After ‘a sobering year’ how does crypto repair in 2023? Australian exchanges discuss
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What do Australian cryptocurrency exchanges (and one other influential industry figure) think about the year in crypto, 2022? It’s mixed, punctuated by a common theme – hope for innovation-friendly regulations.
Stockhead caught up with Kraken, BTC Markets, Binance Australia, Independent Reserve, and Blockchain APAC’s Steve Vallas to get their thoughts on a year many “crypto enthusiasts” would rather forget, and on how things can possibly improve in 2023.
Firstly, though, just a quick note that the Albanese government has rounded out the year with another crypto-related announcement. One that has promised a “consultation paper” to advise on which digital assets should be regulated in 2023.
This is part of its ongoing “token mapping” audit and examination of the industry, and Chloe White, crypto regulation advisory specialist and CEO of Genesis Block, comments on it here, in this series of tweets:
They announced today a "paper in early 2023" on what digital assets should be regulated under financial services law.
— chloe white (@ChloeWhiteAus) December 14, 2022
It's not as detailed as Frydenberg's plan, which was released almost a year ago to the day. But it is good to see a plan emerging, which will give the industry some time to prepare.
— chloe white (@ChloeWhiteAus) December 14, 2022
In other words, regulatory wheels are definitely in motion (albeit slowly) for the digital assets industry in Australia, and in particular Australian crypto exchanges.
Jonathon Miller, managing director, Kraken Australia
How does “crypto” fix itself in 2023, Jonathon? What needs to happen to see greater trust in the industry and market momentum return?
The underlying technology – blockchain – is not the problem. Crypto doesn’t need fixing: the operators who do the best job of providing secure, transparent and fundamentally sound services will continue to lead the way, whereas business models that try to cut corners or engage in outright fraud will be exposed.
As such, market momentum might return in a different kind of way. Looking ahead, builders and developers who continue to drive both emerging, as well as maturing, use cases for the asset-classes could drive market momentum in future cycles.
It’s been a particularly tough end to the year for crypto exchanges, with layoffs and scepticism swirling around “Proof of Reserves” audits on some platforms. What learnings/insights can Kraken offer?
Kraken has been through several market cycles over our 11-year history. From our perspective, the key lesson is that exchanges who have created platforms that are built on the core principles of security and trust, are the same ones who will drive the mass adoption of cryptocurrencies in the long-term.
For example, Proof of Reserves audits, a process Kraken pioneered eight years ago, provides clients with cryptographic verification that their individual balances are held on Kraken in full and in wallets we control.
By leveraging blockchain technology, Kraken and the broader crypto industry can offer clients a level of transparency almost impossible in traditional finance. This is how we rebuild trust in the global industry and ensure that clients feel safe and confident when they engage in the digital asset class.
What do you expect for the crypto market in 2023?
Regulation is going to be one of the key industry stories of 2023 and is, of course, something we must engage with. In Australia, we should look to harmonise our regulatory framework with those in other key jurisdictions as well as recognise relevant pieces of legislation, such as MiCA in Europe.
The crypto industry never stands still. Regardless of where we are in the market cycle, the industry never stops building or experimenting. With the right regulation, we’ll continue to see a particularly strong Aussie blockchain business sector punch above its weight in 2023.
Caroline Bowler, CEO of BTC Markets exchange
What’s your take on the past several months of the crypto year, Caroline?
In the past several months, the cryptocurrency landscape has changed dramatically. We’ve seen the Australian government’s commitment to regulation and the move towards the adoption of central bank digital currencies, and we’ve seen some of the most high-profile crypto frauds in history.
It’s clear that regulation will be a major factor in how cryptocurrencies are used in Australia going forward. My hope is that these regulations will encourage responsible behaviour by all industry participants, which will lead to greater stability and trust in the digital asset space.
What learnings have you taken from the FTX implosion and crypto contagion fallout?
These events clearly articulate how important it is for us to stay vigilant about our security practices and to always be aware of what’s going on around us in the space.
