In an article published on Tuesday, we presented the comments of BitMEX co-founder and CEO Arthur Hayes on the cryptocurrency derivatives exchange’s business model and derivatives trading. Now, in the second part of the interview, we outline the exchange operator’s thoughts on crypto mania in the region, particularly in China and South Korea, and the future of virtual units:
EJ Insight: As Chinese authorities stepped up measures to crack down on virtual currency trading and initial coin offerings (ICOs) last year, we have seen the crypto-frenzy spread across South Korea. What are your thoughts on this phenomenon?
A: We saw the growth of Chinese people trading cryptocurrency slow down globally, and South Korea has taken its place as the most active market for crypto coins trading.
I believe the crypto-frenzy in South Korea, as well as in Japan, can be explained by the characteristics of the society. For the younger generation now, the economic opportunity is very limited in these two countries. Everyone is making less money, but housing [price] is going up. Everyone has a university degree, but they can’t find jobs that pay what the people believe they should be paid.
So you have now this completely new industry, with no large conglomerate that can control it. I think that’s why the younger generation likes crypto trading. They have finally a chance to create something and make meaningful impacts in their lives.
Q: As more investors flock to the crypto space, authorities worldwide are calling for more regulation on digital currencies. Do you think authorities in other countries would follow the tough stance adopted by the Chinese government?
A: We should note that China authorities didn’t ban the ownership of bitcoin. They shut down the major exchanges, but Chinese people can still acquire bitcoin over the counter, or via the peer-to-peer channel from another person; that’s still happening.
I think every country would have their respective goals for their financial sector. It is still unclear as to the regulation approach of South Korea. But in some cases, such as Japan, proper regulation and structure around cryptocurrency exchanges actually help increase the number of people who want to get involved in the space.
I think in the long term, you may see some sensible KYC (know-your-customer), AML (anti-money laundering) measures on South Korean [crypto] exchanges, and that could actually help bring more people into the space.
Q: Bitcoin, the largest cryptocurrency, had been on a tear last year, prompting famed investors and billionaires such as Warren Buffett, Jamie Dimon, Ray Dalio and others to say that it is a “bubble” or a “fraud” that won’t end well. Can bitcoin and other cryptocurrencies get through all these bears?
A: That’s what I love about crypto coins, because you have people who think it is complete a scam, and you have people believe it’s a new innovation. Because you have such dissimilar poles of views, it creates a really robust market, very good liquidity and volatility.
The fact that Warren Buffett is talking about crypto coins is positive, because a lot of people will think ‘what is crypto coin’, ‘why is Buffett talking about it’, etc, and will do research on it. Whatever their conclusion, more publicity is better.
As for Jamie Dimon, he runs a bank. If he can make money on trading bitcoin or other crypto coins, he will do it. If the new financial powerhouse, Generation X and millennials are interested in trading crypto, financial institutions have to respond to that demand, or [they] risk becoming dinosaurs.
Q: What about the future of the cryptocurrency space? With thousands of crypto units being traded in the market as of now, will we see a consolidation in the market?
A: I think some coins would have lots of usages, while many others have no use. But there will only be a few coins in each category of use cases that actually have real value.
I still believe that because of its wide recognition, we are going to see bitcoin have the majority of the whole space’s market cap. On the other hand, there will be a few ‘sector leaders’ for different use cases. I think bitcoin is the electronic money; ethereum is the decentralized computer or protocol. And NEO, Cordano, and a bunch of others, would serve as platforms for people to build anonymous coin, file sharing, sharing of content, etc.
Q: What do you expect to happen in the crypto space in 2018?
A: I think in 2018, we will see a major global commercial bank offer crypto coin trading to the clients. And I expect a lot of large tech companies will try to get into the exchange space, because it is profitable, and essentially because they already have a huge home-grown ecosystem. Like Kakao, which has already launched its own exchange in South Korea.
If I have millions of users already on my platform, and now I offer the ability to trade in each other with crypto coins. I can harness the network that I build, and offer them for another revenue stream. They could issue their own crypto coins or they can just allow their users to trade crypto coins in a centralized fashion themselves, depending on the management of the company.
Q: Will we see governments getting into cryptocurrency field?
A: I think in next 10 years every country will have their electronic fiat, and there will not be much physical cash and banknotes anywhere.
Because from the government perspective, it allows them to track every single transaction of every citizen in the country. I can shut people in and out from the financial system, if they don’t comply with my rules or pay taxes, or get the proper license to sell the product they are offering. And as a government, I can have the dependence of commercial banks, to minister monetary policy on a nationwide basis. I think China will be one of the first countries to issue their own electronic version of renminbi, similar to WeChat Pay.
For an average consumer, he would give up all his financial privacy, because it becomes very convenient to pay the taxes and other things. The mass population is going to give up their financial privacy.
But then there will be some people who want their financial privacy, and that’s where there will be certain crypto coins that appeal to them as a way for them to retain control of their finances outside the government’s electronic fiat system. At that time, the value of cryptocurrency will skyrocket, as people will find ways to obtain certain kinds of crypto coins.
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See also: We love bitcoin volatility: BitMEX chief