It is no secret, but digital asset exchanges which quote Bitcoin, Ethereum, Ripple, Litecoin and other altcoins receive a tough rap.
It also does not help that even some of the larger exchanges continue to experience cyber attacks. They lose customer money and are compelled to compensate their clients.
But it would be wrong to think that exchanges are not trying to take action to correct this state of affairs; and many, including some of the most significant names in traditional finance and technology, are beginning to endorse the exchanges that are making a difference.
Today, you see significant market participants in finance, such as the New York Stock Exchange (NYSE) and Nasdaq, and some of the leading technology providers, such as Azure, openly embracing the digital assets economy or blockchain.
Indeed, there is an increasing realization that the digital asset and blockchain industry represents an entirely new uncorrelated asset class* that can differentiate an investment portfolio, and perhaps even provide an unexpected enhancement to returns.
At our own exchange, AAX, which is based in Malta, we are powered by London Stock Exchange Group (LSEG) technology in what is the first time the LSEG Technology has ever been deployed at a digital asset exchange.
Further, our cloud computing needs are catered for by Amazon Web Services (AWS), in what is also one of the first examples of AWS openly providing services to a cryptocurrency and digital asset exchange.
The reasons? The growth of the cryptocurrency industry and its future trajectory are set for growth, and institutional market participants are exploring how they can get increased exposure.
Secondly, the new breed of digital asset and cryptocurrency exchanges are embracing regulation, and with it the increased likelihood of large scale institutional investment into these markets. Only the best technology, such as that offered by AWS or by LSEG’s Millenium Exchange matching engine, can cope with the kind of volumes institutions will be putting into digital assets.
An industry in transition
From a single currency in 2008, the market has continued to grow. Rather than being diminished under the weight of what has been significant criticism in the past – particularly directed towards Bitcoin.
Even after reaching a zenith of its price in late 2017, and then its subsequent collapse, there are still more than 2,200 different coins, boasting a total market cap of $323 billion USD for investors to choose from.
Indeed, the so-called ‘crypto winter’, has resulted in a new era of maturity and rationality.
Projects such as R3 Corda and IBM’s Hyperledger, both open-source blockchain platforms, Fidelity Digital Asset Services, which facilitates investment in cryptocurrencies, JP Morgan’s settlement coin, and even Facebook’s Libra are all examples of more institutional and corporate players embracing the digital assets economy in a post-bitcoin crash world. Maturity has replaced hype.
Partnerships for growth
It is in this context, that there is a growing demand for trust, integrity, security, and performance from investors who want to buy into digital assets and cryptocurrencies.
For us, partnering with LSEG and AWS represents both our willingness to work to the highest standards imposed by institutions such as these but also their comfort in the fact that we can offer the correct levels of security, compliance and market integrity that can stand up to scrutiny.
For our clients, working with AWS means that we have access to a global network of high-security data centers located in almost every jurisdiction. Likewise, LSEG’s matching engine, which has proven itself in over 40 leading financial markets, represents transparency, performance, and capacity that arguably does not yet exist at other exchanges.
Furthermore, we are now working with Kroll – a leading risk consulting firm with in-house specialists from the FBI, MI6, and Interpol – as our risk consultant, and Refinitiv, formerly part of Thomson Reuters, to assist in KYC and compliance.
In this way, we are leveraging relationships to address concerns over security and compliance head-on.
We believe digital assets are here to stay, and to reap their benefits in full, partnerships such as these are crucial.
In the coming months, I have no doubt that we’re going to see more of these high-profile collaborations take shape across the industry. Not just because of the increased legitimacy which digital assets are afforded, but because they are important to building innovative new solutions in the digital assets economy.
* By uncorrelated, we mean alternatively correlated, or non-conforming when compared to traditionally correlated asset classes such as bonds, commodities, and equities.
About the author
Michael Wong is the Chief Commercial Officer at AAX.