The last big shoe to drop will be exchanges adopting a pro-regulatory approach with a strong emphasis on AML/KYC (anti-money laundering and know-your-customer processes), surveillance-sharing agreements and anti-manipulation tools. We have seen significant regulatory signaling that this is important, both in the New York Attorney General’s report on crypto exchanges and in the very pertinent questions the SEC has raised about crypto ETF filings.

There are people who think that crypto exchanges will resist adapting to these policies because of fear of losing existing customers. I think that’s almost precisely wrong; I think taking a pro-regulatory stance will help attract a much larger group of much larger customers, including institutional investors, and I think the exchanges know this. I suspect we’ll look at the crypto exchange ecosystem in 6-12 months and it will be fundamentally transformed for the better.

3. One fear some people have about crypto currencies is that it’s the Wild West with little regulatory oversight. Is that evolving?

Absolutely, in two ways.

First and foremost, regulators have spent the past 12 months really coming up to speed on cryptoassets. The level of understanding and the quality of questions coming out of regulators these days is impressive.

Secondly, all the regulatory actions and official statements we’ve seen on the space have been incredibly positive. We’ve seen both positive regulatory enforcement targeting the least desirable parts of the crypto ecosystem and constructive regulatory engagement with the most promising parts of the ecosystem. One great example was SEC Director Hinman’s June 2018 comments clarifying that Ethereum is not a security and laying a pathway for assets that raised money through an ICO to convert from being securities to not being securities. It’s hard to overstate how important that statement was for the crypto ecosystem; it removed a massive legal threat that had been hanging over the market for years. If Ethereum and other cryptoassets had been labelled securities, the trading and brokerage ecosystem would have had to completely reinvent itself.

In general, there was significant concern at the start of this year that regulators would kill the golden goose through excessive and careless regulation. What we’ve seen instead has been balanced and thoughtful.  I think the degree of negative regulatory risk has dramatically fallen in the past year. It’s been really impressive.

4. Do you see Bitcoin and other crypto currencies as a store of value like gold, a medium of exchange, a hedge against potential currency crises in the future or something else?

I think the primary current use of bitcoin specifically is as a non-sovereign store of value. The bitcoin blockchain is uniquely well-suited to facilitating the store of value use case: it’s broadly adopted, extremely secure and relatively slow. It’s worth noting, of course, that the market for a non-sovereign stores of value is significant: gold is a $7 trillion market, and offshore wealth is another $20 trillion, so succeeding in just this one area would be significant.

Other cryptoassets (and to an extent bitcoin as well) are tackling many additional markets, some of which are smaller than the store of value and some of which are larger. The use of the term “cryptocurrency” is misleading; the likelihood that you and I will be paying for lunch with bitcoin in the next five years is low. It’s likely that the first broadly adopted use cases will be in business-to-business applications such as international payments or remittance. We are already seeing firms like IBM and others using cryptoassets to make those systems better, faster, cheaper.