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The advent of credit and leveraged transactions: the demand for bitcoin exchanges is increasingly complicated

A few years ago Murray Stahl, chairman and chief executive of asset management firm Horizo ​​n Kinetics, talked about cryptocurrencies so typical that it did not draw much attention. But Stahl was wary of credit sentiment during Tuesday's CoinDesk Consensus: Investing event in New York.

Many speakers call such vigilance sentiment a signal of selling, an early warning of systemic risk, or simply a maturing indicator of the cryptocurrency world. Either way, the advent of institutions and high-net-worth investors has created an open service that resembles the longstanding broker business that financial institutions have long provided for hedge funds.

Instead, "leverage", "lending", "margin trading" and "credit" are described as market elements (and better managed services) that require further growth in order for the emerging crypto-asset industry to thrive and avoid repetition The evil of the traditional financial system.

Adam White, Coinbase vice president and general manager of digital asset trading GDAX, said: "There is a lot of leverage in this area."

In an early panel discussion, White said that in order to meet this demand earlier this year, GDAX hopes to re-launch a margin service. (He did not say why the service was postponed for a while, but it did happen sometime after Ethereum's flash crash this summer.)

trade off

But the desire of traders to lift returns through leverage is not the only reason some people think markets have more borrowing needs.

Max Boonen, chief executive of B2C2, a London-based electronics market maker, said some base-of-credit and post-trade settlements are inevitable even as assets settle on the blockchain.

In a morning report, Boonen questioned one of the selling points where the blockchain has long been touted: real-time trading.

He told people:

"Will fairs get faster? Will it be settled in real time? Absolutely not, nor will it be needed."
First, the debate over bitcoin block size has emphasized the trade-off between transaction speed and perfecting the payment infrastructure. "The more deals on the blockchain, the slower it will be."

"And, the total settlement (a pre-block period of the transaction that is delivered once it is processed) puts a lot of pressure on the market participants' balance sheets," said Boonen.
For example, he told the audience: "If I bought one million U.S. dollars in the morning and then sold my bonds in the afternoon, I would have to hold a million dollars on my balance sheet."

On the other hand, netting (ie, real-time gross settlement and later system types that should be replaced by blockchain) can make more efficient use of the balance sheet - but require the day's credit trades.

Credit quietly entered

Dan Matuszewski, head of Circle Internet Financial trading, responded to these speakers during the morning panel discussion by saying there was "a really strong need for credit" on the market.

He said credit is not only conducive to shorting, but also for the trading platform to provide working capital to open up the market.

At the same time Boonen B2C2 endorsed Bitcoin was born for the satire of the 2008 subprime mortgage crisis.

"Bitcoin lovers really do not like credit," he added. "But good or bad, credit is still an important part of the normal functioning and flow of financial markets."
He noted that "the major exchanges have leveraged the early retail investors before the agency invested, and credit has indeed quietly returned to bitcoin and cryptocurrencies."

Boonen said the "beauty" of cryptocurrencies is that simply transferring funds between wallets does not require trusted third parties. But for now, he adds, investors need more sophisticated transactions to encrypt their assets, a demand that "goes well beyond mainstream financial markets."