[Coinlive Talk] The Key to the Growth and Maturity of Crypto

• Institutional participation in the crypto market has been steadily increasing, with 74% of institutions surveyed by Fidelity planning to buy or invest in digital assets
• Asia particularly, has been a hotbed for crypto adoption, according to the 2022 Global Crypto Adoption Index conducted by Chainanalysis in September - six out of the top ten countries by crypto adoption were based in Asia, with Vietnam holding the top spot for the second consecutive year
• Samar explains that it is important for institutions to work with regulators to nurture a safe environment that crypto may mature in

Interview as at 8 Nov 2022

“We are just at the beginning of adoption”, Laurent Marochini, Head of Innovation at Societe Generale Securities Services says. “The true potential of cryptocurrencies and their underlying technology will become clear as they spread beyond the retail market and are widely adopted by institutions to disrupt and remake whole industries.”

Indeed, institutions play a key role in galvanising the further uptake of crypto – and this trend is already in fact in motion, particularly in the United States. Wall Street has begun increasing crypto offerings in wealth management, and Goldman Sachs notably traded its first Bitcoin options this year.

To find out more about the role that institutions play in the growth of the crypto industry, we spoke with Samar Sen, Head of APAC at Talos.

“Institutional adoption is key for the growth and maturity of crypto”, he says. “In order to make this exciting new asset class grow, mature, and to stabilise this entire ecosystem, we need the instituitional money to come in.”

Just as Samar says, the greater participation of institutions within the space are very likely capable of injecting some much-needed stability to soothe the volatility levels in the market. As a report by financial services giant Fidelity indicates, 58% of the over 1,000 institutional investors surveyed currently hold digitial assets, while 74% plan to buy or invest in them. Institutional investment is particularly valuable, especially since the maturity of any class is largely contingent upon incoming liquidity.

Talos, the largest provider in the space for institutional-grade trading infrastructure, focuses on catering to just this increasing trend, while collaborating with existing liqudity providers such as Amber Group and KuCoin.

“Many of our customers are using us as a gateway to connect to digital assets in general,” Samar says. “A lot of the customers on the sell side are actually taking up and signing up with our software a lot faster than we thought.”

Firms are beginning to recognise the value in procuring digital assets, Samar explains. Digital assets potentially serve as an investment opportunity for firms that are looking to generate yield based on various trading strategies. Alternatively, digital assets could also serve as a treasury function to generate capital via tokenisation, or to generate yield on existing holdings against deflation. Most importantly however, holding on digital assets are also becoming more attractive as crypto begins to proliferate as a payment method – which would of course make holding on to some payment tokens on balance sheets a good idea for institutions, especially for handling payments with vendors.

As the head of APAC, Samar also tells us that Asia has a massive role to play in the growth of the digital asset story.

“What I’ve noticed is that there are a lot of early tech adopters in general and financial savvy populations within Asia,” he says. “At the same time, a lot of the early crypto pioneers are based in Asia too, which looks like early crypto funds, exchanges, market makers, and capital investors in general.”

Indeed, few parts of the world have seen adoption rates quite like Asia when it comes to digital assets. According to the 2022 Global Crypto Adoption Index conducted by Chainanalysis in September, six out of the top ten countries by crypto adoption were based in Asia, with Vietnam holding the top spot for the second consecutive year.

“There are a lot of emerging markets where there are underbanked individuals,” Samar tells us. “There are a lot more derivatives, volume, and trading going on here in Asia as compared to the rest of the world.”

In response however, authorities in Asia are also keeping a keener eye on crypto activity. Plans on firming up regulatory frameworks are already underway in countries such as Vietnam and Thailand. In October, the Monetary Authority of Singapore (MAS) published papers proposing measures to mitigate the risk of consumer harm from cryptocurrency trading, and has even proposed for the implementation of prerequisite aptitude tests before retail investors in the country are allowed to trade. In the paper, MAS underscored their attitude towards cryptocurrency, stating that “trading in cryptocurrencies is highly risky and not suitable for the general public”.

Coinlive's interview with Samar Sen, Head of APAC at Talos

“Regulators will always have the mission to protect the average retail investor,” Samar surmises. “I have a positive view on regulation because scam coins and market manipulation hurt retail investors, and this is just part of the road towards professionalising and maturing this ecosystem.”

Yet many in the space hold regulations at an arm’s length, citing threats towards the ethos of decentralisation, a mantra long enshrined as the core principle of cryptocurrency and digital assets. With the recent Ethereum merge, up to 51% of all Ethereum blocks on the chain are now (Office of Foreign Assets Control) OFAC compliant, with anxieties surrounding censorship and power consolidation at an all-time high. Yet, as Samar argues, decentralisation does not take place overnight. Rather, a balance has to be struck between maintaining decentralisation where it is necessary, and ensuring that the state fulfills its responsibility to protect the average retail investor.

“I think everyone is on board with the powerful idea of decentralisation,” he says. “I think when you work with regulators, it’s a tough challenge to fully enable. But what I believe will happen soon is that institutions will be comfortable with first moving to a hybrid model where there is some centralisation, before looking towards full decentralisation.”

While institutional support may indeed be warming up towards crypto and digital assets, this by no means discounts the impacts of the unrelenting bear market. With the fall of giants such as TerraUSD, Celsius, and hedge fund Three Arrows Capital, the market has indeed been challenging for further growth.

“I think things have changed completely in the past where money was almost free and where every kind of project was getting funded, and VCs (venture capitalists) were under pressure to not miss out on deals,” Samar says gravely. “In this current climate, VCs are going to have to decide now, which ones are going to make the cut versus the past.’

As Samar posits, while there may indeed be greater institutional participation in the space, it ought not to belie the challenging economic conditions that surround not just the crypto space, but also the rest of the world’s market.

“Only companies with a strong product market fit, solid business fundamentals, sustainable business models, and great teams are going to survive this winter,” Samar says as we close off the interview. “But I think in the future, companies and the products that will be available to them will be improved.”

This is an Op-ed article. The opinions expressed in this article are the author’s own. Readers should take the utmost precaution before making decisions in the crypto market. Coinlive is not responsible or liable for any content, accuracy or quality within the article or for any damage or loss to be caused by and in connection to it.