Crypto-Exchange Founder: More Institutional Players Will Come to the Industry But Not Overnight


Some people in the crypto-community expect mass adoption to come with big players from traditional markets. Some see it coming along the growing set of real use cases for crypto, certain regulatory initiatives, or particularly ambitious projects.

ForkLog YouTube host Max Bit talked with Anton Kravchenko, a seasoned trader and the founder of Xena Exchange, about institutional players in crypto, the cases of TON and Libra, DeFi, and Bitcoin options as the important elements of mass adoption.

Institutional Investors Coming In

Max Bit: We’ve been expecting institutional investors to pour into the market and initiate a big push in 2020. Where are they?

Anton Kravchenko: Indeed, there were some huge expectations from the community. Everybody expected venture funds to start getting into crypto en masse. 

Such expectations are not surprising since there are more seemingly viable companies in the market now. Unlike two years ago, nobody is trying to sell a sand quarry for tokens. Instead, companies offer cryptocurrency loans, payment solutions, and so on. Venture funds are interested in real down-to-earth businesses.

Yet, the actual question is who buys crypto. The people who influence the supply and demand for crypto are influencing the price. Institutional players who influence prices in the cryptocurrency market do exist and there are more and more of them coming in.

It takes 12 to 18 months to launch a crypto-only fund. Doing it by the book involves a whole lot of red tape, audits, and all sorts of things. About two years ago people started working on it. By 2019, such funds appeared in the industry allowing other institutional players to get in.

Importantly, the advent of institutional players is a continuous process that may take two or three years. 

Usually, every January, the traditional market funds decide on how they will reallocate their assets. They have to go through a lot of approval procedures and rigmarole, so by February they are ready and start putting in money. Therefore, right around this time of the year, potentially interesting companies get a slight positive boost, while outsiders drop.

In the crypto-industry, there are similar institutional funds, but they do not have the same level of bureaucracy and therefore are able to decide and act much faster. By the end of December, they usually know where to allocate their money. 

Incidentally, at the end of last year, Bitcoin was expected to grow, so when the institutional players came back from holidays, its price got a boost. 

This makes me believe that institutional players are quite confident in Bitcoin, and more of them will be coming into the industry. It’s just it won’t happen overnight.

Max Bit: One way or another, the institutional players who try to enter the crypto-industry face regulations. Do you think we will see the actual green light from the regulators this year? Can the timeframe of two to three years get shorter and can friendly regulation help it?

Anton Kravchenko: I think the major regulators have already shown that they won’t be punishing people for dealing with cryptocurrencies. There are many legally registered funds and many large companies have ties to crypto. 

Two years ago it was different. Large companies were seeing smaller ones getting into the market and making a profit but were afraid to get punished. A year ago, they saw that everything is kind of fine. Now, we can clearly see that regulators are treating crypto adequately.

Moreover, with Telegram’s TON, we see the reversal: crypto-companies are pushing the authorities to build a clear legal framework and let this new sector work. 

In developed countries, such as the U.K. and the U.S., companies are growing and getting funding just fine. Of course, you will get in trouble if you are really violating the rules.

TON, Libra, and Uncle Sam

Max Bit: Speaking about TON and the regulators, as well as a similar story with Facebook’s Libra, what do you think about these cases? Who will win: the regulators, giant corporations, or somebody else?

Anton Kravchenko: Firstly, for the SEC, TON and Libra are two entirely different projects.

Of course, they are very similar in terms of worldwide applications and goals. Both are building a supranational payment system that would give access to banking to previously unbanked groups of people.

Yet, TON goes with its 300 million users or thereabout, while Libra boasts 2 or 3 billion users in total across the companies around the project. These two cases are very much different for the regulators.

The case with Libra revolves around attempts to find a middle ground. The U.S. sees Libra as something that could grow very big, going against certain rules and ideas. Libra is seen as a significant threat. But Zuckerberg is now pushing the politicians and regulators, pointing out that it’s either Libra or a similar Chinese project, which would be outside of Uncle Sam’s control entirely.

They can’t just let it launch, but they can’t kill it either. Eventually, it will go live but the participating companies will probably be different.

As for TON, they have a similar idea, but a different approach with the aim of decentralization and real applicability. Telegram has a decent initial user base that may help TON get its traction. I think that if TON will be as good as Telegram, it will work out alright.

