Published by Markets Media, 15 January 2019

2018 was a tumultuous year for cryptocurrencies. Crypto values tumbled, ICOs fell out of popularity, institutional traders considered dipping their toes into the market, while regulators sat up and took notice. What can we expect from 2019? More of the same, or will new developments shape the industry in a totally different direction?

One firm who keeps a close eye on cryptocurrency markets is CryptoCompare. By providing retail and institutional investors with real-time, high-quality and reliable market and pricing data on 5,700+ coins and 260,000+ currency pairs, CryptoCompare is the global cryptocurrency market data aggregator bridging the gap between the crypto and institutional markets.

John D’Antona recently sat down with CryptoCompare’s Founder and CEO Charles Hayter to discuss his firm’s core offering and mission, as well as his outlook on upcoming trends in the crypto markets for 2019.

Tell us about CryptoCompare? What does it provide?

CryptoCompare provides a comprehensive overview of the crypto asset market for institutional investors in the form of cryptocurrency trade data, order book data, blockchain and social data, monthly exchange reviews, taxonomy reports and a suite of cryptocurrency indices. We have collaborations in place with Thomson Reuters, providing data on 50 crypto currency pairs to their Eikon platform, and Van Eck / MVIS for their partnership with Nasdaq to provide data for a series of digital asset futures contracts.

What makes CryptoCompare different?

We ensure that CryptoCompare adheres to the most rigorous standards in order to safeguard data integrity, normalising global data sources to ensure consistency and confidence in the market. We have set out to act as gatekeeper for reliable, accurate and clean data that can be trusted as the basis for investment decisions.

What do you foresee as some of the main trends in 2019 for the crypto industry?

We believe there are three key themes of industry movements to look out for in the year ahead: stablecoins; security token offerings; and regulation. The prospect of a global digital bearer certificate with its efficiencies is a natural technological evolution of how we record and transfer value. How we combine it with identity is the social contract between the individual and the state. This will ultimately lead to global convergence as people vote with their digital feet.

What are stablecoins?

Stablecoins are cryptocurrencies pegged to the value of an underlying asset, thereby avoiding price volatility to make them more palatable for everyday use. This is evidenced by the fact that values for stablecoins have remained strong despite recent crashes in cryptocurrency markets with USDC, TUSD, GUSD and PAX seeing an increase of 1,032% in on-chain transactions in November when compared with September according to Diar. Even Facebook is rumoured to be developing a stablecoin for its WhatsApp messaging service to compete with Weibo. Ultimately M1 money supply is becoming globally “mobile” which poses a number of questions with respect to privacy, security and the influence of a Nation State beyond its territorial limits.

Stablecoins usually come in two distinct types: algorithmic stablecoins which have a market mechanism to maintain a price with the dollar (although these are often complicated and prone to breaking); and fiat stablecoins which are based on mainstay currencies such as the US dollar or Euro (i.e. a digital bearer certificate). A large percentage of fiat stablecoins are based on the US dollar because the business model is based on earning fees from generated interest of deposited money. This model obviously does not carry well over in Europe due to the zero interest rate, however, other jurisdictions such as Singapore et al are beginning to look the possibility of digitising forms of fiat.

What about security token offerings?

That brings us onto our second key trend - security token offerings or STOs. Similar to an ICO, an STO is a fundraising tool, however, registration with relevant financial authorities is required in order to provide investor security and ensure regulatory compliance. STOs are another form of fundraising for the creation of projects, but with checks and balances in place; basically a “copy and paste” from 300 years’ worth of corporate structure and corporate law.  

There are two themes to this - how companies raise capital, and how existing publicly listed companies increase the market for their shares. Ultimately this decouples shares from being territorially bonded and eases the ability for global ownership.

It will be interesting to observe how different jurisdictions will deal with these new types of offerings. For instance, traditional US stocks can only be traded trans-nationally via a Depository Receipt (DR) created on an exchange outside the US. And vice versa for a company looking to list as an ADR on an American exchange with the baggage it entails in the extra compliance that may be required.

Going forward, a consolidated legal framework is needed in order to keep up with these new global mechanisms and establish a level playing-field. Though that level of agreement is not expected any time soon, some predict that the general direction of exchanges moving towards globalised institutions has nonetheless begun. Indeed, the recent announcement of Estonian/Cypriot digital exchange, DX.Exchange, does just that.

And your third key trend is around regulation. How much will regulation in the crypto sphere feature going forward?

We foresee regulators continuing their efforts to protect crypto investors in 2019. The SEC has already begun to make moves to set out examples of ‘bad behaviour’, issuing a total of 80 subpoenas between March and December 2018. For 2019, the SEC can be expected to continue along the same path, picking off easy targets while gradually working its way to the top. Further, individuals themselves are being targeted and brought to justice. This can only be seen as good for the crypto industry as it matures, separating out legitimate firms from unscrupulous con artists.

This regulatory proactiveness will most likely include enforcement against unregistered crypto exchanges, and companies and executive officers raising capital through ICOs. SEC Chairman, Jay Clayton, observed that ICOs “can be effective ways for entrepreneurs and others to raise capital,” but “the novel technological nature of an ICO does not change the fundamental point that, when a security is being offered,” securities laws must be followed.  

What about the future of institutional investors and crypto markets?

The development of both stablecoins, in an effort to stabilise the price fluctuations seen in cryptocurrencies, and STOs, taking over the crowdfunding role from ICOs, point towards the gradual maturation of the crypto industry. Though institutional investors are still prohibited from buying cryptocurrencies outside of regulated fund vehicles, trackers, futures, and trusts, they are nonetheless preparing themselves for the possibility of direct purchase and storage on behalf of clients.

Groundbreaking technical developments might still be discovered, and new methods for institutional investors to get involved may yet be invented. Regulators will continue their efforts to start laying out a clearer groundwork for how crypto assets will be governed in the future. One thing is for certain, the tokenisation of assets by whatever vehicle or tool, means that more things will be traded, in more quantities, and in more ways.