It’s also important to remember why we’re doing this in the first place: because we believe that people should be able to enjoy safe access to digital assets regardless of their income level or geographical location.
As an Australian-owned digital currency exchange, we operate with our clients’ best interest at the forefront. We believe that crypto will continue to grow, thrive, and evolve over time.
But one of the most important lessons is that regulation is not just about compliance, it’s about protecting consumers and making sure that everyone in the crypto space feels safe, secure, and empowered. This will be key to driving adoption in 2023 and beyond.
What needs to be fixed in order to see trust return?
The blockchain technology that cryptocurrency is built upon, is not broken. It is simply a computer code. What needs to be fixed or regulated is the behaviour of corrupted individuals and entities that circumvented the values that Bitcoin was founded on.
Given some of the concerns regarding centralisation in the wake of the FTX debacle, what are your thoughts on self custody of crypto?
Whilst self-custody is the catch phrase of the moment, moving assets around is not a straightforward process. We’ve found that our clients are looking for a secure, established partner who can custody crypto on their behalf and we foresee this trend continuing.
What’s the BTC Markets take on upcoming Aussie crypto regulations?
Regulation is coming in 2023 and will be here to stay. Many of us in the industry have been petitioning government agencies for clearly defined, responsible and proportionate regulations – particularly for exchanges.
At BTC Markets, we saw the writing on the wall years ago and have positioned our business for these regulatory changes. It was a hard decision for our business to make as we left a lot of money on the table by not participating in common practices such as leveraging client assets or taking debt on to grow our business. Looking back now, it was the right decision and one that I am happy we made.
For us to continue growing as an industry, though, we need to make sure that we’re following regulations and working with them rather than against them.
There is a delicate balance between protection mechanisms, however, and not suffocating the industry. We need to know what they are trying to achieve with the regulatory framework to ensure sustainable outcomes for all industry participants.
What are you expecting to happen in 2023?
In 2023, we expect to see continued adoption of blockchain technology and cryptocurrencies as individuals, businesses, institutions, and governments around the world learn more about the multiple use cases for cryptocurrencies.
We’ve seen significant changes in the digital asset landscape and, although there have been many headline-grabbing events, the innovation and advancement that is going on in the background is amazing.
Digital assets are here to stay, you simply cannot stop innovation no matter what regulations, rules or restrictions are put in place.
But industry players are concerned that overregulation will force traders and investors offshore, outside of government consumer-protection laws with no ability to claw back user funds.
Adrian Przelozny, CEO Independent Reserve exchange
What insights and learnings have you taken from this, at-times damaging, year in crypto, Adrian?
It has indeed been a rough year for crypto markets and exchanges. It’s revealed that some exchanges around the world have been operating without sufficient risk controls and oversight which led them down a path of taking greater risks that ultimately resulted in insolvencies when the tide of the markets swung against them.
It has been a sobering year and has highlighted that crypto exchanges, which are often de facto custodians of their clients’ assets, cannot continue to operate in a regulatory vacuum. Regulation is needed around the world to ensure a minimum set of standards for exchanges around custody, risk, governance and independent oversight.
Once the dust settles, 2022 will likely be remembered as an inflection point which ultimately left us with a stronger and more responsible industry after those who took unacceptable risks met their demise.
What needs to happen to see trust and market momentum return?
Customers are rightfully skeptical of exchanges and other counterparties they engage with and are asking for more transparency and regulation that gives them comfort that their funds are safe. We are currently seeing a flight to quality, with market participants choosing who they work with based on the level of trust and transparency on offer.
The elephant in the room is of course regulation and hopefully 2023 will see well-considered regulation introduced in Australia, aimed at ensuring that digital assets held for customers are held onshore in Australia and managed by a qualified team with independent oversight by auditors.
What do you think the market can expect in 2023?
It’s obviously difficult to predict the price of Bitcoin and other cryptocurrencies but the markets tend to operate on a four-year cycle, centred around Bitcoin halving events – the next of which is scheduled for May 2024.
