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Guest Opinion: After The Bubble, Do We Still Need Crypto?

(Editor's note: This Guest Opinion article features the views of Mr. Jonathon Miller, Managing Director, Australia, Kraken. Mr. Miller was responding to questions during a keynote session at our recent virtual financial institutions conference. The questions and answers have been edited for clarity. The thoughts expressed in this Guest Opinion are those of Mr. Miller and do not necessarily reflect the views of S&P Global Ratings.)

Frequently Asked Questions

After weathering a major selloff, what can we expect for crypto?

Crypto was a highly cyclical asset in its first decade. But volatility in bitcoin and ethereum has steadily declined with each full market cycle. This suggests crypto is becoming less hyper-cyclical where funds flood in during bull markets and evaporate in bear markets.

The adoption and use of blockchain across multiple services such as international payments will be critical. It's always hard to predict too far ahead in crypto, but I think this trend will continue as more people interact with the technology and realize new use cases.

What roles do you see for established firms in financial services as the crypto industry matures?

There is absolutely a role for traditional players. A name that came in early was CME group, which launched a futures market for cryptocurrencies. Blackrock has an application in place to provide a spot-bitcoin exchange traded fund (ETF) on Nasdaq. These are serious moves by established players.

Asia-Pacific is building the infrastructure that can form the basis for a range of new products and better accommodate these players. The launch of specific reference rates in Asia-Pacific indicates we're seeing growing demand for derivatives with large contract sizes traded in non-U.S. hours.

How do you see regulatory developments taking shape?

This is a big question. One important development was the arrival of European legislation, in which the EU adopted a framework for markets in crypto-assets (MICA) (see "Europe's Crypto Regulation Lead Could Attract Followers," published on RatingsDirect on May 5, 2023).

One thing that is clear is the variance among jurisdictions. Canada, for example, has a licensing regime for crypto companies. Australia has consultation underway for this industry.


There have been some meaningful regulatory developments across the globe over the past year. We're anticipating additional government-driven consultations this year and potentially some legislation in 2024.

Irrespective of the jurisdiction, this is about managing a balancing act between protecting the consumer and allowing innovation. The industry is still in its infancy. So regulation should be about ensuring a level playing field. We need to protect infrastructure providers and their users, provide guidelines, and minimize inconsistencies.

Regulation without harmonization creates the risk of regulatory arbitrage. Australian consumers, for example, could be forced offshore to venues that have less emphasis on investor protection. It's important to create rules that attract players to grow and build onshore within substantive financial regulation that can protect the end-investor.

FTX failed last year. What factors at the company and industry levels will add robustness to crypto exchanges?

This is very recent--and very tumultuous--history for the industry. We are all feeling the effects of the failure of a business that large. My heart goes out to people who have lost. So what is the right response?

Due diligence is key. We see that in counterparties that we rely on. It's important to move fast, but also safely, and to recognize the red flags. For example, security. It's core to the industry. Crypto is different than other markets. You are dealing directly with assets. That means if you lose them, they are likely gone.

Cybersecurity is about the number one risk for many businesses. If you don't have it, we've seen the result, FTX included.

You need a strong custody offering. This may mean cold storage, where the assets are stored on devices not connected to the internet.

There have been too many instances of people losing money as a result of inadequate security. FTX is a classic example as it transpired the exchange appeared to have no dedicated security team, even though it was entrusted with billions of dollars in client funds.

There have been some more recent examples. Prime Trust, a crypto custodian, actually lost the private keys for its wallets which contained tens of millions of dollars in client assets.

Is crypto too volatile for institutional investors? What woud change this perception?

These investors typically want volatility, which they view as an asset. Whether an institution is set up to handle the nuances of crypto will determine whether it benefits.

Crypto's blue-chip assets will expand their use cases. And the more that people adopt these core assets, the less volatile they will be.

Every week we see news that validates the view that institutional adoption is continuing. This includes the regulatory regimes that are emerging, which will provide the certainty that the industry needs to continue.

Some recent examples of institutional moves toward crypto include:

  • A stream of ETF applications from major institutional players such as BlackRock;
  • Recent court decisions that have created more legal clarity on certain crypto products and services; and
  • Several jurisdictions, including the EU, Canada and the U.K., are implementing clear regulatory frameworks for crypto-assets.

The use case for cryptos varies greatly by user and region. The main perception of crypto remains one that predominantly comes from people who already have access to reliable financial services.

However, there are more than 1.4 billion people (about one in five) who don't have access to a bank account or any form of financial services. Furthermore, global inflation has rocketed up as supply chains got squeezed, further adding pressure predominantly on the world's poorest. This is a systemic global failure.

We assume people who are seeking protection from inflation, or need access to basic banking services, or both, will see value in cryptocurrencies.

To view a video replay of this session, click on this link.

This report is part of a series that reference comments made at an event titled S&P Global Ratings Asia-Pacific Financial Institutions Virtual Conference 2023: Emerging Risks, Emerging Opportunities

Writing: Jasper Moiseiwitsch

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