CryptoSlate recently sat down with Steve Gregory of Currency.com and formerly CEX, to talk about what’s happening in this exciting space and what types of changes everyone can prepare for moving forward.
In terms of exchange experience, you’ve had the advantage of serving as CCO (Chief Compliance Officer) at CEX – are there particular rules or guidelines that you learned from that experience that apply to your current position? Or general observations that can be useful to either an investor or an administrator?
With CEX.io, I was leading the regulatory strategy as we entered the US market and applied for state money transmitter licensing. I gained valuable experience building new systems as well as integrating existing ones to ensure full compliance with US law. This early experience has helped shape our playbook for how Currency.com will enter the US market.
You are also on board at the Gemini exchange established by a pair of Bitcoin millionaires. Since that operation was New York-based, can you talk a little bit about the particular approach that New York State takes toward crypto assets and exchange activity? Why is it so different from the rules in the rest of the country?
Yes, I was one of the original team members at Gemini, starting in 2016. Joining the team there was my pivot into crypto. I was doing civil litigation at a law firm in New York when the lure of crypto overcame me. I had heard about it in law school when it was in its infancy, and I just couldn’t stop thinking about how transformative the technology was. It kept getting into the news cycle more and more, and I thought ‘maybe being a junior attorney isn’t the move, I am jumping to crypto.’
When I first got into crypto, the regulatory consensus was somewhat different. Some exchanges believed that if they were a licensed Trust company in New York, the Trust license would supersede the money transmitter licenses in some states. However, most exchanges saw the benefit of availing themselves to further compliance, and ultimately chose to layer on money transmitter licenses in each state. New York has the most strict crypto-specific license called the BitLicense, and back then only maybe 10 firms had received the license. Every year we would have an in-house exam from the New York Department of Financial Services where they would dig into each aspect of the business. At the time, it seemed a little burdensome, but looking back it sharpened my insights into what regulators are looking for. My experience with NYDFS has definitely made me anticipate regulator behavior and make adjustments before it becomes an issue. It definitely gave me a holistic approach to compliance, and with it being so early in the evolution of regulation for the industry, it has paid dividends later on in my career.
What does it take for exchanges to grow? When you talk about investors having confidence, are there specific steps that leadership can take to promote that confidence in the small investor or retail investor?
I think to answer this question there needs to be a distinction between exchanges: on one side you have the US-regulated spot market exchanges , then you have the exchanges that are regulated in offshore jurisdictions such as the Seychelles, Mauritius, etc. The growth strategy for each is totally different. For the latter, they can just put out exciting trading products. If it meets consumer demand, the product goes to the moon and revenue hits stratospheric levels because it hypercharges the market, one such example being when offshore exchanges launched the perpetual swap, or when offshore exchanges preempt a popular IPO with a perpetual product. Now, with the US-regulated spot exchanges, the rules in the US are pretty inelastic; regardless of consumer demand, we are tethered to a spot market, simple buy and sell products. For these exchanges, growth is driven more by UX improvements, ease of onboarding and removing friction of cumbersome payment rails. This is the space in which Currency.com will compete.
In a related follow-up question, how important are cryptocurrency on-ramps for an exchange design? Are there specific marks that you think a company has to hit in order to get a user base that’s solid and sustainable?
Great question, and I think you hit on a fundamental issue exchanges need to focus on. Eliminating friction between legacy payment systems and allowing people access to crypto is paramount for regulated US spot market exchanges. At Currency.com, we want to make the customer experience as easy as ordering something on Amazon. We will handle all back-end legacy systems like cumbersome credit card payment rails to make sure the customer gets quick access to the asset class in a familiar UX design that they feel comfortable using. Right now we are seeing an influx of people entering this asset class for the first time, so understanding payment rails is essential. However, once we reach a critical mass of people entering the asset class, equivalent fiat outflows may be less likely as more people decide to hold onto crypto rather than sell it for fiat. Maybe this will cause the fiat payment rails to innovate.
How about the United States SEC? We know that offices like the Comptroller of Currency have had particular approaches to cryptocurrency that seem conciliatory or forward-moving, but that the SEC is famous for slow-walking various kinds of proposals, even while European regulators take a more welcoming approach, and past commissioners say nice things about altcoins. Would you want to speak on what’s behind that or talk about what the SEC may do in the future?
I think the Office of Comptroller of Currency (OCC) clarifying the bank custody rule was huge for adoption. That was a great unexpected development that I think further propelled the confidence in the bull market. I think collectively, people see the approval of a bitcoin ETF in Canada as a sign that the US SEC may be close to granting a similar approval here. Rather than pick a clear winner, I would imagine they’ll approve several proposals all at once. This may propel a rally, probably by multiples of the previous all-time highs. People always point to when the first gold ETF was approved and the price went up almost 3x that year. I do think there could be some enforcement actions that could slow the growth of an altcoin rally. We’ll see what happens, interesting times.
Here’s one that doesn’t have to do with regulation – lots of people believe that the principle of gamification is important in exchange design. Do you see Currency.com having these types of components, or adding them in the future to build engagement and user activity?
I think crypto definitely captures an attitude that investing can be fun. However, we have to strike a balance to ensure people understand the risks associated with investing with any enjoyment they may get from it. This is why we believe education is important and should be an integral component of any exchange design. At Currency.com, we are building a platform that is designed to be fun, safe and also informative and educational.
How is a cryptocurrency exchange like a regular retail investor’s stock brokerage digital online platform? How is it different?
Crypto is unlike a traditional stock brokerage account because of the portability and utility of crypto. With crypto, the trader can take possession of their coins and do whatever they please. That may be to find arbitrage opportunities across many exchanges or jurisdictions, engage in DeFi with a self-hosted wallet, pay for goods and services, lend or stake their coins for yield, vote on network protocols, or simply exchange their coins for other coins. That offers much more excitement in the utility of the asset class. Once people begin to dip their toes in the pool with crypto, we are confident that they will see how many layers the onion has to offer.
Do you have specific plans and goals for the U.S. and Canada in terms of building out the Currency.com footprint in your particular jurisdiction?
Yes, we are excited about the flexibility that Canada’s regulatory environment offers. We believe with the proper licensure, we can bring many of the trading products that have made our platform popular in the rest of the world to Canada.