Safety and security of digital assets was common theme throughout sessions
Terrapin’s Trading Show took place in Chicago last week bringing together some of the biggest players in the cryptocurrency space. Terrapin tapped Hehmeyer Trading + Investments to share our knowledge as cryptocurrency experts and address one of the most pressing matters in this developing market: the safety and security of digital assets.
A Keynote Discussion Between Friends
Our CEO Chris Hehmeyer shared the stage with friend and founder of the San Juan Mercantile Exchange (SJMX), Bo Collins, for a keynote speech where the two discussed the cryptocurrency landscape.
Collins, whom started his career as an options market maker and eventually worked his way up to lead the New York Mercantile Exchange said he first invested in Bitcoin when it was trading at $13 in 2011.
“I felt there was a lot of dysfunction in the space and wanted it to operate more like Wall Street,” he said. “I started thinking about how people organize trade flows and what else crypto needed, such as market surveillance, to bring in the institutional dollars.”
Collins will launch the SJMX in the fall to enable members of the exchange to purchase and sell digital currencies through integrated trading, custody and asset management systems. He believes that cryptocurrency trading will emulate Wall Street and will also see fiduciary funds enter the market within a year’s time.
One major concern and theme throughout the conference was the safety and security of these digital assets.
Collins believes that blockchain’s decentralized nature will come into play when addressing the custodian issue.
“I think that the storage of assets will lead to more centralization,” he said. “This market might not be as decentralized as it is now.”
With the launch of the Hehmeyer Cryptocurrency Index Fund, Hehmeyer has spent a lot of time thinking about where to store cryptocurrencies and the best way to move these assets between counterparties.
“We have become our own bank, which can be scary,” said Hehmeyer. “Moving assets, whether they should be stored at an exchange or in cold storage. These are issues we take very seriously.”
While being your own bank can be intimidating, there is also power in owning that value yourself. On the following Keynote Panel, Garrett See, CEO of DV Chain, said that this is cryptocurrencies’ selling point.
“Crypto are unceasable assets that you store yourself and no one can stop you,” said See. “This is powerful.”
See was joined on stage by Michael Moro, CEO of Genesis Trading, Jim Radecki, Global Head of Business Development at Cumberland Trading and David Ripley, COO of Kraken to take a deeper dive into the cryptocurrency ecosystem.
Radecki, who specializes in institutional sized liquidity, sees certain themes and common concerns among the institutional players. He said that the institutional side wants information on liquidity, settlement, custody and security before getting involved in these new markets.
“Custody is the single biggest roadblock for institutions,” said Radecki. “Either you hold custody yourself or work with a third party.”
The issue is that third parties don’t have the pedigree or reputation such as the ones institutions are used to with State Street or Bank of New York Mellon.
“We are astounded by the lack of security at big banks and firms that want to take their current infrastructure and apply it to crypto,” said Ripley. “They are not at the level that crypto firms are at and I believe there needs to be a confluence of the two before institutions really get involved.”
An Exchange’s View on Custodians
Dave Nuelle, Managing Director, Options at Hehmeyer Trading + Investments, led a discussion looking at how market operators are adapting to innovation and customer demands. He was joined on stage by Max Boonen, CEO of B2C2, Maggie Soo from Airswap and Austin Alexander, Head of Sales at Kraken.
Alexander believes that the retail investors fueled cryptocurrency growth in 2017.
“There are multiple users in this market, such as B2C2 who are liquidity providers and market makers. These guys want different things than the retail investor who fueled growth in 2017,” he said. “The retail traders want usability, simplicity and fiat funding.”
Boonen agreed with Alexander and said that the real drivers are the retail speculators, which are different than that of the liquidity providers.
“You have to remember that crypto exchanges are really just websites so the website needs to provide a good user experience, look good and have orders go through in a timely manner,” said Boonen. “Exchanges that made the most money aren’t necessarily the ones that have the best technology but rather the best user experience.”
As did most conversations, the panelists turned their attention to the question of custodians, security and safety in storing digital assets.
“Crypto exchanges act as the bank, matching engine, clearinghouse and custodian,” said Soo. “That’s a lot of trust to put into an organization that isn’t regulated.”
Disagreeing with Bo Collins comment about a centralized solution for the custody of digital assets, Alexander believes the market will stay decentralized.
“I don’t think that the crypto markets will move towards the centralized custodian model because it’s not as secure,” said Alexander. “Firms like State Street or BNY or Coinbase have a target on their back because people know they are custodians. When people are their own custodians, no one knows they are storing the crypto.”
Boonen does not believe we should push custody to the end user.
“The majority of the public is not ready to be its own custodian,” he said.
While the safety and security of cryptocurrencies is one issue that still needs to be addressed before it attracts mainstream institutions, one thing Hehmeyer said in his keynote conversation echoed throughout the conference.
“People can’t image how the cryptocurrency market will evolve, it’s too complex but there is no way it’s going back in the bottle.”