To the EMX community,
With the new year upon us, I wanted to take a moment to clarify our vision here at EMX, and share a few thoughts about the state of crypto today.
With 2018 primarily dominated by a down market, the New Year leaves many traders and investors wondering whether 2019 will give the markets a fresh start.
Are we in for another massive bull run? Will prices continue to hover at support levels? Will the latest regulations and SEC inquiries scare off investors and cause them to sell?
I won’t pretend to know the answers to these questions. The truth is, uncertainty and crypto often go hand in hand.
Though no one can say for certain what the markets will look like throughout 2019, I wanted to share my thoughts on a few key factors to watch throughout the year, and what we're doing to help improve the EMX trading platform.
Traditional Markets Are Seeing A Correction
It’s no secret that the crypto industry sees strong influence from the health of traditional financial markets. With the stock market recently seeing a significant correction from previous all time highs, many firms such as Goldman Sachs are seeing an increased demand for defensive assets such as gold.
As Goldman Sachs’ Jeffrey Currie recently shared, “Going forward gold will be supported primarily by growing demand for defensive assets. The same is also true of central bank buying with rising geopolitical tensions incentivizing more central banks to re-enter the gold market.”
Furthermore, the United States government shutdown at time of this writing, as well as large scale trade wars between world powers, haven't done much to encourage confidence in the traditional financial markets.
With traditional financial markets showing greater uncertainty, it remains to be seen how the crypto markets will respond throughout the year. A market crash could accelerate the mainstream adoption of crypto - or it could cause the prices of Bitcoin and Ethereum to tank even further.
Though big name investors and institutions can make a reasonable case for either scenario occurring, at EMX, we are building a trading platform that presents trading and investing opportunities regardless of how the markets respond. Our team isn’t trying to predict the future.
Instead, we’re working to offer a full suite of trading options so you can trade commodity, equity, and cryptocurrency derivatives with leverage. We believe that our diverse range of products are the best available on the market today.
Speed of Blockchain Technology & Decentralized Exchanges
Another critical development to watch this year is the speed of blockchain technology adoption and whether the issues facing decentralized exchanges can be overcome.
While decentralized exchanges are often presented as the holy grail for crypto adoption, as of now, they have significantly underperformed based on their original, perhaps overly ambitious promise.
According to CryptoCompare’s state of crypto report in November of 2018, “DEXs continue to represent the minority of total spot exchange volumes at 0.4%.”
This isn’t to suggest decentralized exchanges won’t have an impact on the crypto industry as a whole, but we are a far cry away from them being used by not just the average crypto investor, but even those who have been long crypto since the very start.
Furthermore, the SEC in late 2018 brought charges against the founder of the decentralized exchange EtherDelta for operating an unregistered national securities securities exchange. Though EtherDelta was a small exchange player, those close with the latest regulations and developments by the SEC suspect there are many more exchanges with a target on their backs.
While DEX will most certainly continue to influence the development of the cryptocurrency industry, they are far from being a mainstream alternative to centralized exchanges, such as ourselves here at EMX.
At EMX, we believe that being a centralized exchange provides some unique benefits that aren’t currently offered by decentralized platforms. Centralized exchanges currently offer more liquidity, better customer service, and more advanced trading functionality. Furthermore, in the fast paced world of crypto, centralized exchanges are far superior in terms of speed of transactions compared to DEX.
As the vast majority of trading volume on exchanges worldwide continue to come from centralized exchanges, EMX too will start off as a centralized exchange and through the near term. Of course, our commitment as an organization is to continue to test and explore various paths of operation to provide solutions that add the most value to our trading community. We will continue to monitor the state of DEX’s and expand to offer a decentralized offering when blockchain technology is further along.
In 2018, we saw increased regulatory clarity in the United States and in other crypto-heavy global hubs.
According to Forbes Fintech contributor Jeff Kauflin, “Many investors see increasing regulation as a key driver of the crypto bear market of 2018 and blame the ICO (initial coin offering) market’s cool-down on the potential threat.”
