Why Regulation Will Drive the Big Money into Bitcoin

In 2014, Egyptian-born Akram Bekzada invested with Igot, an Aussie crypto exchange. He has been trying to withdraw $13,000-worth of bitcoin since October last year.

Perth millionaire Zhenya Tsvetnenko is having a similar problem. His company, Digital CC, is owed $180,000 by Igot.

Digital CC is taking action in the WA Supreme Court to windup 13th Pty Ltd — the business entity of Igot.

This is just one of the possible risks when buying or selling any cryptocurrency. The exchange might deem it not in their best interest to redeem your holdings as quickly as you’d like.

This causes real trust issues between investors and crypto exchanges, especially for institutional investors.

Josh Brown, CEO of Ritholtz Wealth Management and author of a popular finance blog, agrees.

After finally giving in, he bought some bitcoin. But before jumping into bitcoin, Brown did a little research on exchanges.

I don’t think any one service is safer than another. It’s too early to anoint any of them as the JPMorgan of bitcoin. I don’t think that exists,’ Brown said.

Such concerns are the biggest obstacle to growth in the market for cryptocurrencies like bitcoin or ether,’ writes Bloomberg columnists, Matthew Leising and Brain Louis.

Even as investors are lured by their price gains and volatility, the biggest institutions are reluctant to get in, raising further concerns about liquidity. The challenge for exchanges like Coinbase and Gemini Trust Co. is persuading major financial players that the $121 billion market for digital assets meets 21st Century standards.

The dangers are apparent. On June 21, ether crashed to 10 cents from $317.81 in trading on Coinbase. The cause was a single $12.5 million trade — one of the biggest ever — that triggered further selling. It all happened in just 45 milliseconds, after which computer algorithms started buying, driving prices back up to $300 within 10 seconds. Some digital coin exchanges have collapsed or customer funds have disappeared. All of which is scaring away the very investors the exchanges need to succeed.

So how do you get the big money interested in extreme volatility and the potential to make double-digit returns in a day?

Regulation.

Not regulation of cryptocurrencies, but of exchanges.

Singapore crypto firm moves to Japan

This year, Japan introduced a crypto exchange registration system. The idea is that, by registering as an exchange and following strict rules, Japan will eliminate security risks, money laundering and terrorism financing.

It was the perfect place for QUIONE, a crypto exchange in Singapore, when their bank accounts were closed.

The local branch of CIMB Group Holdings gave QUIONE three weeks’ notice before closing their account. According to Bloomberg, banks in Singapore have ‘…a zero-tolerance policy towards cryptocurrency and blockchain companies.’

Bloomberg continues:

Quoine joins about 10 firms specializing in cryptocurrency and payments services whose bank accounts have been shut in Singapore, where the financial regulator oversees only some activities related to the industry. Japanese authorities are taking a more active stance, granting licenses to 11 exchange operators in September, including Quoine.’

Yet that could soon change, as Singapore continues to show signs of opening up. The nation intends to regulate trading, much like Japan, and is open to the idea of trialling some initial coin offerings in a regulatory sandbox.

Regulation isn’t exactly what crypto diehards want. But it would be a huge step forward in attracting more money into the industry.

As mentioned above, a big reason why institutions aren’t betting on cryptos is because they’re concerned about security. With regulations in place, there will be one less barrier for billions of dollars to flood into the crypto market.

Cheers,

Härje Ronngard,

Junior Analyst, Money Morning

PS: Want to find out more about the secret world of bitcoin? Click here.


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