Cryptocurrency exchanges will soon be regulated like securities exchanges, says the Aussie boss of up-and-coming bitcoin and ethereum marketplace Kryptos-X.

Kryptos-X is an early stage online virtual currency exchange founded by Australian entrepreneur Tony Mackay, who is also the founding CEO of alternative share trading platform Chi-X.

Mr Mackay’s view is shared by Henrik Andersson, chief investment officer of new crypto fund Apollo Capital, who recently told Stockhead regulation was the biggest issue facing cryptocurrency markets. 

Kryptos-X, part-owned by ASX-listed Fatfish (ASX:FFG), is expected to soft-launch in May.

It could eventually end up listing on the ASX itself after raising cash to expand into Europe or the US — but that won’t happen soon, Mr Mackay said on an investor call this week.

“It’s tempting, but [floating the business] would be hypocritical and the wrong thing for me to do.

“I’d prefer to get Kryptos-X working and cashflow-positive and look at that when we go into regulated markets,” Mr Mackay said.

“We certainly will attempt to run the business so that it will meet what we think are the most likely regulatory standards and burdens that are put to the industry.”

Expansion into Europe or the US would likely mean regulation as a securities market — which could cost as much as $25 million.

Many new crypto exchange players won’t be able to meet that level of regulation, Mr Mackay believes.

In Australia crypto exchanges include CoinSpot, Australia Crypto Exchange, CoinJar, CoinTree, Independent Reserve and BTC Markets.

Kryptos-X is based in Singapore — in part because it’s a jurisdiction with a budding regulatory environment — and initially focusing on the Asia-Pacific. It’s part-funded by investor Fatfish Internet (ASX:FFG) which has an office there.

Fatfish said it would buy 27 per cent for $1 million in November last year. This deal was completed on Wednesday.

Similar to a securities exchange

Mr Mackay’s approach to setting up a crypto exchange is not dissimilar to setting up a regular securities exchange.

He is speaking to liquidity providers to ensure the exchange offers trading depth.

The exchange will initially only trade in Bitcoin and Ethereum because they have the highest global trading volume, and therefore potential revenue generation. Ripple would be an “obvious one” for phase two.

Kyptos-X will have a dark pool — a way for large trades to be facilitated without unduly moving the market — advisory services, and services for people who don’t want to directly trade themselves.

Mr Mackey expects the exchange to ultimately end up as a “broker-dealer”, a firm in the business of buying and selling securities.

He plans to cross-sell other Fatfish investments such as the UK crypto fund-of-funds Alterian Capital.

“When I go and talk to private bankers and high net worth brokers they’re saying a lot of our customers don’t know which of these coins they should trade.

“I can say to them, look at the asset management or fund of funds products that Fatfish is developing as well.”


Mr Mackay expects the business to be cashflow-positive within six months, based on the rapid cash generating abilities of similar exchanges he saw in Canada (though Bitcoin was then around $US20,000).

“A lot of crypto exchanges up and running are generating extraordinary profits,” he said.

Crypto exchanges can attract the same kinds of high EBITDA margins as securities exchanges, he says, pointing to the ASX’s 76 per cent margin.

Fatfish chief Kin Wai Lau has committed to investing more funds if Kryptos-X needs capital.

It’s also a possible takeover play.

On Tuesday, Goldman Sachs-backed payments startup Circle bought cryptocurrency exchange Poloniex for $400 million.

Though Mr Mackay says Kryptos-X is not a takeover target yet.