The problems that TON is currently having with the authorities are explained by some discrepancies in the company’s filings. There was no serious violation. It’s just that the documents TON had to fill out and file were designed for traditional companies. For a crypto-company, the right answers to some of the questions included don’t necessarily exist.

I don’t think the SEC will ask TON to return all the money they got from the U.S. investors. It is more likely that TON will get away with a fine. 

Importantly, this whole thing prompted other companies in the crypto-industry to voice their support for Telegram and TON. In a situation where the regulator lashes out on a crypto-project for some insignificant issues nobody would ever invest in a crypto-business again. I believe the SEC will loosen its grip and won’t bury a whole new economic sector.

Max Bit: TON and Libra may be far ahead, but some large corporations are already tokenizing things and implementing other blockchain-powered solutions. Some people see it as a way to launder money and evade taxes. Why is there such an opinion? What do you think about it?

Anton Kravchenko: First of all, when large corporations don’t see blockchain as a payment solution. They primarily think about tokenizing loyalty programs, voting systems, and such. The tokenization of supply chains is especially popular nowadays. 

It is hardly a way to avoid taxes. On the contrary, corporations are building additional monitoring systems to track their products, thus increasing transparency.

Still, if a certain company in Europe with a typical revenue of X dollars connects to a Bitcoin payment gateway and starts getting 5 times the revenue through it, I can see a problem there.

Bitcoin can be used in various ways, but regulators catch up quickly now. Three years ago, in the EU nobody would really notice if a company didn’t declare a couple of BTC. Now everything has to be in your declaration. If you bought Bitcoin, you have to be able to prove it’s there, and so on. The same is true for tokens.

At any given time, there’s a lot of white, grey, and black financial schemes out there. Three years ago crypto was something new and regulators weren’t sure how to approach it. Now they know what to do.

DeFi and Bitcoin Applicability

Max Bit: What about DeFi? There is a lot of buzz around this concept and, in a way, it resembles the ICO hype back in the day. Why is everybody talking about DeFi? Who will get into this niche?  

Anton Kravchenko: DeFi is the first stage of Bitcoin applicability. Bitcoin, in particular, has a lot of use cases: loans, investment, etc. An average miner is interested in getting a loan using their BTC as collateral and buying more equipment. This miner needs a DeFi company to get such a loan.

As I see it right now, DeFi is about Bitcoin. In terms of market capitalization, Bitcoin-related projects are dominating over all the other solutions and technologies around blockchain. The Bitcoin ecosystem is full of healthy profitable businesses and interesting services.

I am happy to see this market washing away scammers and nutjobs, to see it developing into a precursor of a really healthy market without the unhealthy hype.

Market Makers and Bitcoin Options

Max Bit: Let’s talk about hype. The hot things out there are the hegemony of centralized exchanges like Binance and options on Bakkt and CME. What are your thoughts on these issues?

Anton Kravchenko: I always said that decentralized exchange is just a pretty idea. There is a point in decentralizing certain parts of the system as we did with accounts, but an entirely decentralized exchange is simply inferior to its centralized competitors in terms of speed, processing power, flexibility, and so on. Moreover, a decentralized exchange won’t allow options. 

Options are quite useful. I reckon Deribit was the pioneer, but there are several projects offering BTC options now. Options give you flexibility and allow you to pull off interesting strategies. An individual can use options to tweak the fine details of their risk profiles. 

The hype, I think, is related to the fact that market makers love a certain kind of financial instrument. These guys love when they are the only ones who can figure out the fair price. Options are exactly the instruments market makers love.

A professional market maker has a set of price models and approaches to tailor such models to new instruments. They come into the Bitcoin market, tweak their calculations and get into a position where they know the fair price, and anybody else doesn’t. They know what price to set and everybody else has to buy from them.

Options are crucial for banks. Banks aren’t too interested in spot and currency trading. They are interested in complicated deals with options and derivatives because there is always good profitability there and you can always tweak something. 

Two years ago there were no people in this market who were sufficiently competent to understand these things. Now, many people who were into currencies and stock trading are in crypto. 

Basically, the market now has the people who are interested in the nuanced strategies available with options and the people who facilitate options trading.

Max Bit: Is there still a place for a regular person among these big players? 

Anton Kravchenko: Of course, there are even more opportunities now. It isn’t too hard to get a grip on the basics of options trading. Anybody can buy a book, learn, and try.

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