FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
A comment from an attendee at the CryptoCompare Digital Asset Summit in London in March highlighted the changes in the world of crypto. They said that before the pandemic the summit was full of people trying to sell you Bitcoin but now it was full of people from TradFi (or traditional financial institutions). Even the tote bags were from ‘Coinbase Institutional.’
TradFi can sound pejorative but it is beginning to converge with the world of DeFi (decentralized finance). This convergence was highlighted by FTX US, the regulated cryptocurrency exchange, making a strategic investment in IEX Group, which operates a U.S. regulated national stock exchange.
Sam Bankman-Fried, chief executive of FTX, said in a statement that the two firms will collaborate on the further establishment of crypto market structure and work closely with regulators, allowing institutions around the world to seamlessly enter the marketplace. One commentator said the partnership could be a milestone for digital asset adoption in capital markets.
Digital asset adoption requires regulatory convergence. There are signs of progress in regulation as President Biden has issued an Executive Order on the responsible development of digital assets and the European Parliament’s Committee on Economic and Monetary Affairs has adopted a draft report on MiCA, the Markets in Crypto-Asset regulation.
The UK government has also announced plans which aim to make the country a global crypto asset hub. Stablecoins will be brought into regulation so they can be used as a recognised form of payment; a ‘financial market infrastructure sandbox’ will be set up to help firms innovate; the Financial Conduct Authority will lead a ‘CryptoSprint’; an engagement group will work more closely with the crypto industry; the government will explore how the UK tax system can encourage further development of the crypto market. The Royal Mint will even issue an NFT, although it is unclear how this will compete with the Bored Ape Yacht Club NFT or Cool Cats.
Faryar Shirzad, chief policy officer at US listed crypto exchange Coinbase, tweeted that the UK is at an inflection point and that as a world-leading financial center with globally respected regulators and a deep talent pool it has a unique opportunity (and challenge) at this transformational moment in digital innovation.
As digital innovation continue in a number of years, maybe much faster than we think, the terms TradFi and DeFi may become obsolete as we revert back to just plain old finance.
However, the convergence may not go as far as dress codes. As this year’s FIA conference in Boca went back to being in person, Bankman-Fried appeared on stage in a T-shirt, shorts and sneakers. It is hard to imagine the executives of TradFi exchanges doing the same thing, even if they get taken over by their crypto rivals.
