Institutional Competition? Bring It On, It’s Not a Zero-Sum Game

 

Regulation is quickly changing many aspects of the cryptocurrency industry. As fraud is slowly eliminated from the space, new classes of investors are introduced; sub-markets and new products are born.

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Because the industry is so new, regulations and investment products are being built from the ground-up. In the most ideal circumstances, these two grow together, supporting each other and fostering healthy industry growth all around.


In terms of both regulation and innovation, one of the most influential forces in the cryptocurrency space is Coinbase. Over the past several years, the company has rapidly expanded its operations and become increasingly involved in conversations with lawmakers.

Recently, Finance Magnates spoke with Coinbase UK CEO Zeeshan Feroz about his company’s newest developments, as well as the current industry trends that it has been a part of.

Zeeshan is also a speaker at the upcoming Finance Magnates London Summit, a leading crypto and forex event that will take place on November 13th and 14th at the Old Billingsgate Market. Zeeshan will be delivering a speech entitled  ‘Reimagining the Financial System.’ We are working hard to make this event the best that it can be, and we would love to see you there. To learn more about the speakers who will be featured at the Summit, please click here.

The Crypto Industry Isn’t a Zero-Sum Game

Although Coinbase is certainly one of the biggest names in the cryptocurrency space when it comes to institutional investing, it isn’t the only one. A growing number of firms are creating products specifically for institutional investors–but Zeeshan doesn’t seem to be concerned about the competition.

“I see a lot of this as really healthy activity for the space, because ultimately what we’re trying to develop is a very new sector with completely new infrastructure that hasn’t existed before,” Zeeshan said. In his opinion, the crypto industry is not a zero-sum game: “the more businesses that attack it from different angles–they’re growing the size of the pie rather than taking pieces of the pie.”

“Where Coinbase differentiates itself is that we’ve always taken a very compliance-heavy [approach],” he continued. “Our core principles are around being the safest place and the easiest to use from a crypto point of view. Those values transfer over to our institutional offerings as well,” referring to Coinbase’ recently published set of core principles for institutional business.

”Horses for Courses”

“I think there’s a space in the world for both centralized exchanges and decentralized exchanges,” Zeeshan said. “As a fiat onramp–when you have to work with banks that need to comply with regulation, you need a centralized exchange. You need someone who’s able to hold their customers accountable for the flow of funds…For that, you need a centralized exchange.”

“When you don’t need that fiat onramp, [decentralized exchanges] serve a purpose,” he explained. “They can operate in a far more trustless environment.”

“I think what you’ll find that there are ‘horses for courses’, as they say,” he added. “Decentralized exchanges definitely have a place…as the ecosystem matures, we’ll start to see more volume and use cases [for them.]” Coinbase acquired a decentralized exchange called Paradex several months ago, though it seems that most of its efforts have been focused on its centralized products and platforms.

Demand Outstrips Supply for Coinbase’ Institutional Offerings, Zeeshan Says

Zeeshan explained that the Coinbase’ increased focus on products for institutional investors has been well-received by the industry. “At a high level, the institutional space is even a younger space than the retail space,” he added. As such, “us building products over there is us mostly responding to customer demand.”

So far, Coinbase’ custody product has been the most widely sought after of the company’s offerings, Zeeshan said. “We had to restrict who we took on…currently, demand outstrips our ability to handle the volume that’s coming in, but we’re looking to scale that up very quickly.”

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“The decision making-process [for institutions], say, to start adding crypto assets as something they support, is a longer decision cycle. Decisions that were made in Q4 last year or Q1 will start to materialize into actual products later this year.”

Zeeshan added that Coinbase will be adding more products for institutional investors to its offerings, but did not specify what they would be. He did say that most of the interest in Coinbase products from institutional investors is coming from the US and the EU.

“We do get interest outside of these core markets, but we don’t have the [legal and technical] infrastructure to support [these potential clients],” Zeeshan added. There are plans to expand into some of these markets–”we opened our Japan office four months ago and acquired a general manager,” he said.

“I wish it was easy enough for us to pick a continent,” he said, “but it’s a very’ drawn out process where you talk to each individual regulator–sometimes several stakeholders within a region–and then can get the outcomes you need.”

Billions of Euros and No Regulation

Coinbase and Zeeshan himself have also been in contact with regulators in the US and the UK to assist in building legal structures to appropriately regulate the cryptocurrency industry.

“We work with regulators both in the US and this side of the pond…sharing best practices and sharing where we think this space can go. We continue to do that in Asia [as well],” Zeeshan said.

So far, Zeeshan said that things have been going well. “In conversations I’ve had with regulators over here, it’s been refreshing. I’ve been surprised by how well they’ve understood, and how well-researched they are in terms of this space. Thankfully, we most likely will end up with a framework that is conducive to business and operating within the UK and the rest of Europe.”

Zeeshan went on to say that regulation does not have to be “onerous”–it’s necessary for a healthy industry. “We have millions of customers in Europe, and we handle billion of euros and pounds every year,” he said. “But there is no regulation as such that covers that crypto space.”

“If you look at this industry in general,” he explained, “it’s actually remarkable that it’s operating without any control. So, having those controls will start to legitimize the space in many ways–I’m not saying that it’s not legitimate today, but having an official regulatory endorsement will help drive that forward.”

“Actually,” he continued, “it particularly helps in [the institutional side of the industry].” Zeeshan said that on the consumer side of things, there are plenty of legal protections that apply to the cryptocurrency industry. Institutional investors don’t benefit from the same kinds of protections–”most institutions can’t invest in assets or work with businesses that don’t meet a certain regulatory standard.”

An Influx of Institutional Investors to the Crypto Space will “Catalyze Stability”

Zeeshan predicted that the new institutional investors that will come into the space as a result of improved regulation will “catalyze stability in the space.”

“It’s easy to move a $200 billion market, but it isn’t that easy to move a $2 trillion market,” he explained. “A regulated industry that attracts more institutional capital and more retail investors will ultimately have much deeper liquidity, which results in less volatility.”

“I think that’s where you’ll start to see attitudes shift from Bitcoin and some of these assets as investment products to actually exploring around the underlying use cases around utility.”

Zeeshan explained that this exploration is one of Coinbase’ core focuses. “A lot of the moves we’ve made in terms of the products and the acquisitions, they’ve all been around driving utility into this space.”

Indeed, Coinbase seems to have its finger on the pulse of many aspects of the cryptocurrency industry, from institutional investing to decentralized trading. While the company’s next moves are not completely transparent, one thing is for sure: the world is watching.

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