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Sunday, September 25, 2022

Are Altcoins at Risk With The New Regulation?

This is regulation time. This is the time today where you’ve got a lot of zoo animals and finally, the cops have realized that they’re running all over the place and they’re trying to put them back in their pens regulation is coming. Whether people want it or not. [, Music ] all right welcome back everybody to altcoin daily. My name is Austin here with my brother, Aaron and now a friend of the channel and returning guest Douglas forthwick cmo at inex limited Douglas thanks for coming on.

Hey guys, thanks for having me on. It’S really good to be here, it’s crazy because you were actually one of our most requested guests to come back onto the program and I think that’s sort of because of the perspective and the history in finance that you bring along into cryptocurrency. So could you just sort of give us a reminder of your background and then also jump right into the question? Are we on the verge of a new regulatory era in crypto wow, that’s a lot there? Let me tell you my background was carnegie, mellon university.

Then business school at yale university, where i did a master’s in public and private management. After that, I then moved on to Morgan Stanley, 10 years there running foreign exchange derivative trading desks in new york, hong kong, Tokyo and London. Then i moved on to running proprietary trading at merrill lynch i ran Latin America for standard chartered. Then i went to a company called tpi cap and i built a company called chapter lane fx it was the largest fx ecn. I left there about two and a half years ago to join a guy called shai duties at a company called inx.

I’m now the chief business officer there and my job is to go out there and find the deals that make us move on to that next level. Now regulation. Look! This is regulation time. This is the time today where you’ve got a lot of zoo animals and finally, the cops have realized that they’re running all over the place and they’re trying to put them back in their pens regulation is coming.

Whether people want it or not. Now we saw this two or three years ago and I guess you could think of us as being like Noah’s heart and that we were building something, and everyone was looking at us saying you guys are crazy. What are you doing like in regulators? Don’t worry about those guys and us – and we said no – we spent three years 950 days working with the sec to create something that really gave regulatory power or showed what a security token could be if it was full registered security like amazon. But you know trading 24 hours a day, seven days a week.

Now we spent all of that time doing that and at the same time, companies like finance ran out the door and said: look we’re going live. We don’t really care what the regulators think we’re offshore, and you can’t touch us now. The thing about regulators is, they can touch you and it doesn’t matter how long it takes for them to come after you, they will they’ll always get their man and the way it works is you know, there’s anonymity when it comes down to crypto and that’s Something that everyone sort of treasures but at the same time, it’s not treasured by regulators. Regulators like to know who owns what, where, when and how, and when did they buy it, and when did they sell it because they like to you know, charge your taxes, and so what we call a wallet today in traditional finance is called an account and it’d. Be crazy to think you could have a bank account that the government doesn’t know about well, that’s, essentially, what an electronic wallet is, and I think that now, what you’re finding is governments around the world have finally woken up and realized that that’s what wallets are and Now they want to know who owns, which wallet and so they’ve got a number of different ways that they can, you know, can put pressure on a crypto exchange to be able to give up this information because crypto exchanges mostly have what’s called on-ramps fiat on-ramps And that means that you know you’ve got banks in the UK that allow you to that.

Allow their users to put sterling onto your exchange. You’Ve got banks in Europe that allow you to put euros on your exchange, which you can then in exchange for bitcoin or Ethereum or whatever or altcoins. Now, as the regulators start to squeeze an exchange, they turn around to all of these on-ramps and they say. Look. That’S not going to happen anymore.

You got to stop this and then you’ll find that the exchanges that are delivering on the margin and offshore start to get squeezed more and more because the oxygen or the lifeblood of that new money coming in from fiat on-ramps is now taken away and the Only way they’ll have new money coming in is, if someone transfers over bitcoin or Ethereum or USDC from their wallets that they have today. But it’s not just that think about the companies that have run out the door and posted every utility token. That’S ever come through. Now, utility tokens have been largely unregulated. You know, there’s a couple that have gone through nydfs like stable coins, but most of them are unregulated and when you look at the hundreds of thousands of altcoins out there, some of them are protocol coins.