We can expect the current bear market to continue for some time to come, but it may begin to see green shoots later in 2023, as the macroeconomic conditions improve and the narrative for the next halving starts to gain momentum.
Steve Vallas – Managing Director, Blockchain APAC
Firstly, we know Blockchain APAC isn’t a crypto exchange… But we’ve thrown you in here, Steve, because you’ve dealt with most of them in your regulatory consultations and conversations with the government. That little explainer out of the way, got some thoughts on the rough ride that was 2022?
My overall take is that the opportunity and promise of the sector is unchanged. Understandably there has been focus on bad actors and the protections needed for consumers and retail investors. But in the background, builders have kept building.
Regulators have been coming to grips with the sector and governments around the world are recognising that the technology that underpins the space is here to stay and must be considered in the development digital capability initiatives.
How does the crypto industry fix itself in 2023? What do you think needs to happen?
The breadth of the sector means that monolithic “the industry” is a narrative that seeks to provide a shorthand summary that doesn’t reflect all that’s being built in the space. Bad actors are not the crypto industry. But the vast majority, the good actors, have to do a better job of making themselves, their business practices and their voices heard.
Predictions for 2023?
The regulation of the sector is and will continue to be subject to local, regional and global coordination. The technology is built to be borderless. Confidence around regulatory perimeters cannot be established unless there’s also confidence that regulatory regimes intersect.
That’s an enormous challenge for governments the world over and resources will be deployed at an accelerating rate to keep pace with sector development.
BlackRock’s Larry Fink recently said “most of today’s crypto companies aren’t going to be around” – presumably he means in the not-too-distant future. What’s your take on that?
I think the long tail of businesses will cease to operate, or they’ll be bought or pivot. A few will scale and a new generation of market participants will emerge. And that’s a cycle that’s no different to more mature startup and scale-up sectors the world over.
Charis Campbell, Corporate Product Manager at Binance Australia
It hasn’t been an easy year for exchanges, including Binance. Are there any silver linings worth mentioning, Charis?
Yes, despite the market, we’ve seen many moments of greater mass adoption appeal off the back of the massive boom of crypto and blockchain adoption in 2021.
Major brands have started looking at how they can implement Web3 throughout their own ecosystems such as ticketing, authenticity and fan tokenisation.
For instance, J.P. Morgan recently announced they are processing $430 billion worth of tokenised intra-day of repurchase agreements whilst Walmart is utilising tokenisation in its supply chain to reduce mangoes’ provenance tracking from seven days to 2.2 seconds.
It shows there’s an appetite to continue developing Web3 platforms and products that fit the market and can offer brands innovative new ways to interact with customers.
How does “crypto” repair in 2023?
The industry needs combined effort and collaboration from regulators and policymakers as well as industry players such as crypto exchanges to proactively work together to create and build confidence and protection for both our business and the customers we serve.
We certainly welcome open discussions with the government and regulators.
The introduction of regulation and compliance benchmarks will continue to ensure investors and traders feel secure and comfortable in the ever-changing and growing crypto market.
Further to this, it’s our duty to continue to provide free education to our users so they can make intelligent investment decisions.
Please give us your 2023 predictions for the crypto industry.
Moving into 2023, the crypto ecosystem will grow stronger as regulatory frameworks are further developed and the industry continues evolving towards greater decentralisation.
With the regulatory changes that will continue to go on into the new year, there will be a bigger focus in the crypto market to ensure the right regulations are in place in order for consumers to be more well-protected than before.
Overall, I think there is positivity to look forward to in 2023, particularly on the institutional side of things. Recent figures show that the SMSF market had just $1.8 billion of a total $870 billion in crypto – an opportunity for the industry to tap into.
We are also seeing a lot of positivity in the project space, as this market environment is a perfect time to build. It allows founders and industry players to get the right product-market-fit, test with smaller user bases and iterate accordingly.
When the next bull market does come, they are then better equipped to take on the influx of demand.
None of the information and views presented in this article should be taken as financial advice.