Analysis

What are the Banks and Regulators Doing About Crypto? Interview with Mark Binns of BIGG

As noted in my newsletter, I have been steadily buying stock in Blockchain Intelligence Group (BIGG-CSE).

Earlier this week, I managed to interview the CEO of BIGG, Mark Binns. I’ve posted the transcript below.

I am slowly (quickly?) adding more stocks to my portfolio with exposure to crypto and increasing my research efforts.

While we might have a nice run this November, I still think the big action will start in 2021. But for myself, I need to deep-dive on the players right now.

I want to be in position before the stocks start to pop, not frantically buying in during the usual mad scramble.

What’s different this time than in 2017?

Quality and experience of the management teams. Lots more companies have executives on board with years of boardroom experience AND deep knowledge of crypto.

There are far fewer companies out there with green management teams. There are a good many with teams that have managed to survive the nuclear winter of 2018-2020.

In any case, here is the verbatim transcript of the interview:

DJ

Interview with Mark Binns, CEO of Blockchain Intelligence Group, October 28th, 2020

DJ:
Tell me a little bit about yourself and how you got started in cryptocurrency. If you’ve got any origin stories those usually can be quite entertaining sometimes. Fire away.

Mark:
Well I’m a tech guy first and foremost and I have an undergraduate degree in computer science, so I come to the business with a pretty deep tech knowledge. I spent the early part of my career writing code for things like voice over IP start ups, and I worked for Nortel for a number of years.

And then I got interested in the business side of technology so I went to Western and did my MBA at Ivey. I went out and I started doing essentially consulting for technology companies, but from a business perspective. How do you acquire customers, how do you grow your business, how do you do marketing?

I did that through a couple of companies, very entrepreneurial. I started my own small consulting companies, ended by selling both of them. And then I ended up moving to Vancouver in 2010 because my wife was from here and got involved in the local tech scene a little bit.

Mark:
I was actually working for just a local company and one day I heard everybody saying that they were running down to the Waves Coffee Shop because someone was opening the first ever Bitcoin ATM. That was around the start of where I really got paying attention to crypto, 2013. What’s that? What’s that about? Bitcoin, and I started buying from Bitcoin, and I think it trading somewhere between $100 and $200 a coin US at the time.

I just thought it was a bit fascinating, this Bitcoin ATM was open. The really funny story there is the guy who was opening that, the worlds first Bitcoin ATM in the Waves is a guy named Mitch Demeter, and Mitch Demeter has now worked for me for the last two and a half years, and he’s currently the President of Netcoins, which is one of our two operating businesses.

So my first knowledge of this guy dates back seven years.

Mark:
I didn’t jump in full throttle and do it as a career yet, but I certainly started getting interested and watching it. And then in 2017 the crypto market, as we all know, near the back half of it started getting really hot and exciting in mainstream media, and I decided to get involved.

That’s actually when I joined Netcoins as a CEO. The company was started originally by an engineer, but they needed to bring in some business side help, and I decided it was time to get involved, and I thought that was interesting.

My first or second hire was actually Mitch Demeter because he had spent a bunch of his career building Bitcoin ATM’s and distributing them all over the world, and he also started a crypto exchange called Bitcoiniacs. So yeah, he had exchange experience, he’s had Bitcoin ATM experience, and Netcoins originally was a Bitcoin ATM software company but it didn’t make physical hardware, we made virtual Bitcoin ATM’s.

Mark:
Now fast forward, that was two and a half years ago now, almost three years ago, and since Netcoins changed the business model into becoming a complete online crypto exchange instead of the virtual ATM’s because the market just changed. I would say the demand for the Bitcoin ATM type of product decreased as exchanges became more available, and easy to interact with, and easy to use, et cetera.

Fast forward that a little bit from when we got going, Blockchain Intelligence Group, I knew of those guys, and it was Lance and Shone who were running that business, and I thought their focus on compliance, and compliance software, and security blockchain forensics type stuff was very interesting.

I saw a big hole in the market, in Canada, with the lack of a regulated exchange, so this is where things had come to a head, where we’d been saying, “Listen, the future of crypto in Canada, and I think in global adoption, is regulation.”

