With the current regulations and institutional solutions, Wall Street is slowly beginning to embrace cryptocurrencies as a legitimate digital asset class. In August unnamed sources from NASDAQ revealed its plans for listing and trading Bitcoin and Ethereum by the end of 2019.
“The conversation around listing coins has centered on how they will be classified from a regulatory standpoint. As you can imagine, our leadership is closely connected to the rumbling at the SEC and CFTC around cryptos and what is expected over the next 3-6 months. Even with the longest of time frames assumed, some guidance will be provided and I expect we will act quickly.” The ICO Journal, an online publication quoted the unnamed sources.
“The framework [two different sets of the framework based on two different regulatory outcomes] has already been laid to create a separate silo for coin listings and a robust trading apparatus. Doing the math here, look for regulatory bodies to provide guidance in Q1 of 2019, and an announcement and a ‘coin exchange’ to either be announced or launched in Q2 of 2019.”
While there has been no official announcement, NASDAQ has been bullish on cryptocurrencies for quite some time now with Its CEO, Adena Friedman, making statements that are in favor of NASDAQ becoming a crypto exchange over time.
NASDAQ in the month of April 2018 announced its partnership with Gemini, the cryptocurrency exchange headed by Cameron and Tyler Winklevoss. As announced back then this partnership aims at listing tokens and providing liquidity on a global scale.
NASDAQ also held a closed-door meeting on July 27, 2018, with both the traditional exchanges and some of the cryptocurrency executives. The meeting was held to discuss the future cryptocurrency regulations and what strategies and supervision technologies would be required in the onset of regulated security crypto markets.
Why are stock exchanges in favour of cryptocurrencies
The probable reason for stock exchange offering crypto related services can be:
It likely attracts more institutional investors: Cryptocurrency has attributes like returns and volatility that attracts investors. Such attributes help in diversifying a portfolio.
It may help in solving regulatory problems connect with cryptocurrencies: From the looks of it, cryptocurrencies are currently functioning in uncharted territory. Coming under the bracket of a tradition exchange might help regulators become more comfortable.
It will probably attract corporate issuers to raise capital using the crypto ecosystem
There are also numerous roadblocks for traditions exchanges to completely embrace cryptocurrencies.
Lack of security: While the technology behind cryptocurrency ‘blockchain’ is said to be the most secure of all, there have been instances of hack and scams surrounding the same. In February 2017, Bitcurex, Poland’s oldest exchange ceased to exist and about 2,300 Bitcoin also disappeared with the company. The other exchanges which have been hacked are Bitfinex, coincheck, coinrail etc.,
Market manipulation: The most common strategy used by the whales in the crypto market is the ‘pump and dump’ this is done by gradually collecting a certain coin, over the course of several days, resulting in significant price increases on trading charts. This will result in attracting a lot of new money to the coin when the whale is satisfied with the profits made, they will begin to dump. Other such market manipulation tactics used are ‘sell walls’ and ‘Dark pools’.
Giving a new perspective for traditional exchanges
NASDAQ is not the first stock exchange in favour of supporting cryptocurrencies. On May 2018, Frankfurt Stock Exchange operator Deutsche Boerse’s head of clients, Jeffrey Tessler had mentioned that the company wants to understand the underlying transactions before they move forward with “anything like Bitcoin”. “We are deep at work with it,” Tessler said at an event in London organized by the Association for Financial Markets in Europe.
The Intercontinental Exchange, the parent company of the New York Stock Exchange, on Aug. 3, 2018, announced its plans to start a cryptocurrency platform called ‘Bakkt’. Bakkt is said to hold and manage people’s cryptocurrency. The platform will be operated on Microsoft cloud tech and will begin with trading and converting bitcoin to US dollars and such other fiat [government-backed] currencies.
While there are various other traditional exchanges like the Swiss stock exchange and the Toronto Stock Exchange making announcements with an intention to either come up with cryptocurrency exchange or to offer cryptocurrency related services [cryptocurrency brokerage service] it is also important to discuss what are the implications of these fiat-crypto mergers.
Venezuelans can now trade on 16 certified crypto exchanges