It’s been another rough month for cryptocurrencies.
Bitcoin has been threatening to push below a $US6,000 threshold that has supported it since late-June, while Ethereum — the world’s second biggest cryptocurrency — has now fallen below $US200, a decline of 85% from its highs.
Some of this has been attributed to US regulators spurning requests for new investment structures that would lend more legitimacy to the asset class.
The relative lack of regulation in the space means many funds can’t justify risking capital by investing in crypto assets. Crypto exchanges — the technology platforms that allow people to buy and sell cryptocurrencies — are among the leading advocates for a more comprehensive regulatory framework.
For example, the US-based Gemini exchange, owned by the Winklevoss twins, this week announced plans to launch a regulatory approved cryptocurrency that’s pegged to the US dollar.
And activity among Australian-based crypto exchanges is also ramping up.
Jordan Michaelides — head of institutional investment at Coinjar — told Business Insider that trading volumes reached $1.4 billion in the first half of this year.
Both Coinjar and Sydney-based exchange Independent Reserve (IR) have caught the interest of established players in venture capital.
Coinjar counts VC fund Blackbird Ventures as an investor, while IR sold a 25% interest to a group led by KTM Ventures Innovation Fund earlier this year.
Coinjar’s claim that it has seen $1.4 billion in trading volumes suggests burgeoning growth in the sector, but a spokesperson for corporate regulator ASIC was circumspect on how much volume is really moving through marketplaces.
“Tracking the actual industry is even newer than the sector itself,” they said.
However, “such aspects of the volume of transactions can be quite opaque, and you could imagine some of the claims by participants might warrant a certain scepticism.”
ASIC’s focus has largely been on dodgy initial coin offerings (ICOs). But the spokesperson told BI that parts of the market still operate outside of regulatory scope.
“Much of the so-called ‘cryptocurrency’ activity is either unregulated or regulated only in part,” the spokesperson said.
As a result, there are still many pitfalls and people considering crypto investments should do so “with great caution”, the spokesperson added.
In addition to ASIC, the Australian crypto market is also being monitored by AUSTRAC, the federal government’s financial intelligence agency.
Both Michaelides and Independent Reserve CEO Adrian Przelozny said their respective exchanges have met obligations with AUSTRAC in accordance with federal legislation, after new compliance rules were set up in April.
AUSTRAC did not respond to a request for comment.
Throughout 2018, a number of crypto exchanges have lobbied the US Securities & Exchange Commission (SEC) to approve a Bitcoin ETF, without any success.
Their hope is that a crypto-linked product which trades on a regulated securities exchange will provide a vehicle to attract larger capital flows.
The SEC’s rejections have been cited as one of the catalysts for downward pressure on prices in recent weeks.
The local exchange operators we spoke to are optimistic that ETFs will eventually be available, but said Australia would probably have to follow lead from Wall Street.
“I think ETF discussions in Australia will have to wait until we see what happens in America,” Michaelides said.
“ETFs have kind of been the holy grail over the last 18 months to two years,” Przelozny added.
It’s a catch-22: the lack of regulation leads to volatility, and the volatility makes the regulators sceptical and reticent.
“I still think over the next 12-18 months there’ll be an ETF approved. There’s been a few groups in Australia approaching the ASX, but they’ve received push-back,” he said.
Although any key developments in ETF approval would no doubt grab headlines, Michaelides said the crypto ecosystem would benefit more from smaller projects.
“Rather than a big-ticket items like an ETF, I think it will be a lot better if there continue to be lots of individual use cases.”
He cited the example of Bitpay, a global bitcoin payment service headquartered in Atlanta.
“I think smaller products will be better than something like an ETF. Not necessarily in terms of boosting the price of Bitcoin, but just expanding the industry.”