Mark:
I wrote an article recently on Cointelegraph that I’ll send it out so you can look at it. It is about regulated environments and safe crypto environments. We went to BC Securities Commission and the CSA that oversees all the provinces including the Ontario Security Commission et cetera, and said, “We want to become regulated and volunteer to become the first regulated crypto exchange in the country.”

They said, “We like that idea, but we need to build a framework with industry input for regulation.” So it took a couple years, literally. I first contacted them on October 1, 2018, so more than a two-year process, discussing with them and working with them on what a regulated crypto trading platform could look like in Canada.

That’s the equivalent of say a TSX venture, but for crypto assets, as opposed to traditional stocks.

Mark:
Netcoins and BIG got together, under Blockchain Intelligence Group, because they made a product called Bitrank and they made a product called QLUE, but Bitrank allowed exchanges to monitor all of the crypto trading that goes on inside of them and all the crypto that comes in and out of them.

We saw that we would need some really good technology in our platform to make it safe and secure and convince regulators that it should be a regulated trading platform. So Blockchain Intelligence Group bought Netcoins in August 2019.

I came over with Netcoins, became the CEO of the parent company, BIGG Digital Assets. BIGG Digital Assets now own Netcoins, the trading platform, and Blockchain Intelligence Group, the blockchain forensics software company.
We use the forensic software inside of the trading platform now. We integrated Bitrank into Netcoins and have been working with regulators to say, “Listen, this is how we believe crypto should be traded in a safe regulated way in Canada.”

Mark:
And as of September 29 this year, so about one month ago, we submitted a lengthy legal document, an application to become a restricted dealer for Netcoins. We call this a landmark securities registration we’re seeking because it would be the first regulated crypto trading platform in the country that is open loop.

When I say open loop I mean you can put crypto into it, you can trade, you can take crypto out of it, et cetera. Full service, everything you’d expect to be able to do. There is Wealth Simple that received a registration maybe one or two months ago but they’re a closed loop system, you can’t deposit Bitcoins into Wealth Simple. You also can’t buy crypto and withdraw it. You can only buy it and keep it inside of your account with cash that you have in your account with them, so it’s a very different model. So we’re going after a registration that is full service, open loop crypto trading platform.

Mark:
That’s really the big catalyst, that’s what we’re working on now, we’re hopeful we’ll be approved in the coming months. We are working with regulators, and we’re in regular back and forth communication, answering questions, et cetera.

We hope to really open up the market in Canada. Change the way crypto is traded in Canada. There’s somewhere between 15 and 20 crypto exchanges in this country and right now none of them are regulated. And like marijuana in Canada, once legalization happens a few of those companies will go through registration and become legal trading platforms like Netcoins is going to be, and a bunch will fall off.

The business will entirely shift, everyone will trade with regulated platforms. In due course the government will require everyone to become regulated that wants to stay in the business. They’re just not enforcing anything right now as they create the framework and get some legal options available to consumers. Otherwise, they would just have to shut everyone down and that wouldn’t help because people then just go offshore et cetera.

Mark:
The goal (among many) of regulators is to keep investors safe, give them safe trading options in different asset classes, and that’s what we’re working towards in Canada. Now the bigger play is to take this international.

We do want to get through this in Canada of course, become the first regulated exchange, and then we want to go to other markets such as Europe. We’re studying actually which country to launch in Europe because we will have a fully hardened regulatory set up. We go into Europe and say, “Here’s how we’ve done it in Canada, here’s how the whole system works, here’s all the checks and balances.”

We’re part of a public company, which is huge because we’re already audited, and transparent, et cetera. As a regulated entity in more and more countries hopefully we become the primary trading platform for crypto in those countries. So there’s a much bigger play outside of Canada for Netcoins as well after we go through the Canadian side.

DJ:
Okay. Let me start to pick apart what you said there a bit because I’ve been using Canadian exchanges way back using Cavirtex back in 2014. When you say unregulated I guess the first thing that really pops into my head is Quadriga, Gerald Cotton managed to buzz off to India and he’s either dead or on a beach somewhere with a margarita.

For me, the question that pops into my head, so does regulation, has there been any discussion at all about deposit insurance? So for example, I’ve left some Bitcoin on an exchange, I still have Bitcoin with MT Gox along with everyone else, and the Bitcoin exchange goes out of business for some reason, if I had money in a savings account at the Royal Bank, deposit insurance covers me.