Though it is possible regulation, in the short term, may induce or extend another bear market, other investors believe that an increase in regulation of crypto will help reduce long term risk of what is undeniably a volatile asset class.
The general consensus among investors is that the increased regulation within the crypto space will ultimately reduce risk which is especially important for large financial institutions who have access to significant amount of capital for their clients, but need to see less risk before diving in fully.
As more and more countries around the world continue to clarify their position on crypto and the proposed regulation that comes along with it, it’s clear to me that 2019 will continue to see lines drawn in the sand by many governments.
Japan last year became the first to regulate cryptocurrency exchanges, while China moved to ban a high number of exchanges country wide. South Korea also worked to solidify the countries cryptocurrency point of view. Malta’s cryptocurrency regulations began taking effect in November 2018, and Russia began the process but has yet to finalize their government’s full point of view. The United States continues to develop a comprehensive plan for handling crypto now and in the future.
Given cryptocurrency and blockchain technology are unlike anything we’ve ever seen before, it’s to be expected that there will be many ups and downs regarding regulation, which is why at I believe it’s important that we’ve made it a priority to play within the rules of all proposed and future regulations worldwide.
We believe the regulatory compliance program is a strategic asset that will help us build both trust and community in the long run. We are in the process of establishing ourselves as a Self-Regulatory Organization (SRO), and we have already implemented KYC/AML fully for users on the exchange. While we will initially register outside the US, our long term goal is to be fully licensed by the CFTC.
Additionally, we are currently working on an exchange rulebook and implementing market surveillance with the hopes of continuing to lead the way in building trust as a leading exchange platform. We believe that by sharing our rule book publicly, we can push other exchanges to adopt best practices regarding rules and regulation.
While many exchanges in the space continue to operate without proper KYC and AML implementation, we know that doing things right from the start is the only way to fulfill our mission of building one of the most powerful trading platforms available on the market today. And in bringing trust and transparency to the exchange from day one, we can attract the institutional players who aren’t able to trade on current platforms today.
Mainstream Adoption of Crypto
With Bitcoin recently celebrating its 10th birthday this year, a decade from its creation we are still miles away from mainstream adoption.
According to an in-depth report by the Cambridge Centre for Alternative Finance referencing the state of crypto, “Millions of new users have entered the ecosystem, but most remain passive. Total user accounts at service providers now exceed 139 million with at least 35 million identity-verified users, the latter growing nearly 4X in 2017 and doubling again in the first three quarters of 2018. Only 38% of all users can be considered active, although definitions and criteria of activity levels vary significantly across service providers.”
That said, despite crypto adoption not yet hitting the mainstream adoption phase, there has been a steady increase in Blockchain and crypto related jobs according to the job review site Glassdoor. In their research, there were “1,775 blockchain-related job openings in the U.S. in August 2018, a 300 percent increase over the same period last year.” Though behind the scenes, the fundamental signs suggest crypto adoption continues to pick up steam, and as of now the #1 use case of blockchain is the actual store of value.
Of course I believe, for mainstream adoption of crypto to really reach peak levels, investors across the world will keep an eye on overall institutional interest. Both Fidelity and ICE (Intercontinental Exchange) have recently begun investing more heavily in both crypto as an asset and the Blockchain technology as a whole.
Additionally, there has been an uptick in recent OTC (over the counter) trades, which could indicate more and more institutional interest overall. EMX has plans to offer OTC, with clearing, within the next two years to help meet the increasing demand from institutional and high wealth investors.
Our exchange EMX has been built with the intention of delivering a world class trading platform for those who have a long term view of crypto. We welcome and encourage those involved in the crypto space to leverage our industry leading tools and resources to help better improve their trading experience. However, we certainly welcome the continued success of institutional platforms such as Bakkt and Fidelity, who offer those looking for a more traditional investing experience a tiny taste of crypto.
As my team and I work to launch one of the most reputable and powerful trading platforms in the futures and crypto markets, we are excited to see what 2019 has in store.