I buy that that is a utility, but some of the people bought with the understanding that this was sort of security, but just wasn’t registered regulated and they didn’t have to go through KYC or aml. And that means know your customer and anti-money laundering, and these are checks that have to be done if something’s, security. Obviously, XRP has, you know, come under the spotlight for this, where they did a huge sale of something that the sec decided. Maybe security and ripple is arguing. Actually, it’s not, but that’s just one company there are hundreds of thousands of companies out there that have raised money and you’ve seen the ico craze that happened back in 2018, and how many of those companies then had folks ending up going to jail or had to Return: money back to investors, it’s pretty obvious to us that the way forward is going to be through full registration with the sec in the united states.

If you want to list and sell tokens to Americans now that being the case, that means that probably half or even more of the current utility tokens in existence, I think that sec’s Gensler has mentioned this already would probably be seen as being security tokens by the Sec, but that doesn’t mean that suddenly I would pick them up and I would list them on inex, because we can do that with a digital broker. Dealer’S license really. What it means is that these companies would have to sw swap the tokens that they have right. Now, for security with the individuals that own them and that could take a long long time, and so you know, I think that there’s a lot of fear in the market. What does this mean?

Well, if altcoins right now that aren’t registered, make up a significant amount of an exchange’s revenue that could be problematic for that exchange. If an exchange that is not a registered broker, dealer for digital assets, or an ats does not have that registration but for some reason, is listing a coin that the sec sees as being a digital security. Well, that’s a problem for that exchange because they haven’t been registered, it’s sort of like me, setting up a website and I’m selling amazon stock directly to the public. Everyone knows that. That’S not legal and yet there have been some crypto exchanges that have thought that that’s fine.

So you know, I think, that that there there’s sort of been an awakening lately of the regulators where they have now decided on a global scale to start thinking about. You know who are the bad actors and how do we stifle what they’re doing, and i think that that’s what you’re, seeing now, where you’re seeing a number of exchanges sort of getting pushed apart or slowly? It’S almost like. You know death of a thousand cuts where every day there’s more and more news coming out that tells people. You know what you ran out, the gate.

You were the hare. You ran out the gate. Certainly, you’ve got lots of money and now you’re staffed by lots of people that used to work for the sec or the do or other these institutions. But the fact of the matter is, you can’t run from the law. I like it.

That’S a very good perspective. I guess just my follow-up on. That is. What do you think is the most exciting part about institutions coming into space? If you had to say something?

Well, here’s the thing institutions only come into this space when it’s cleaned up. You know the institution. Only will trade with an exchange – that’s gone through the rigorous needs that the sec and others you know bring to it, and so that certainly is important. But you know one institution can do one trade, that’s equal to fifty, a hundred thousand retail and that’s where it gets really exciting and you’re already seeing that. I think in the movements that we’re seeing in bitcoin today and Ethereum, where you’ve got a number of institutions coming in and using optionality to trade, and they can buy what’s called gamma, which means that you know they’ve bought the downside and the upside in something they just want to see volatility, how do you get volatility well in the currency markets, you would put in huge offers or huge bids in the market.

That would then squeeze the retail that we’re using 30 40 times um leverage, and so obviously the price would move in. In the way that you wanted – and i think that’s what we’re seeing today – we’re seeing some really big fish enter into some ponds that only had really small fish and when the big fish come in and there’s only one or two big fish. Well then, things start to move, and I really believe that that’s what we’re seeing these days when other big fish come in well, then you know, then they start marshaling each other and they start having positions on the other side from each other. And you see much more calm movement, but one thing for sure is we’re going to see volatility in this space for some time until governments get it, and you can look at volatility and fixed income and equities and currencies. It’S always good volatility and then the governments come in and start intervening in some way and volatility absolutely collapses.