Has there been any discussion about that whatsoever when you mention regulatory? Because that’s the first thing that pops in my head.

Mark:
It’s all about that. Quadriga was a huge catalyst in realizing the need for regulation because the 200 and some odd million dollars of mostly retail investor’s money was gone. He had a stack of cheques, literally money orders, drafts, all sorts of stuff sitting in his house. How is that possible?

As part of becoming regulated you have to show that you have proper banking relationships, you have proper financial bonds, you have proper custody, which is the huge part. So what if Netcoins or any exchange goes under? How do we know the customer funds are safe? And how are they retrieved? Et cetera. It’s all about that. That is what regulation’s designed to stop from ever happening again.

DJ:
Yes. I say that would be the killer feature of the exchange, but I do think it would have to be explained properly to the public because they don’t really get that. It was quite interesting people asking about Bitcoin, I said, “Well I used Quadriga, but I never keep my money in exchanges.”

They went ahead and used it, didn’t want to set up a private Bitcoin wallet, they lost their money, and it was like, “Well okay.” Because people just assume any exchange house is like Scotiabank or Royal Bank.

Mark:
And that’s exactly what they’re not. That’s the issue. That’s because they’re not regulated. They could be three guys in a closet running a crypto exchange with no oversight or regulations. Right now and the last number of years every crypto exchange in the country is operating without oversight.

But we operate with a lot of philosophies. We’re going to be doing campaigns et cetera, around making sure you’re trading with a registered regulated platform. And if you think of a car analogy, buy Volvo, trade with safety, trade with security and knowledge that you can sleep at night.

Mark:
With every corporation I think, the future of crypto, there’s still going to be a retail component, but there’s this huge corporate component that’s showing up right now, and I know you’re well versed on Micro Strategy and Square, and probably Bitcointreasuries.org where a guy started tracking all the public companies that are buying Bitcoin.

Corporations are starting to make major stakes in crypto. They will all buy through a regulated exchange. They’re aren’t going to be buying through illicit markets. If you think about stocks it’s laughable to think that someone’s going to trade their stocks on a non-registered stock trading platform. The same is going to be the case for crypto soon enough. There will only be registered regulated exchanges in the country.

DJ:
Okay. That’s great. I would really buy into that vision. I’m just wondering is there any urgency from the regulators to do this because I was writing articles years ago like, “Where are the regulators here? What’s going on?”

Especially, you have Uniswap and decentralized exchanges, and you’re seeing governance tokens that look an awful lot like securities. And this is the US, even the US regulators really don’t seem to be moving that fast.

Do you sense any urgency up here in Canada with the regulators? How are they progressing over the last few years I guess in their understanding of crypto? And how far is this up their priority list you think?

Mark:
Well I think the fact that we were able to submit an application to become a regulated dealer answers the question. You couldn’t do that months ago. But they’ve created essentially a framework. And they’ve put up various requests for comments, papers, et cetera. They’ve learned a lot about crypto and about the crypto market and the fact that we’ve now been able to apply on September 29 for a license as specifically a crypto trading platform tells you how serious they’re taking it and that they’re ready.

They’ve granted a license to Wealth Simple on a closed loop side so I think they’re taking it very seriously and I think now is the time. They’re obviously moving on this.

DJ:
Okay. So one of the questions I had on my list is what are you putting the most energy into nowadays, but you’ve answered that question. Correct me if I’m wrong, really trying to get a regulatory … Trying to get this out of the gray and into the white.

Mark:
Yes, to be fair, we’re putting effort in multiple areas. The two big areas would be for Netcoins it’s about regulatory paths, and for Blockchain Intelligence Group it’s really selling our software globally to law enforcement as crypto gains wider and wider adoption.

All over the world, countries are bringing in more crypto regulations, more compliance requirements, and more law enforcement is required as well to deal with crypto as it becomes more mainstream.

We’re selling our products, QLUE and Bitrank, globally into this expanding market. So yeah, Big Digital Assets owns two companies and they both have a different focus, but they’re very complementary, they’re both about compliance and regulation in crypto spaces.

DJ:
Tell me a little bit more about the BIG part, the Blockchain Intelligence Group thing, they’ve got those products, they’ve been out for a few years, they were impressive three years ago when I was playing with them.

