The view from the crypto summit

Hello and welcome to the latest edition of the Cryptofinance newsletter. This week we’re reviewing the FT’s Crypto and Digital Assets Summit.

What a difference a year makes. This week the FT hosted its second annual crypto summit, a chance to take stock and to anticipate the latest trends. What stood out was just how much attitudes and expectations had evolved in 12 months.

Last April, at the FT’s inaugural summit, the industry’s evangelists and enthusiasts came ready to preach the promise of crypto, buoyed by Super Bowl ads and pricey NFTs. It turned out to be very height of the market.

Weeks later Do Kwon’s Terraform Labs collapsed and the bubble was lanced. After a humbling diet of Kwontitative easing, the failed supercycles theory of bitcoin adoption and one epic Caribbean crypto collapse, attendees this year were more realistic with their ambitions.

“What happened in 2022, whether it be Terra/Luna, Three Arrows Capital, or really most notably FTX, is that it really did scare the institutional investors away,” said Kristin Smith of the Washington DC-based Blockchain Association. She hoped institutional interest would return.

“There’s no way that I can sit here and say the adoption [of crypto] has been as quick as I would have expected,” said David Mercer, chief executive of trading platform LMAX Group, during the summit’s opening keynote interview.

One notable aspect of the past year has been the speed of the decline of FTX and Terraform Labs, because digital finance allows investors to remove money quickly and remotely and social media distributes news and rumour instantaneously.

Eun Young Choi, director of the national cryptocurrency enforcement team at the US Department of Justice, told my colleague Stefania Palma that FTX’s collapse was “a wake-up call for the public writ large, to see how quickly a company can fall”.

“The scope of crypto crime, or as we see, crypto-related crime, has sort of increased pretty tremendously over the course of the last few years. In addition, the volume of the transactions we’re seeing that are related to criminal activity is up,” she added.

The collapse reinforced Binance’s position as the world’s largest crypto exchange. It has set up a separate arm for US customers but there are still doubts as to how concrete the differences are between them. Earlier this year the crypto behemoth came under CFTC crosshairs when the US derivatives regulator said the exchange illegally accessed American customers. Binance has called the lawsuit “unexpected and disappointing”.

Noah Perlman, Binance’s new chief compliance officer, shared the stage with me on Tuesday and I asked him to clarify how US regulators can trust whether the two entities are indeed separate, especially given the fact Binance chief Changpeng Zhao is the ultimate beneficial owner of Binance US. His response in full:

“The industry still has some rehabilitation to do in terms of the trust with the regulators in the US, I think a lot of them feel burned by Sam [Bankman-Fried] and by other things, so I’m not sure how much they take us . . . I mean, it is the truth, they are separated, but we’ve got work to do there still.”

Yet regardless of the many pain points, it wouldn’t be a crypto conference without a lofty prediction about what lies ahead for an industry built on, well, lofty predictions.

For Bart Stephens, co-founder and managing partner of Blockchain Capital, a venture capital firm, it will be the advance of artificial intelligence that changes the perception of crypto.

It is the natural currency for an AI-dominated world, he argued, rather than sovereign currencies and the traditional banking system.

“When you look at how AI and crypto are going to intersect, it’s hard for me to think that an AI assistant is going to swipe a Visa credit card. They’re going to be naturally drawn to always on, natively digital, decentralised, distributed and transparent networks . . . Swift isn’t gonna cut it, Visa isn’t gonna cut it.”

Did you attend our crypto summit? Where will crypto be by the time our third annual event rolls around? Email me your thoughts at scott.chipolina@ft.com.

Weekly highlights

The first of two other takeaways from the FT’s crypto summit: Binance’s chief strategy officer Patrick Hillmann told me it is now a “very difficult” time to do business in the US, adding the exchange will do everything it can to become regulated in the UK. He declined to confirm whether Binance has reapplied for registration with the FCA. Story with my colleague Nikou Asgari here.
Second, SEC commissioner Hester Peirce told the summit’s audience the US risks falling behind the EU and the UK without rules for governing crypto assets. The comments made by the regulator’s most senior Republican member put her at odds with SEC chair Gary Gensler, who has been leading America’s charge against crypto with a blitz of enforcement actions.
Coinbase ruffled crypto feathers this week when it published a blog associating PEPE — the latest craze in meme coin land — with the alt-right. The token, which is based on the Pepe the Frog meme, has been “co-opted as a hate symbol by alt-right groups, according to the Anti-Defamation League”, the exchange said. After the blog post’s publication #DELETECOINBASE started trending on Twitter.

Soundbite of the week: DeFi’s problem with reality

This week’s soundbite honour goes to Miller Whitehouse-Levine, chief executive at the DeFi Education Fund, an organisation whose mission it is to “educate policymakers about the benefits of decentralised finance”.

On an FT panel discussing the possibility of regulating crypto on a global scale, the DeFi chief was candid about one of the crypto industry’s central tenets, namely that the rules of the crypto game are set by the blockchain and not regulators or the government.

“The idea of ‘code is law’ has run into the problem of reality . . . at the end of the day we all exist in the real world and we adjudicate disagreements through a judicial system in the United States that has developed over centuries.”

Data mining: Binance’s grip on spot crypto market slips

The world’s largest crypto exchange, Binance, continues to lose its grip on the spot crypto trading market.

Last month its market share dipped to 46 per cent, according to numbers from data provider CCData. That’s not only the second month of declines but its lowest market share since October 2022, just weeks before the collapse of former rival FTX caused significant levels of trading to move on to Binance.

For what it’s worth, the industry behemoth still dwarfs its competitors. Binance’s market share has been spread out between its rivals. Coinbase and OKX — the next two largest exchanges — each accounted for only 5 per cent of the market.