So volatility starts to go down as you go from the little guy to the bigger guy to the bigger guy and then to the biggest guy. Now, right now you see bitcoin moving up and down, because it really is it’s the purview of the little little little guy, the minnow, but soon we’ve got the mackerel coming in after the mackerel come the sharks after the sharks come to the whales and that’s when we’re Gonna see volatility costs, but that’s you know five years time right now, there’s a lot of sharks and there’s a lot of minnows and so we’re going to see a lot of volatility. But I do believe that, as you can see, you know if I was just to chart how many people watch your show, and i was to chart that against how many people are getting into crypto. It’S probably very similar, there’s a huge amount of adoption. That’S happening.

I say over the last year it’s probably double the amount of adoption of bitcoin, of crypto in general and as adoption, rallies and raises, and people become more aware of it and start getting involved in it. You’Ll obviously, then start to see the price you know. Moving in one direction which it has done over the past, you know 10 years in your opinion, is their room for both, meaning that uniswap decentralized exchange at one point was doing more volume than the centralized exchanges and also as examples blue-chip defy altcoins like aven Compound they’re, adding versions uh for institutions, permission KYC versions, yeah. I think that d5 yeah, just by the name decentralized finance, is sort of the opposite of the way that the government likes things. They like things to be centralized and go to one guy and say: okay, what’s going on, they don’t like the idea that one person can go into something then anonymously lend with leverage to someone else.

That seems to be a bit of a problem, but there are solutions that are coming. There are solutions that are coming that will allow many anonymous people to remain anonymous, but at the same time deal with other anonymous people, but they’ve all gone through some sort of kyc before they became anonymous, and so it’s sort of like you know, defy uniswap, Was first out of the gate and now it’s getting refined and pulled back a little bit so that we can match what the regulators want to see. Look. I think we all know that smart contracts are going to end up being the be-all and end-all you know when i think of how an etf is traded today or a mutual fund is traded. The number of people involved in that sort of space, and yet when you can just change it with a couple of lines of code and a smart contract that obviously is going to become the future and there’s nothing that’s going to stop that.

But what will stop? Will be the ability for someone to anonymously go out there, lend to someone else? That’S anonymous and the government has no knowledge of this whatsoever. I don’t see that being a long-term situation, but how is it anonymous if there is a version of kyc? Well, it won’t be you know, but you know right now, when i when I give money to the bank of America – and I put it in my bank account and I get my quarter of a percent bank of America – lends it anonymously to me to someone at 18 And has a credit card now we’re all sort of anonymous there.

I don’t know who that guy is that’s paying the 18 on the credit card. I know I don’t get that 18 because I only get a quarter of a percent with d5. I get that 18 right because of that anonymity layer now bank of america can have an anonymity layer there and that I don’t know who I’m lending it to. They don’t know who they’re borrowing from but they charge 18. For that and I’m thinking that we can probably find a way that maybe it’s only 17 percent – or you know maybe it’s one percent – that’s charged rather than the whole 18 and because regulation costs money, but so does waste and one thing about defy.

Is it strips out the waste and all of the office buildings all of the bricks and mortar you take it? It makes it all away now you’re going to have to add in some sort of price pricing mechanism to add in the kyc and the aml. But you know what, if I get a million people on one side and they all do kyc aml and a million on the other. They all go through kyc aml, they’re, all anonymous with each other when they and they play with each other on my sandpit. So there is anonymity there, but you’ve got to join that centralized exchange in order to do the decentralized finance, and I think that that’s where it probably is going to go douglas.

I hear what you’re saying and just I think that might make a certain percentage of our audience a little peeved that you know there’s no way without the centralized banks. Well, there will be the way I mean look decent defy will go the way of offshore much. As you know, I think that a lot of things will end up moving offshore there’s a lot of things you can do outside the united states that you can’t do in the u.s. Take, for example, tokenized equity.

