George Zarya, CEO of Sequant Capital, talks about engaging with cryptocurrencies.
It has been widely reported that the City has remained reluctant to engage with cryptocurrencies compared to other markets such as Asia. Despite this scepticism, this asset holds huge potential for professional investors and the future of trading. In order for the UK to effectively invest in crypto, however, it needs to take lessons from other markets and build the asset into the wider financial sector.
Why have others found crypto adoption easier?
The truth is that the UK is not far behind other markets when it comes to cryptocurrency development. London hosts many companies in the crypto space – from brokers, exchanges, miners and investors. All these businesses are witnessing success in this space, which suggests that the financial ecosystem for crypto is somewhat welcoming. However, the sector is being held back by large UK banks staying away from any serious involvement with cryptocurrencies, limiting the potential of all those in the industry.
The reasons are understandable. The reputational risks to the business are significant should the assets fold or be found connected to illegal activity, and the lack of controls in place make the crypto landscape seem extremely vague for larger financial institutions. Moreover, the ICO hype that appeared at the start of the crypto boom has created a negative image of the sector, further dissuading large institutions from getting involved. In contrast, emerging markets are better equipped to handle volatility and have taken this risk as a result.
The rise of the professional investor
Despite the reluctance the UK market, change is taking place. With investments from professional groups, hedge funds and High Net Worth (HNW) individuals on the rise, best practices and established ground rules are being laid out, making the sector more credible. The more that professionals invest in cryptocurrency, the more reliable the sector will become.
It is also important to remember how young cryptocurrency is compared to other assets being traded. The market still is taking time to mature and as it does, the perception of the asset will no doubt improve. Even though the market still needs time to establish itself, the professional sector is still positive, despite concerns raised by a few prominent figures. This has been in part due to the rise of crypto-experts and influencers that have appeared in the industry to provide valuable insight and help change public opinion.
With the combined force of improved public perception and professional investing, the risk associated with cryptocurrency will naturally reduce while the infrastructure will be developed to become more reliable and trustworthy.
While increased involvement with professional investors will be important, this activity needs to be supported by regulation that protects those dealing with cryptocurrencies. This will not only help protect day-to-day trading but will also allow the market to deal with larger activities such as consolidation, M&A and involvement from large investors.
However, adapting current standards to include cryptocurrency is not simple. The FCA needs to fully understand the sector in order to regulate without causing harm to investors or limiting the growth of companies in the industry. In the meantime, the crypto sector has been developing rapidly and with the market showing signs of maturity, there has been a rise in a self-regulating culture. While the regulators begin to plan for fair controls for the industry, it is a positive sign that businesses themselves are doing all they can to weed out rogue practices that may be taking place.
With the right controls in place, the larger financial institutions in the UK will be more willing to become involved with cryptocurrency. This will be a huge boost to the sector; with acceptance from large industry figures, the businesses that work with cryptocurrencies – from start-ups, exchanges and brokers – will benefit massively. In fact, with more involvement from industry leaders, the cryptocurrency sector will become a fully realised part of the UK financial market.