The irony lies in that cryptocurrencies were created to be borderless. With the exception of decentralised exchanges, most exchanges had in one way or another faced unfair scrutiny and received unjust treatment. In September 2017, several Singapore Cryptocurrency Exchanges had their bank accounts closed[1]. In March 2018, Binance was forced to leave Japan for Malta[2]. And as this article is written, exchanges were shut down in India[3]. Nonetheless these events have not stopped exchanges from trying. Most recently, top exchanges like Binance[4], OKEX[5] and Huobi[6] have chosen Singapore to establish their latest base.

As Ong Chong Tee, Deputy Managing Director of Singapore’s Central Bank Monetary Authority (MAS) of Singapore once said, “Regulations should not stifle innovation. The reality is that innovations will always move ahead of rules.”

Do regulators around the world think like the MAS? If so, why is it then that so many exchanges are having trouble expanding globally? If not, why aren’t they thinking that way?

Though I’m not in any position to comment on regulators around the world, I’d like to share my experience at Lykke, where I was fortunate enough to learn first-hand the intricacies of running a global exchange.

Addressing the Technology Adoption Life Cycle

As the Head of Field, I spend a lot of my time speaking with our field leaders covering major regions such as Africa, Latin America, Europe and Asia. During these conversations, I begun to appreciate the importance of adapting products to local audiences and how localisation can be the “make or break” factor when expanding globally.

Think Globally, Act Locally

I remember vividly a conversation I had with Tobie, our Field Leader in South Africa, about changes to the product offering he would like to make in South Africa. “Bitcoin and ether pairings are all we need here,” Tobie said. “Well, if we really want, we can add bitcoin cash and ripple as well. But yes, that’s about it. Let’s remove the other assets.”. In contrast, the Singapore trading community has moved past the major cryptocurrencies and are starting to explore alternative tokens that are more “exciting”.

The Technology Adoption Life Cycle is a sociological model that describes the adoption or acceptance of a new product or innovation (cryptocurrencies in this case) and splits the society into five segments based on their readiness. Only by offering the right products, at the right time, to the right audience, can we address the varied adoption readiness around the world. A straightforward concept like this is however difficult to implement unless you have the right person on the ground to guide you. Admittedly, I never knew about the situation in South Africa till my conversation with Tobie.

Compliance and Regulatory Nightmare

Distributed Ledger Technology has created a radically better structure for how the trading world operates. Traditionally, there are multiple layers of participants with each playing an important role and governed by the regulators with a particular set of rules. With the introduction of blockchain, most of the participants are displaced while an exchange can now play several of the roles:

A seemingly innovative situation like this however exposes the exchange to an array of licensing requirements. In Singapore alone, will the exchange not be a Recognised Market Operator, a Custodian Services Provider, a Stored Value Facility and Dealer of Securities? The same applies to the European Union where the exchange may now be a Multilateral Trading Facility, an E-Money Institute and an Organised Trading Facility. Such regulatory nightmare coupled with the changing environment has created a significant barrier for exchanges to confidently operate globally.

Thus at Lykke, we made it a point to allocate significant efforts in maintaining a high level of understanding of global regulatory and compliance issues. Amongst other initiatives, we conduct a monthly firm wide Compliance & Risk session to collect feedback from our global workforce and at the same time keep everyone updated on the latest development.

Lack of Local Banking Support

Most banks today immediately keep a distance if you’re dealing with anything related to cryptocurrencies at all. Using the convenient excuse of preventing money laundering and terrorism financing, banks worldwide are giving cryptoexchanges a hard time. From my conversations with individual investors, high frequency traders and institutional traders, one of the most sought after feature of an exchange is the support for their local currency. This thus became one of the biggest roadblock for exchanges to expand globally.

Local currency support has a psychological and practical reasoning.

For most individual investors with a “buy and hold” mentality, any currency used to purchase cryptocurrencies is simply a mean of settlement that has little bearing. Individuals receive income and spend in their local currency. Psychologically, they are used to it and are not comfortable dealing with foreign currencies tainted historically by hidden costs. Fortunately in Singapore, DBS Bank Ltd provides remittance services at zero fees when I send SGD to Lykke AG in EUR. Not surprisingly, when I shared this with my peers, they were excited and has since been doing the same.

Practically, traders avoid exposure to foreign exchange risks by trading only against their local currency and holding any unused capital in their local currency. Most cryptoexchanges would find it difficult to overcome this unless they have the relevant banking support. At Lykke though, we support the trading of 21 different currencies with spreads comparable to other leading FX exchanges like OANDA and Interactive Brokers. As a result, traders can choose to hold their capital in their local currency or any currency of choice.

Lykke is building a global marketplace for the free exchange of financial assets. By leveraging the power of emerging technology, our platform eliminates market inefficiencies, promotes equal access from anywhere in the world, and supports the trade of any object of value. We create open-source products that have positive, lasting impact. We provide a transparent, trustworthy, and secure global marketplace to give liquidity to traders and investors. We push the envelope on the problems we take on. We inspire others to build, innovate, and leverage our tools. We build a collaborative, inviting community. And I welcome you to be a part of our journey towards a better financial world.

[1] https://www.bloomberg.com/news/articles/2017-09-26/singapore-cryptocurrency-firms-facing-bank-account-closures

[2] https://www.reuters.com/article/us-crypto-currencies-japan/japan-regulator-warns-cryptocurrency-exchange-binance-over-unregistered-operations-idUSKBN1GZ096

[3] https://www.newsbtc.com/2018/10/15/bitcoin-exchanges-shutdown-in-india-due-to-regulations-pivot-to-atms/

[4] https://cointelegraph.com/news/binance-to-start-closed-beta-testing-of-new-crypto-fiat-exchange-in-singapore

[5] https://cointelegraph.com/news/upbit-crypto-exchange-operator-to-open-singapore-based-crypto-exchange-next-month

[6] https://bitsonline.com/huobi-shuts-china-global/