By Crypto AM: Industry Voices
by David Mercer, CEO, LMAX Group
London is one of the world’s most international, connected and accessible financial centres. It provides global investors and business with unrivalled access to global markets, in terms of geography, technology and depth of capital.
Since the 1980s, London has maintained a stronghold as a global FX and derivatives trading hub. Even down to its time zone, the UK’s position makes it easy to do business with major markets both east and west within the working day.
But financial markets never sit still. Emerging technologies such as blockchain and its potential application to transform capital markets represent a significant opportunity that the UK should be seizing with both hands. An interoperable network designed for institutional assets will unlock the potential of synchronised, 24/7 financial markets. We take the view that digital assets, tokenisation and blockchain technology will be the foundation on which the financial markets of the future will sit and the UK is well positioned to lead and innovate.
As with any well-functioning market, an appropriate regulatory framework is essential. It is heartening to see further steps being taken by the Government to harness the economic potential of this country being a place where the digital assets industry can invest, innovate and be encouraged to thrive. However, we can’t only look to the regulators to take on this responsibility. We call on ALL industry participants to collaborate and play a role in establishing a clear and workable framework and market structure that protects the retail investor and allows for a fair, trusted institutional market to mature.
Unlocking innovation
The UK is also in a unique position with our blend of regulatory talent, an innovative and progressive financial sector and supportive policymakers. It also has the advantage of a less fragmented regulatory landscape than its immediate financial competitors, the US.
However, this may not always be the case. Having the right regulation in place is crucial for any industry to thrive. It builds trust in the system and ensures customers are fairly treated.
Which is why we’re pleased that the Government has listened to industry, and welcome the concept of “same risk, same regulatory outcome” which underpins proposed crypto assets regulation and already provides retail investors with protections across a range of different financial product.
We particularly welcome that the Government recognises the differing needs of retail and institutional investors and is proposing legislation that is sufficiently flexible to reflect that differentiation.
Whilst the market has, and will continue to face challenges, crypto is here to stay. Bitcoin, particularly, has stood the test of time and many challenges; and ‘turned’ 15 just last month. We see its journey similar to that of the internet and the early derivatives market, which all faced similar resistance – and are, ubiquitous. We view crypto and blockchain technology as something to be utilised, not pilloried.
Convergence of TradFi and DeFi
While some black swan events have set institutional crypto adoption back, the digital assets market is quickly becoming integrated into the existing fabric of traditional financial markets. Many of the financial bank crises you have seen in the market have resulted from a failure of settlement, payments, reconciliation and risk management. Blockchain – one immutable record of everything – should mean those failures dissipate.
And we have to think bigger. There’s over a trillion dollars of crypto assets in custody today. If the approval of a spot Bitcoin ETF can get the biggest names in the world participating in the ecosystem, the market cap of crypto and blockchain could move to the region of five trillion USD. The market and Governments around the world are going to want to unlock that and remove the barriers to this asset class – unlocking the potential economic gains and paving the path toward digitising more real-world assets.
Crypto as a proof-of-concept
When considering what capital markets will look like fifty years from now, we firmly believe tokenisation and blockchain technology will solve many of the problems markets experience today – increased liquidity, faster payments and settlement, lower costs and a bolstering of risk management; a more democratised, frictionless capital market ecosystem.
What we need for the asset class to thrive and mature is to unlock the institutional gateways and ‘real money’ capital. For that to happen, we need clear regulatory frameworks in place to establish the clarity needed for market leaders to enter the digital asset space.
Government needs to act with conviction if the UK is going to maximise its first-mover advantage. Undoubtedly, there is a lot more work to be done as the market continues to evolve, but looking to regulate the activities that surround the asset class is, in our view, a prudent first step.
We’re proud to call London home. It’s the world’s capital for foreign exchange, and we are looking forward to seeing it add cryptocurrency to its ledger and establish its position as a leading financial technology and digital assets hub.
