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We are in a crypto winter. bitcoin lost around 58% of value in the second quarter of 2022 and approximately $1.2 trillion has been wiped from the entire cryptocurrency market. With private and institutional investors suffering substantial losses, regulators are paying close attention and crypto regulation has increased across the world, especially in the United States. Despite plummeting valuations and exchange shutdowns, crypto will survive the winter, and regulation — far from stifling the innovation the industry has become known for — should provide much-needed confidence to existing and new entrants alike. new, which can only be a good thing. And of course, when markets fall, they present buying opportunities for investors willing to play a long game, a strategy best suited to established players in traditional financial markets.

The regulations are coming

A common concern in the industry is that once regulators and additional technology get involved in the crypto ecosphere, innovation will slow down. Regulation is inevitable – IMF says crypto assets are no longer a niche and regulators need to catch up. The European Central Bank has urged Eurozone countries to harmonize different rules regarding crypto regulation before EU-wide laws come into force and the end of 2023. The United States is also doing push for more regulation, with the US Treasury pushing for new laws to close loopholes in crypto regulation. .

When you boil everything down to the bare essentials, the fundamentals of crypto trading are similar to how traditional financial markets work. The introduction of regulation will bring more stability, security and efficiency, which, arguably, will lead to more, not less, innovation, competition and choice. Better oversight and governance will also bolster its role as an additional form of currency, silencing skeptics who say it’s like the Wild West. Ultimately, it is about giving choice and security to existing players and new entrants to the market.

Better Analytics: The Catalyst of Crypto Longevity

Along with the need for tighter regulation comes better analytics and again, the technical experience and understanding gained in traditional financial markets can be deployed to good effect here as well. Surprisingly for an industry that has cultivated an image of being fast and furious, crypto trading is not as fast as many people might imagine. Scratch the surface of slick front-office exchanges and underneath is a patchwork of blockchain technology, much of which is quite clunky. The risk of market manipulation fraud between pricing and settlement is high, and companies will need to deploy proven technologies and procedures to identify and stop these transactions.

There is an advantage here for companies entering crypto from traditional financial markets in that the insights gained from deploying analytics technologies for market surveillance and fraud purposes will not only be directly applicable in the crypto space, they will also help businesses gain a quick and in-depth understanding of how these decentralized markets work.

By design, these markets are much more distributed and changeable than other more established markets. Although actual transactions may not be as rapid as other asset classes, the pace and evolution of the industry is considerable. R&D cycles and turnaround times for new product development must match the pace of the market and for that, companies need an analytics stack that can handle the huge volumes of data being created. Surveillance platforms were designed to do just that, capturing, processing and analyzing large amounts of data in a variety of formats, created by a myriad of systems and market players. Applied to crypto, they can help companies better analyze the market, test and deploy custom proprietary pricing, hedging and trading strategies while managing the associated risk in real time.

Preparing for melting ice

There are signs that the crypto winter is coming to an end and with it a growing level of maturity that will be welcomed by regulators and investors alike. A recent Bloomberg article reported high-ranking resignations of famous crypto founders for their “bombastic” personalities and social media feuds with competitors and skeptics. In their place come more moderate and experienced executives from the world of traditional finance.

We certainly think the market will stabilize. While increased regulation is crucial, it should not be seen as the sole driver of stability. Embracing proven technologies and processes that have allowed traditional financial markets to grow and innovate can and should prove transformative in crypto if businesses embrace them.

About the Author: James Corcoran is the Chief Growth Officer of KX. He has a background in financial services and has a proven track record of implementing high performance trading and analytical solutions for many of the world’s largest financial market institutions.

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