The New York Stock Exchange’s parent firm is planning to embrace Bitcoin and cryptocurrencies – and that may pave the way for the likes of the Nikkei and London Stock Exchange to follow suit…
The parent company of the New York Stock Exchange (NYSE), Intercontinental Exchange, is planning to debut a platform for traditional investors to trade Bitcoin, the New York Times reported on Monday. The NYT report cites emails and documents it has seen, as well as conversations with four people briefed on the matter. It also reports that Intercontinental Exchange is exploring the possibility of introducing swaps linked to Bitcoin.
The news should not come as a shock, analysts said. In 2015 the NYSE was a minority investor – along with Spanish bank BBVA and the former chief executives of Citigroup and Reuters – who pumped $75 million into crypto wallet Coinbase. Since then, Coinbase has sought another $100 million in funding, giving it a valuation of $1 billion. All this with little to no regulation from the US Treasury nor the major financial centres across the globe.
The NYSE’s parent company, Intercontinental Exchange, did not reply to a request for comment for this article.
Value & Volatility
As of Monday 7 May, the total value of Bitcoin and competing cryptocurrencies stood at more than $438 billion, despite volatility which sees these prices rise and fall wildly. It is inevitable that mainstream financial platforms will want a slice of this massive market.
But the NYSE would be the first major mainstream exchange to allow investors to trade cryptocurrency. Until now cryptocurrency investors have been forced to use alternative crypto-specific exchanges to buy and sell digital currencies. The best-known of these include Binance, Bitfinex and OKEx, each of which has 24-hour trading volumes for Bitcoin of more than $200 million. There are very few barriers to entry into these cryptoexchanges.
Compare this to the likes of the London Stock Exchange where only a very small minority of brokers have access. And banks themselves have been spooked by the massive value rise of tokens since 2016.
As the New York Times writes: “While Bitcoin was originally intended to be used by consumers for all sorts of transactions — without any financial institutions getting involved — it has mostly become a virtual investment, stored in digital wallets and traded on mostly unregulated exchanges around the world. People buy Bitcoin in the hope that its value will go up, similar to the way they purchase gold or silver.”
The move by the NYSE could force the hand of the likes of the Nikkei and London Stock Exchange to push forward plans of their own to debut Bitcoin trading options.
Daniel Wolfe is the CEO of Tradingene.io, an algorithmic trading marketplace focused on retail investors. He also spent four years as the COO of Troika Dialog (now known as Sberbank CIB), one of Russia’s largest investment banks.
He told CryptoNewsReview that “I expect the capitalisation of cryptocurrencies to increase meaningfully once institutional investors begin investing and trading. [This news] moves us closer, both by indicating the interest amongst blue chip investors and by bringing us closer to having institutional counterparties for the most conservative investors”
“Banks, too, will face increased demand from their clients who will expect them to provide access, whether through the NYSE or other channels.”
Those ‘conservative investors’ – who do not want to risk large sums of money or assets trading on highly volatile cryptocurrencies – could be the source of the largest proportion of new liquidity to crypto markets. Certainly, opening up the gates to cryptocurrencies will allow vastly more investors access to these traditionally closed marketplaces. But the repercussions will go far beyond the simple matter of access, says Matej Tomazin, the Slovenia-born COO of digital asset management platform ICONOMI.
“The first reaction of traditional markets was denial. They called them Ponzi schemes or pyramid schemes and were big non-believers in crypto.”, he said.
ICONOMI also has its own token, ICN, which is trading at $1.49 as of Tuesday 8 May, with just under 100 million tokens available, giving it a market cap of $147,661,593.
Tomazin said: “ICOs are mainly related to startups and are just one very small piece of the blockchain puzzle, so they will see a boost from this news but we do expect to see some regulation so that ICOs will become much the same as IPOs.”
JP Morgan Chase CEO Jamie Dimon was among the first major representatives of the traditional financial world to demonise cryptocurrencies. In September 2017 he blasted Bitcoin as “a fraud” and, as CNBC reported, he told the Institute of International Finance in October 2017: “If you’re stupid enough to buy it, you’ll pay the price for it one day.”
Just months later he walked back those comments. “I think the sentiment is slowly shifting to understand the [technology and] trends behind crypto,” said Tomazin, “so it’s more about the blockchain and the possibilities that the blockchain is opening.”
“So what we will likely see is these institutions opening a door to crypto, regulation will follow, and we will see much bigger adoption from the traditional financial world.”
The news that the NYSE is planning to trade Bitcoin “is a logical evolution” says Tomazin, given that the large majority of new customers or clients are trading crypto tokens and not shares. Companies are watching this very closely.
“We know the space is becoming more attractive for traditional financial institutions,” he said, “but they are still waiting to get some regulation in place.”
This regulation has not come fast enough for investors waiting to pump money into fast-moving crypto markets.
Over here, the UK Parliament’s Treasury Select Committee is looking into digital currencies, but the inquiry is still in its investigatory phase . And while the country’s Financial Conduct Authority has announced its intention to regulate, we are still some way off an official announcement.
“All financial advisors will tell you that you should diversify your portfolio,” said Tomazin. “With news stories of Bitcoin and Ethereum growing so much in 2016 and 2017, [investors think] why shouldn’t I put half a percent or one percent of my portfolio into crypto? The only question that is now open, of course, is what will come sooner? Will cryptoexchanges have licences sooner than the already-licenced regular exchanges to cover the crypto world?”
The way that cryptoexchanges operate could also alter traditional marketplaces, Tomazin reasoned. For example, cryptoexchanges don’t have traditional opening and closing times like the London Stock Exchange or the New York Stock Exchange.
“The logic is a little different, how everything is done. There is no custody in terms of ordinary settlements of a few days, everything is 24/7, and you can withdraw your digital assets to your own wallet. These are new concepts that are not familiar to investors on traditional equity exchanges.”
It is just a matter of time before the Nikkei or the London Stock Exchange join the crypto trading space, adds Tomazin.
“Companies whose shares are already traded on these exchanges are now watching how tokens are so easily traded, 24/7, on different exchanges. Obviously there is demand for asset-backed tokens – so that it’s shares that are tokenised. And we will see global names that may tokenise their shares so they could be traded anywhere in the world. The liquidity will be much bigger. Only a few brokers can access the London Stock Exchange – how many regular investors can not reach it? This is the question”.
“I believe that if London Stock Exchange opens the gate to tokens, other companies will say, ‘Why shouldn’t we have shares that have the same kind of characteristics as crypto tokens? We could get settlement instantly, they could be traded anywhere in the world. In the UK you have fiat payments where you can, in a matter of hours, see that money in your account. This is the trend. So why wait a few days to get the money from selling shares?”
And so, while cryptoexchanges may not replace financial institutions, it’s clear that the floodgates are starting to open, and the trading world will have to change – whether it wants to or not.