That’S pitched right now by a lot of firms outside the united states, where they say look, we’ve got tokenized tesla. Well, here’s a news flash! It’s not really tokenized! Tesla tesla, didn’t issue this. Really it’s a CFD, a contract for difference and CFDs are essentially derivative instruments that are matched to something else to the underlying.

But you don’t know if you don’t what you get. Are you get the same kind of price movement in it? But you don’t actually own a fraction of that stock and CFDs are illegal to united states citizens, and so, when you hear about these types of things, it’s sort of like yeah there are some great ideas, traded outside of u.s borders and people will move to that. Not everyone wants the government to know that they own this bitcoin wallet and they’ve registered this Ethereum wallet.

Not everyone wants that, but you know so a small minority. I think. Maybe you know 20 will say you know what screw this we’re moving offshore, but they’re going to be replaced by every single institution in the united states that absolutely dwarfs that 20 percent minority today 20 percent of the retail business that we see in there think about This right there’s one and a half-trillion dollar market cap right now in crypto. If you were to take let’s say 20 of that market cap, what is that 300 billion dollars? How does that?

Compare to 100 trillion dollars of equities 100 trillion dollars of fixed income when the institutions get involved. These numbers are huge compared to the de minimis size right now that we’re seeing in crypto wait till I start bringing foreign exchange on you know onto a crypto trading business that we’re doing with the yen stablecoin. That’S going to be. You know 24 hours seven days a week trading of the yen, and you know how much dollar-yen trades on a nightly basis. All you see in dollar yen on a nightly basis.

This is this: is my power going on what you see on dalian and nightly basis around 800 billion dollars a night, and you see around 30 billion dollars a night just in bitcoin? What I’m saying is these other markets are going to absolutely dwarf what we see today in crypto, it’s going to be a tsunami, and when that tsunami comes the guys that are going to profit from that, i believe are going to be the ones that are actually Registered and following the law interesting uh, i like it – i guess you know in summation we’ve kind of been like talking about this, uh, but my final question is like so like, first of all, trying to predict four years ago trying to predict where we are today Would have been almost damn near impossible because so much has changed, and so many things have happened, but just looking 10 years into the future, so multiple cycles i had by 2030 um in summation. You know how do you see the space-changing, also like regarding bitcoin or Ethereum? Do you think they’ll still be around? Do you think they’ll appreciate sure um?

Look. I think that bitcoin is today’s digital real estate, it’s something that everyone can afford to buy and at the same time, over the course of a lifetime. I see appreciation our grandparents bought up but townhouses for 500 in manhattan and overtime today. Maybe it’s worth 20 million dollars that same townhouse. It wasn’t because real estate went up because the dollar went down.

Now there were times in the 70s. When the price of real estate of a townhouse in manhattan collapsed. There was fighting on the streets, electricity going out and people sold their townhouses, they said, oh, my goodness. Townhouses are the worst investment, but if you’d still held on, if you huddled your townhouse you’re worth 20 million today and that’s what we’re seeing in these cycles, you know you see a lot of fun, and people sell out their bitcoin and think. Oh, that’s it!

It’S all over, but it’s not the dollar’s still going to get weaker over everyone’s lifetime. You just got to increase your time horizon now. Ethereum. I see that as the gasoline of the economy, especially for a lot of coins, are going to be running on the Ethereum network, and I know we all say that the Ethereum network’s very very expensive today. But I do believe that eth2 is going to make it a lot cheaper and technology is going to make these rails a lot cheaper too.

Now i like the idea that you’re, seeing from guys like algorand of putting the smart contracts on the chain, and so you see less of this sort of clunky movement of a token, carrying a smart contract as opposed to you know. The other way that you can do it so i like that idea too, and I buy into that idea um, but I think that in 20 years you’re going to have you know tokens running on Ethereum tokens on liquid on algorand and avalanche on the hyper ledger. All sorts and they’re going to specialize in different things, maybe hyper ledger just specializes in real estate, maybe if you know concentrates on stable coins issued by governments but we’re going to find all of these different rails and companies like myself that have a security token marketplace Are going to have to be able to accept all of these different rails to run all the different types of tokens that run on them? I think that in the next five years, all equities in the united states will be digital and will run on the blockchain and that’s you know, based upon just conversations I’ve had in different types of corridors. I think that fixed income is certainly moving there as well.

