New Challenges Show Progress in Crypto Space
The Security Traders Association of Chicago (STAC) held the 92nd Annual Mid-Winter Meeting January 16-17 at the Chicago Hilton. The crypto panel was moderated by Sean Ristau from Bcause, and included Brad Koeppen from CMT, Edward Woodford from Seed Exchange, Ian Grieves from ErisX , Rosario Ingargiola from OTCXN and our own Chris Hehmeyer from Hehmeyer Trading + Investments.
The speakers, representing various crypto investors, discussed the issues preventing the broader acceptance of cryptocurrencies and put these challenges into perspective.
The conversation kicked off with an introduction of each of the panelists firms. With different areas of the industry represented it was apparent that the crypto market had matured. Ristau’s Bcause is a full stack crypto currency ecosystem that includes an exchange offering and mining business. Ian Grieves from ErisX spoke to the traditional commodity investor that appreciates intermediaries’ services while Rosario Ingargiola from OTCXN talked to the over-the-counter traders. Brad Koeppen’s CMT Digital is in a few different markets including an investment arm with a portfolio that includes fellow panelists’ ErisX and Seed, which is a swap execution facility.
When it came time for Chris Hehmeyer to introduce himself he started at the beginning with his first trading experience in 1977.
“It was a similar fascination when I saw the potential scale and scope of cryptocurrencies,” he said. “With a regulated commodity trading advisor and commodity pool as well as a proprietary trading desk under the Hehmeyer umbrella, we had the capability to offer access to cryptocurrencies in a regulated and diversified way.”
The Hehmeyer Cryptocurrency Index Fund, a commodity pool that aims to track the performance of the Hehmeyer Cryptocurrency Index, enables investors to efficiently gain passive exposure to the cryptocurrency market.
“It invests in cryptocurrencies reflected in the index, which are cap weighted, and rebalanced once a month,” said Hehmeyer. “We currently have 10 currencies in the index but have had up to 13 currencies before.”
With a variety of regulated options in the crypto markets the speakers turned to the challenges that may be slowing adoption.
One of the first things the panelists mentioned was the regulatory uncertainty. In 2018, there was so much that needed clarification that CMT’s Koppen believes it was holding the United States back.
“Look at Japan for example when it comes to regulation,” he said. “The U.S. is focused on institutional flow but markets have to get away from the regulatory hurdle. There is an uncertainty and disconnect that is halting the market.”
Another key issue is custody but the panelists said this has been addressed.
“Most of the institutional world is run by fiduciaries. They are dealing with someone else’s money,” Chris Hehmeyer said. “The retail world may be able to lose a little money because it is their money and this is the same with proprietary trading groups. However, if you are going to invest someone else’s money it’s a different story. This is why fiduciaries and custodians that are coming to the market with products will bring a whole new group of market participants.”
With the market volatility, Ingargiola believes liquidity is also a challenge.
“The actual institutional platforms will be the exchanges of tomorrow in my opinion,” he said. “We are trying to bring all of this fragmented liquidity and pool it together.”
He also said we have to look ahead of what is holding us back.
“This is the next barrier to entry. The thing beyond custody is liquidity,” Ingargiola said. “And how we function like a market that we are used to trading in.”
It seems the crypto industry is making progress as we are faced with new and different challenges. The ecosystem includes traditional players from our familiar commodity markets. International regulation is shedding hope for U.S. clarity and it’s a new year.
“Looking ahead from 2018 into 2019, the difference is the challenges,” Chris Hehmeyer said. “How do you take the infrastructure that we have designed for traditional products and apply it to new products? We are trying to fit this into the old paradigm and that is the challenge.”