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November 22, 2023

CME; Copper; HSBC

Welcome to Swarm Markets’ media memo. This weekly update provides comments from Swarm Markets’ co-founders, Philipp Pieper and Timo Lehes, on key industry news that has caught our eye, plus our own developments.


Comments available on the following news items:

  • Regulated crypto is starting to assert its appeal
  • M&A activity in DeFi is on the up
  • HSBC is getting its skates on with digital assets


Regulated crypto is beginning to assert itself


Even just two years ago a regulated crypto market was a fanciful idea. But we’re increasingly seeing regulated crypto as the dominant force in growth in the market. 


Most recently this reflects in the news that CME has overtaken Binance as the largest exchange for bitcoin futures. Market participants have clearly had their fingers burned in the recent past, so the surge in demand for a regulated exchange’s services and the structured products that go with that is little surprise. 


Regulation is no longer a byproduct of a growth sector, but instead it is a marketing tool for those outfits with the most rigorous and secure processes. In the case of CME, the firm is benefiting from a surge in interest in bitcoin as the rumours of an ETF approval circle.


But what is instructive is that the capital is flowing toward regulated providers, rather than the existing dominant incumbents, some of whom still opt to operate outside of proper regulatory jurisdictions. 


It is also pertinent that what is likely here is demand is being driven by institutional interest in bitcoin, especially in the context of the ETF. There is no competition here to be had – institutions have to use regulated entities to conduct their trade. Those that hold the relevant licenses then are benefiting from major structural changes in demand at the top level of the crypto market. 


Copper is M&Aing its way to new markets


Digital asset infrastructure provider, known in the UK thanks to its association with former chancellor Philip Hammond, has announced the acquisition of a UAE-based firm Securrency Capital. 


The move underpins something that will likely accelerate in the digital asset space in the near future as medium-sized firms gather ammunition to scale up and reach new markets through M&A activity. Copper is relieving itself of the process of licensing locally through the acquisition while gaining access to a region that is becoming strategically significant in market terms. 


We’re still a long way from seeing truly global digital asset providers emerge. But as the market matures we’ll likely see regional winners rise and it will be these that look to expand into more markets. These firms are also benefiting from the reluctance by many to engage in the US, where the regulatory regime is at best opaque – and at worst hostile. 


Capital that would otherwise look to base itself in the world’s largest economy is having to find alternative destinations and this is going to provide a tailwind for emerging providers in well-regulated regions such as the EU, UK and Singapore. 


HSBC wades into digital assets custody


Leading among TradFi players, HSBC is looking to offer digital asset custody to institutional clients with Swiss-based and Ripple-owned Metaco. 


HSBC has quite a colourful history with DeFi and crypto more widely. A big critic of the crypto space has been quite adaptive and experimental when it comes to the digital asset side of the story. 


This makes sense for such a major global financial player which has a business built upon the TradFi custody of assets and investment. Digital assets are a massive growth market, which HSBC seemingly has not missed noticing. 


Digital assets are to TradFi assets what the car industry is to bicycle manufacturing – both achieve the same aims but the scope and scale are totally different. With digital assets, this potential is a long way from being fully realized, but with major players such as HSBC now wading in, it is clear this development is only going to accelerate.


Where the DeFi sector can profit from this step change is to provide institutions with the deep knowledge, expertise and innovation that comes from working at the forefront of a burgeoning industry.