Reimagining Traditional Markets in the Era of Borderless Trading

Daniel Haudenschild, President of the Crypto Valley Association (CVA)

The financial industry is in a constant state of flux, from the introduction of the first universal credit card in the 1950s, to the proliferation of ATMs in the 1970s, to the recent rise of contactless payment methods.  

Stock markets, which are the backbone of any nation’s economic infrastructure, are currently undergoing a transformation with blockchain technology. The digitisation of traditional assets and inclusion of crypto assets in traditional financial spaces are revolutionising systems of exchange. New technology is providing a platform for unprecedented levels of security, efficiency, and accessibility to capital markets. We are leveraging blockchain technology to deliver a new, borderless reality to the world of traditional stock exchanges.  

The Merging of Worlds

Blockchain technology promises to transform traditional markets and use cases for blockchain technology in decentralised exchanges are growing in quantity and influence. In the last couple of years, larger, traditional enterprises and exchanges have begun to sit up and take note of how the technology can benefit them and their customers. Rather than viewing the blockchain industry as a threat, there is a growing realisation that traditional finance has the resources to fully take advantage of this opportunity.

Traditional finance now has notable corporations in its ranks adopting blockchain technology. Mastercard and Bank of America, for example, have filed for significant blockchain related patents. The merging of two worlds is beginning to extend to traditional stock exchanges. CME (Chicago Mercantile Exchange) Group and the CBOE (Chicago Board Options Exchange), are embracing crypto trading by launching Bitcoin Futures contracts. NASDAQ has also made intentions to launch crypto future products in coming months clear and Fidelity Investments has committed to launching a crypto trading platform.

This is a natural response to the growing interest in cryptocurrencies from institutional investors, who want to diversify their portfolios by including digital assets. Investors want routes into crypto, and exchanges which modernise and embrace crypto are winning their business. Exchange between crypto and traditional assets will be essential for the future of value transfer in the new digital economy. The cryptocurrency market is currently worth approximately $400 billion USD. This might not be a significant amount when considering the daily trading volume of the worlds largest stock exchanges, however it is a market that modern, tech-savvy investors want to access.

Opportunity Awaits

Once the potential for reward became clear, the traditional finance sector was one of the quickest to begin researching and exploring options. Blockchain technology is vastly improving the core business and offerings of exchanges and enterprises alike, even amidst crypto price volatility, as the traditional sphere works to maintain relevance with the rise of decentralised stock exchanges.

These decentralised stock exchanges, boasting borderless trading, zero lock-up periods, and low intermediary costs, have gained international recognition for tokenizing traditional securities — meaning that they have the power to list traditional assets as digital assets, adding even further to their appeal. Growing enormously in popularity, Bloomberg reported in mid-2018 that digital exchanges Binance and OKEx handle a trading volume equal to about $1.7 billion USD per day. As these exchanges soar ahead, traditional stock markets stand to lose out by not being involved in their creation and have the enormous opportunity to be the driving power behind their adoption, lending credibility and stability to the field.  

In addition to the ethical and professional requirement to provide every opportunity possible to traders, the traditional financial market has a crucial role in building the world of digital assets, given that by adopting and investing in this emerging technology, the credibility of the technology is significant increased. The power held by traditional stock exchanges in the new trading environment is, perhaps, more than we realise.

Challenges to Overcome

Despite the evident support and clear opportunity that blockchain and crypto will bring to the world of exchanges, the reality is that all traditional stock exchanges have not, and cannot, drive forward and be a part of the digital economy. Some of the most significant financial institutions in the world have yet to come blazing forward in their adoption of cryptographic technology.  

The reason for so much of the inability to adopt is a lack of necessary regulation. The cries for supportive regulation by the crypto community have, mostly, been ignored. Large regulators, such as the SEC, have been slow to adapt, while small, agile nations such as Switzerland, Gibraltar, and Liechtenstein, are spearheading the merging of traditional finance and cryptocurrencies, becoming hubs for innovation and investment. These jurisdictions bring new opportunities to traditional finance by creating regulatory framework which allows access to crypto on traditional platforms.

Crypto assets cannot list on traditional exchanges which are registered in nations without the necessary regulation. In order to be listed on exchanges, tokens would have to be formally classed as securities, which is something that nobody seems to agree on. In addition, in order to be listed on traditional stock exchanges, a crypto company would need to conduct an Initial Public Offering. Most crypto ventures can’t meet the high minimum capital requirements to do this. Bitcoin has no company behind it and will never qualify. It is extraordinarily difficult to make crypto trading on traditional exchanges a reality. Government regulation is imperative.

This is the beginning of a new era for capital markets and infrastructures. While blockchain technology has been in existence for over a decade, we are only on the brink of discovering its potential impact on trading and stock exchanges. It is abundantly clear that these new digital trends are here to stay and will define the future of money. Regulators need to bridge the gap between traditional finance and the digital world. Past technological innovations have improved investment environments, personal finance, national economies, and beyond — it is now time to recognise the next phase in the development of stock markets and provide the framework necessary for technology to once again propel us forward.