By Jinman Li
Chicago is becoming a honeypot for cryptocurrency and will attract more and more crypto companies in the future, panelists said Tuesday at a luncheon panel hosted by the Executives’ Club of Chicago.
The birth of stock futures trading in the last century in Chicago demonstrated the city’s innovative spirit, said Sunil Cutinho, the president of CME Clearing. Compared with other metropolitans such as New York and San Francisco, Chicago focuses more on markets and has a unique ecosystem as a financial center, he added.
The different players in the ecosystem such as exchanges, financial institutions and technology companies are entering the cryptocurrency space, forming a concentration of upgrading power in Chicago, said Peter Johnson, vice president at Jump Capital, a Chicago-based venture capital firm.
Johnson said that Kraken, a bitcoin exchange based in San Francisco, is going to open its largest office in Chicago in 12 to 18 months.
The panelists agreed that there has been a remarkable increase in the purchase of cryptocurrencies by retail investors and that compared to the adoption at the retail level, the institutional level adoption is growing at a slower pace due to several reasons.
Although some institutional money is getting into this asset class, the lack of clarity and conformity in regulation is holding it back because big investors still prefer investing in something with clear regulatory standards, said Johnson. The biggest issue with the regulation of cryptocurrency is fragmentation as there are many different agencies treating it in different ways, he added.
“What we need to move forward is to fit these pieces together in a practical way,” said Johnson.
To attract institutional players, infrastructures such as custody, reporting, compliance and surveillance standards need to be instituted in a well-functioning cryptocurrency market, and there’s progress but not enough, said Johnson.
Michael Unetich, vice president of Cryptocurrencies Trading Technologies, a provider of software for cryptocurrency trading, said his company believes in cryptocurrency as a promising asset class and recently added a cryptocurrency spot exchange on its platform so that traders can directly connect and trade on that exchange.
“The nimblest players in the market are the proprietary trading firms and then in the slightly longer sales cycle there are crypto hedge funds that are being formed, and existing hedge funds trying to make changes so that they can have crypto funds,” Unetich said.
Despite the current proliferation of cryptocurrencies in the marketplace, CME Clearing’s Cutinho predicted that there would be only two or three survivors in three years and the financial industry would move on to adopt new technologies other than blockchain.
Unetich, however, said there is a chance that the investment in token assets would revolutionize venture capital. Instead of investing in the company and making profits based on the company’s growth, token investing can benefit from the increase in size and quality of the network and people may be incentivized to participate in such new economy companies, Unetich said.
The venture capital investment and token investment are different funding models that fit different companies, said Jump Capital’s Johnson. If a company is profitable and looking to be acquired eventually, it should probably seek venture capital investment. On the other hand, if a company is building a decentralized network and there is utility in its tokens, it needs to transfer value within an ecosystem and therefore the path of token investment would be suitable, Johnson said.