Bobby Lee, CEO of Shanghai-based BTCC, a digital asset exchange, says those digital trading platforms that survive consolidation will become de-facto banks.
“We see ourselves as the bank of the future,” he told DigFin. “We will be the ones providing custody and trading services for global citizens.”
Depending on how regulation evolves, traditional banks will either lose out on future business or have to acquire exchanges such as BTCC, Lee says.
Today Bitcoin’s market capitalization is $55 billion; crypto-currencies together are valued at around $100 billion. This is too small to matter, but Lee says the universe is going to have a size rivaling that of gold, a $7 trillion market. At which point, digital assets will be too big to ignore, and orthodox financial institutions will have to acquire or resign themselves to losing out on the market.
Lee is skeptical that traditional banks will have the ability to out-innovate companies such as his.
“They pursue blockchain projects out of pressure from the media and shareholders, but they don’t really understand it,” he said, noting that in most cases, digital teams seem isolated from the day-to-day decisions of banks’ senior executives.
Banking on regulators
Lee likes to pitch his vision with a salesman’s confidence: “The dream is that in ten years, we’ll be the ones with ofur names on the big shiny skyscraper – or we’ll get acquired by Bank of America, HSBC or Goldman Sachs, and we’ll be running the business from their shiny skyscraper.”
How lawmakers ultimately view digital currencies will likely determine whether, or how soon, such an outcome materializes. “We need regulators to legitimize crypto-currencies, and say a bitcoin is just as valid a form of currency as this piece of paper in my wallet.” That, in turn, requires his bullish outlook on the value of digital assets to be realized: in other words, it requires the belief that in the coming years, Bitcoin’s current valuation in U.S. dollar terms, which is around $3,400 today, turns out to be very cheap.
Even if this rosy scenario emerges, regulators can take different approaches to how they treat digital currencies, including tokens sold via initial coin offerings.
Lee says regulation and licensing regimes are on the horizon, as governments weigh how to view digital assets. He declined to discuss the particulars of BTCC’s governance structure, such as its business location or licensing arrangements. He is trying to preserve flexibility so that the business is able to adjust to whatever direction regulators take. (Currently, it has an onshore China business, and an offshore one that includes an English-language website; Lee says they are run separately, with distinct customers and activities.)
Earlier this year, the company launched a ‘digital asset exchange’, a product that enables users to trade different crypto-currencies and tokens, to complement BTCC’s main exchanges, which pair crypto with fiat money.
What’s a border?
Among the questions the industry is waiting to have governments answer is how they treat the transfer of value across physical borders.
The ability of people to move unlimited amounts of assets without transaction costs or reporting requirements – indeed, without any role for a traditional bank – is a major issue for governments and financial institutions. There’s no law, anywhere, to put a framework around the ability of a person with a private key to an account with a digital exchange to buy Bitcoins in one country and sell them in another.
“In practice, Bitcoin doesn’t cross a border,” Lee argued. “It’s information that’s in the cloud. It’s there already, and the holder just happens to have a private key. As citizens, we have a duty to declare it for tax purposes, but that’s it.”
Authorities, of course, might take a different view: in the U.S., customs officers already ask people to unlock their smartphones when entering the country. They may be looking for terrorist connections, but it would be the same principle at work for digital assets.
“So we need to explain and educate regulators,” Lee said, “in order to avoid making bad laws that would hinder innovation and competitiveness.”
What licensing regime?
A second question is whether lawmakers would decide to regulate digital assets by expanding existing frameworks, or put digital assets on a separate footing, with their own regulators and licensing requirements.
Lee wants BTCC to get into the business of offering deposits, loans, payments and other services that are today the purview of traditional banks, but in crypto-currencies. “We want to offer real banking services,” he said. “But this transformation depends on the rules that will be set.”
If the licensing regime is separate, he predicts traditional banks will then either offer their own services in digital assets, or acquire infrastructure such as digital exchanges to do so.
“It would be like there’s two swimming lanes, but the digital side will have been upgraded,” Lee said.
He acknowledges that the ‘digital disrupter’ meme in banking has gone quiet, with most fintech startups trying to sell services to banks. But he’s one person still making the disrupter’s case. “The banks don’t see us, or regard us as just a thorn,” he said, but likens them to other companies that failed to act in the face of digital threats, such as the camera maker Kodak.
The company’s own engineers famously helped invent many aspects of digital photography, but they were kept in isolated departments, and Kodak’s management remained blind to the threat of cameras in smartphones, or at least unable to respond effectively. Kodak filed for bankruptcy in 2012; today a rump business survives but it is no longer in the personal camera business and many of its patents were sold to digital technology companies.
