience includes leading global transformation programmes impacting 60+ countries, front-to-back re-platforming of businesses, and acquisition integration design.
Collaboration with The Girls’ Network
Valentia Partners is delighted to announce that the firm has entered into a partnership with The Girls’ Network.
Meet our people: Neil Woodger
Neil Woodger joined Valentia Partners as an Executive Director in 2021, transitioning to consulting following a 30+ year global career in Banking and Capital Markets.
Banking priorities in 2021: Cost Cutting
Valentia Partners on LinkedIn: As Covid 19, Brexit and low interest rates continue to cast a shadow over economic prospects, one of the common themes across many of Valentia’s financial services clients in the last quarter of this year is how to cut costs in 2021 without cutting service.
Our partnership with the University of Strathclyde Business School
Valentia Partners are proud to partner with the University of Strathclyde Business School, understanding the importance and value of bringing through the next generation of consultants.
Capital markets and green financing
The move towards a more sustainable financial system.
Deduction at source lending
Valentia Partners supported a group of Fintech founders in the development and go-to market strategy of a payroll lending platform (salary backed finance).
Transformation Experiences - Valentia vs. McKinsey Survey
Valentia Partners on LinkedIn: At Valentia, we spend all our time helping to transform our banking and fintech clients’ businesses. So, when McKinsey published a technology transformation survey on 11th March, we read it with interest.
Popularity vs Profitability – 3 challenger bank trends for 2021
Valentia Partners on LinkedIn: Challenger Banks proliferate, with digital-only challengers (or Neobanks) attracting huge numbers of customers through low-cost innovative features, whilst simultaneously struggling to turn those numbers into profits.
Go to work to play, and other thoughts for a post-COVID mentality
Valentia Partners on LinkedIn: Here are some musings from the past year and a few thoughts to take into this one.
4 strategic priorities to enable the workplace of the future
Valentia Partners on LinkedIn: Rethinking how we create and inhabit space in a digitally-connected world.