On the latest episode of the Unqualified Opinions podcast, Thomas Chippas, CEO – ErisX, highlighted the importance of regulating crypto-markets if it were to see continued and sustained interest from institutional investors. The discussion also highlighted some of the core aspects that have prevented institutional purchasing in the crypto-market, with data integrity being a key factor. Chippas noted,
“There are entities that provide those tools that help you make the judgment as to whether or not you’ve got the best possible execution, which by the way, doesn’t always mean the best possible price. There are other aspects to execution – size, risk, market impact, these sorts of things.”
For traders, according to Chippas, the need to operate in a regulated environment goes beyond the leverage and the profits they can potentially make. He highlighted,
“So the data integrity issue, I think is maturing in the sense that there are different venues and there are people providing tools for multi-vendor access. It tends to come up more when we’re talking about the creation of investment vehicles, ETFs, or mutual fund, etc.”
Highlighting the need for regulations in the crypto-market, the solution cannot really be enforcing the traditional regulatory structure on the crypto-landscape. According to the ErisX CEO, when it comes to regulated crypto-platforms that currently offer spot and derivatives trading, it involves, “providing very specific services in a very specific way under various specific regulatory regimes.”
Interestingly, Grayscale’s Q1 2020 report had highlighted how capital from institutional investors was growing significantly in 2020. It stated, “88 percent of inflows this quarter came from institutional investors, the overwhelming majority of which were hedge funds. ”
Chippas also noted that unlike traditional markets, when it comes to crypto, most transactions don’t go through a wide variety of intermediaries, creating its own set of challenges.
“Through intermediaries and that’s because there are different roles to be played and those different roles manage different aspects of risk transaction processing and are regulated differently as well too. That hasn’t been the case in crypto. Complete and total vertical integration has been a business model from the early days.”