Notes on the Ethereum Classic Summit 2017, Hong Kong

If you were at the Langham Hotel in Hong Kong on Monday and Tuesday the week of 13th November 2017 you would have found a couple of treats: a wonderful buffet lunch and the inaugural Ethereum Classic Summit.

I went along on the Tuesday and it's the first dedicated crypto event I've been to. I had no expectations and what I found when I arrived was a ballroom furnished with a bunch of round tables (great for discussion), pens, pads, a bunch of cameramen and of the stage.

All in all a cracking setup for what was ultimately a free event. The agenda, and some of the presentations, can be found here: https://etcsummit.com/#Tuesday. The whole of the Digital Currency Group crew was there and I was fortunate to join a few of them for lunch. A great group of people and Hong Kong was just one leg of a multi-stop visit in Asia. Beijing & Shanghai followed. Unsurprisingly, there was zero chat about the suspension/cancellation of the 2X part of the New York Agreement.

The following was the main panel session that peaked my interest and here are my notes of what was discussed.

Global Liquidity & Market Dynamics Panel
Arthur Hayes, Co-Founder & CEO | BitMEX
Martin Garcia, Vice President | Genesis Global Trading
Ryan Rabaglia, Head Trader | Octagon Strategy Limited
Fei Liu, Operations Director | Huobi
Moderator: Phil Francis, Blockchain Strategist & Investment Associate | WorldLink-US

L-R: Phil Francis, Arthur Hayes, Martin Garcia, Ryan Rabaglia, Fei Liu, translator

The first thing to say is that this was an excellent panel and having the insights of someone running one of the biggest exchanges in China, Fei Liu, was particularly valuable and I guess one of the reasons hosting in Hong Kong makes a lot of sense.

Bitcoin (XBT) Valuation
A fairly big China story here driven by the start of Renmibi (CNY) devaluation in 2016, opening the door to Chinese traders. Whilst it's still very much retail focussed, institutions are now starting to get involved and this helps support the price.
China perspective: increased political risks have led to a move into crypto as a hedge; lots of countries in the world are welcoming XBT and other currencies; XBT is a deflationary currency; Chicago Mercentile Exchange (CME) futures will fuel the fire.

How the global liquidity pool has evolved
Driven by the likes of Japan and South Korea, who have made it easy to start trading crypto. There was a suggestion even that China is no longer the main stay of XBT growth and that the pendulum really was swinging to South Korea.
China perspective: increased number of exchanges; there are more ways of gaining exposure (futures, swaps, options); more real-world crypto use cases.

Will institutions get involved?
Yes, but slowly. XBT will be the [sole] focus. Dash (DASH), Monero (XMR) and the like will remain niche.
No mention of ETH or ETC as a currency must be noted!

Initial Coin Offerings (ICOs)
They will continue (at lower levels) until we see a massive failure when a load of people lose a ton of money. At this point, there will be a significant correction and that's the time to buy. The panel clearly felt this was in the post and just a matter of time.
Action from the US regulator, the Securities and Exchange Commission (SEC), will come sooner than people think. Martin Garcia was particular on this point and alluded to conversations he'd had with them. In short: they are much more informed than most people realise and, whilst they will be slow moving in applying the [securities] rules, this will come. The result: most ICOs are securities, will be seen as securities and as such there are a lot of illegal securities offerings going on right now.
Outlook is more tamed now. From a trading perspective, the huge pump post ICO isn't really happening as there's more action in the pre-ICO market (this has been evident since middle of the summer in my view).
China perspective: ICOs are an exciting development. They can be seen like non-voting shares, such as how Alibaba did part of its capital raise. And then some really interesting stats. Huobi have their own research team looking at ICOs. Fei ran through some numbers:
300 ICOs looked at | 60 were deemed to be legitimate | 6 of these investible
That's 2% of the ICOs worth your hard-earned! We knew there was a lot of garbage out there but this is quite enlightening. He side-stepped the question that everyone was asking and neither did he talk about the selection criteria used.

Bitcoin forks
Bit of a split camp here: the trading side of the panel (Ryan and Martin) see them as good potential revenue generating opportunities & introducing more liquidity.
The exchange owners (Arthur & Fei) articulated in no uncertain terms that forks simply outsource the distribution of tokens to the exchanges. This is no small amount of work and the way BCH, BTG have been done has been a touch cowboy. In short, done in a rush and doesn't give exchanges enough lead time to ensure they can be handled safely.
The proposal was that there should be a 6–9 month lead time for exchanges to get ready. This would lead to wider [exchange] adoption, better pricing and ultimately a better consumer experience.
China perspective: if anything defeats Bitcoin, it will be Bitcoin itself. There has been a change in the trend in forking. Bitcoin Cash (BCH) was like giving candy to future investors and in turn has attracted more forks (Bitcoin Gold). These begin to look more like ICOs in Fei's view.
Ultimately, we have not seen the end of these since the human spirit is greedy and more people will want "dividend coins".

CME Futures
Fantastic for liquidity: no crypto wallet requirements to get exposure to the underlying [crypto] asset. It's also good for the CME as they don't need to have a competency for storing XBT.
Moreover, it also means for hedge funds they don't really need to get involved in safe custody of any crypto assets, which remains one of the biggest barriers to entry when wanting to operate effectively with client money.
The prevailing view from the panel was that it will be slow to get started, with limited liquidity at first and the proposed +/-20% price move circuit-breaker (where if the price moves more than 20% away from a given reference level, then all trading is halted) was not seen to be workable and perhaps too restrictive.
China perspective: Could bring the US back to the top of the tree in terms of XBT pricing power and it will help grow the XBT market in the US. It will be welcomed in China where 70–80% of all trading (certainly over the last two years) has been algorithmic. It will also tempt more institutions to enter the market which will ultimately lead to more price stability in the long run.

Bitcoin Exchange Traded Funds (ETFs)
Bit of a spread here on when we will see one now that futures are available (the SEC had said previously that the lack of effective hedging instruments was one of the reasons they would not support a XBT ETF). The range from the panel was 6–24 months.
There was universal concern that it could all go horribly wrong as crypto trading is 24x365 and so does not follow the existing equity rules of the road.

Bitcoin in 5 years: E-cash | Store of Value | Both?
A closed question from the moderator and responses were:
Both. A lot of use by remittance companies [already happening].
Both. This many people can't be wrong, can they?!
Challenge to become e-cash will be privacy. If Bitcoin can implement the same sort of privacy afforded to current cash users then e-cash is a possibility, else it will be solely as a store of value.
China perspective: Store of Value. Fei did not feel that e-cash was an option unless transaction fees come down dramatically.

What are the main features the exchanges are working on over the next 6 months?
My question to the panel.
BitMEX: multi-currency margin capabilities.
Huobi: expansion to Japan and South Korea. Offering more ways for investors to access leverage.

Decentralised exchanges
Another question from the audience.
BitMEX: Arthur felt that traders don't care about decentralised vs. centralised. They want liquidity, speed, the right instruments and reasonable trading fees. On most of these measures, decentralised exchanges cannot compete and will not for the foreseeable future. Centralised exchanges are here to stay.
Huobi: Fei was more diplomatic. He was supportive of decentralised exchanges. He saw them as complimentary to centralised venues but cited the same features as Arthur (speed, liquidity, fees) where decentralised exchanges are not even in the same league.