Humbled crypto-ers want lawmen to legitimise their wild market

After the crypto crash, the industry wants governments to confer legitimacy on digital currencies whose enthusiasts originally boasted of being outside the system. For some operators, the alternative could be bleak.

Regulators largely ignored digital assets after Bitcoin was introduced a decade ago, but last year’s 1,400% rally made them pay attention, with reactions in different jurisdictions ranging from courtship of a nascent industry to outright hostility. However, this year, some digital currencies have plunged as much as 90%.

A growing crowd of crypto entrepreneurs from San Francisco to Singapore say the market, estimated at $200 billion, must shed its image as a lawless underworld and become a regulated asset class, like stocks and bonds, for professional investors.


To become a staple for pension funds and asset managers, the industry will need to be regulated, a future that many in the market are lobbying for. “The most powerful force to reverse such negative sentiment would be market regulation,” said Daniel Santos, a former Standard Chartered banker who’s starting a Singapore based ratings company for digital assets.

“If the crypto market is ever to establish itself as a credible alternative asset class, it will need a set of rules that will weed out fraudulent activity and encourage stable growth, which should attract the deep pockets of institutional investors.”

UNREALISTIC AND IMMATURE
Santos’s company, Digital Asset Rating Agency, aims to assuage fund managers leery of investing in socalled utility and security tokens by grading issuers’ business models, management and compliance.

The idea of a version of S&P or Moody’s stamping their approval on digital assets shows how far crypto has come from the anarchic days of the original diehards. But those ideological days are over, says Ryan Zagone of San Francisco-based Ripple Labs, who urges a focus on consumer protection, anti-money laundering and risk management.

His firm, which holds about 60% of the currency XRP, is among those lobbying US lawmakers.

“Regulation is infact a betrayal of the origins of Bitcoin, which was built around anonymity and skirting government oversight,” said Zagone, the digital money transfer company’s director of regulatory relations. “This philosophy is unrealistic and immature.”

An established crypto player who says regulation can’t come soon enough is Obi Nwosu, who plans to cut jobs at the London Bitcoin exchange he runs — Coinfloor, which says it’s the UK’s oldest. He has been asking the Financial Conduct Authority to regulate Coinfloor and the broader industry since 2013.

“Institutional players bring large volumes as well as liquidity and credibility,” Nwosu said. That will “make other people that don’t necessarily have the resources to do due diligence on crypto, and have read some negative headlines, say ‘if its OK for these guys, maybe it’s OK for me.’”

While he has yet to persuade the FCA, Nwosu said he’s encouraged by UK policy makers’ recent statements. Chancellor of the Exchequer Philip Hammond said earlier this month that he wants Britain to lead global efforts to design a regulatory approach to crypto assets and distributed ledger technology. In the meantime, Coinfloor this month won approval to operate in the British overseas territory of Gibraltar, an offshore hub that has sought crypto firms. That could facilitate business with institutions that are prohibited from trading with unregulated entities.