You know the thing about the blockchain is you can be calculating interest on a per-second basis? It’s not just about. Let’S do quarterly or let’s do monthly and that’s that’ll be exciting. I think for folks to have that sort of liquidity, but when I think about just you know: technology in general email, you used to be happy with snail mail right sending something to the UK. You send a letter two weeks ago, say you’re happy with that.

Nowadays, we’ve got the email and we want to get it instantaneously, we’re used to that packages. We used to think you know what it’s okay in two weeks, never get amazon, we get it the next day, but for some reason, for the last 100 odd years, we’re happy to get our equities delivered to us in two days time forget about that! That’S just its old technology and it’s going to change, but it’s going to change so quickly that if you’re not standing there with your hands out you’re not going to catch it because it really is one of these technological marvels kind of like internet right. Remember when the internet came out and people said you know what that’s just for pornography and it’s for uh thieves, they’re, saying the same exact thing about crypto. You know blaming crypto for if someone gets kidnapped, blaming crypto if there’s a ransom, let me tell you: rances have been sold paid in for many many years in euros and in sterling and in dollars, so we’re not changing the game here, but what I will tell You is in the next nine months, you’re going to see.

U.S banks start to offer digital accounts, so you can start sending USDC from yourself to your friends. Instead of doing a wire transfer or a swift or an ach, that’s going to be huge and that’s already being pushed by the occ, the office of comptroller and currency when they open that up and they start giving you a digital account for you to have at Your bank, that’s when all this stuff’s just going to take off incredibly wow. I love that perspective and I think that’s a great segue in our final few minutes. Would you remind any new cryptocurrency investor, new or old?

What inex or inx is please remind me and then uh how they can get involved in x is a couple of things. The first is we, we did the first-ever security token uh um IPO on the blockchain and that’s a full u.s registered security that trades on the blockchain we ipo’ed it back in august. I think we raised around 93 million doing that. We sold to 7 350 people from 75 countries and by the end of this month and we’ll update in the comments section when we have the exact date, but within the next couple of weeks, we’re going to be listing this token for the very first time.

This can be the first-ever traded, secure security on the blockchain, and you know i think it’s pretty historic, because you know I think it’s it’s a new asset class. This would be a. U S security trades 24 hours a day, seven days a week, 365 days a year, just like crypto, but it’s a registered security. Now. What does that?

Do, though? Well, what is inx? Well, we sold this token because we wanted to give 40 of our profits. Our net operating cash flow to the guys that buy it, they got the holders of it and what? What?

What is our business? Well, we’ve got a crypto trading business where you can trade crypto back and forth all day long, security, token trading business. Where we’ll be listing a lot of these utility tokens, that’ll become securities, but also a lot of securities, and on the back of that, we’ve also got a business. We just bought an inter-dealer broker uh in Israel, but that’s registered in the u.s and that’s going to allow us to offer NDF trading in crypto.

That’S non-deliverable forward trading in crypto to institutions. We’Ve got about 50 tier 1 banks that’ll be trading that with us, and you know the net that the reality is we’re a nose to tail digital assets, company, whether you want to trade ndfs, whether you want to trade crypto or you want to create digital securities. We want to be that one-stop and, and the nice thing is when you trade in our platform, you know, 40 of the profits, go to the token holders, not to a couple of wealthy twins. Uh, that’s awesome Douglas! Thank you for uh.

Coming on any final message for the altcoin daily audience: well, look I think the altcoin daily guys are fantastic. I love being on this show you guys, I think, do a really good job in explaining a lot of, I think complicated issues to your listeners, and kudos to you. Congratulations on your success appreciate it Douglas thanks for being on.

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