Are they planning on launching any new products? Are they seeing any uptick in business? Do they still have a development team working on new stuff? How are they looking at the DeFi sector which has just exploded? Any colour you can tell me about those guys, that sector, would be great.

Mark:
Those products are continuously evolving. We have been adding more and more features to QLUE and Bitrank, they go very hand in hand, and more blockchains. We started out as Bitcoin only, and then added Ethereum, Litecoin, Ripple, Bitcoin Cash etc. We recently added Bitcoin SV to the platform.

We recently added Stellar to the platform. And in terms of Ethereum, which support the ERC20 tokens, and I’d have to double check the number, but there’s 1000s of different tokens that we support that are based on ERC20 through the platform.

We continue to add product features, and blockchains, and coins that we can accommodate and that’s because it’s required. There are customers the world over, law enforcement, there’s activity going on. All these different coins and blockchains make the tools that support them more valuable.

We very much have a very active development team, we continue to evolve those products and we continue to sell them. And the businesses are growing.

Mark:
And we just recently landed for example, a $320,000 contract with the US government and there will be more. The big catalysts on the Blockchain Intelligence Group business you’re going to see is customer announcements.

We’re one of only probably four products in the world that does what we do, which means every time we’re in a pitch, we’re in there with one or two other competitors usually, so it’s a green field. That market is growing in a big way and we continue to evolve and serve that market.

DJ:
Yeah. And that’s great that you’re finally seeing some public announcements on that. I know it was a long slog to get the US guys to actually pay for it, so that was great.

Mark:
Yeah. There’s 600+ million data points for the Bitcoin blockchain alone in QLUE and BitRank. It’s a big data product and the value is the data and of course the easy to use customer interface, or the user interface.

We’re at a point now where there’s a real tipping point going on it that market. As crypto gets used more for payments, every day payments, even accepted via PayPal, unfortunately the more crypto will get tied into crime as well and law enforcement requires tools in order to do investigation, and we make one of the few tools in the world that is useful for them in their jobs.

DJ:
I agree. It’s been great. Just trying to get those US government agencies to put in their budgets to pay for it, I think it should’ve happened years ago and it’s nice to see it’s finally happening.

Mark:
Yes, stuff like that. The markets have all been a little slow developing, but it really feels like it’s accelerating right now.

DJ:
Okay, we talked a little bit about this, but I want to ask you this black and white. What’s different between 2020 and 2017? It just looks so much like a 2017 repeat except we don’t really want to see the 2018 dump So what do you think is different now? Or is it different? Or are just going through another bubble?

Mark:
No. It is entirely different. In 2017, it was complete retail hype. It was all built on small individual investors clambering for a limited number of crypto assets, whether they were public crypto companies or they were Bitcoin, et cetera.

They had limited means to buy them, et cetera. But I guess the point of it is, it was very based on retail. John Smith. Now there is just a massive amount of institutional involvement and in terms of creating everything from Bitcoin futures, trading on the CME, to JP Morgan, Facebook, it’s just large corporate institutional involvement in the sector in general, and money has come in to build infrastructure around it, and PayPal announcing they’re going to make payments possible. Payments are going to become possible.

That was not even on the edge of happening back in 2017. It went from retail involvement, to institutional involvement, and institutions figuring out how to make crypto part of the actual financial markets and the financial system on a day to day basis for people, and add value.

Mark:
On top of that I think there’s the whole world in 2020. Bitcoin has become more of a safe haven. You see that against the US dollar, the US dollar and the Canadian dollar in governments around the world are printing money like crazy right now and the contrast with crypto is becoming more obvious to people and companies because there’s a limited supply. Bitcoin for example at 21 million coins.

So corporations are buying it. So again, this is the other difference again on the institutional side is now it’s not just retail guys buying $100 worth of Bitcoin, it’s Micro Strategy buying 400 million dollars worth of Bitcoin, Square is buying 50 million dollars worth of Bitcoin.

Mark:
So it’s becoming, Bitcoin in particular, an actual safe haven currency and something that corporations are putting in treasury. And I think that’s going to keep going. So to sum it up the difference is it was very retail built, run, in 2017 and I believe this is much more institutional both from the investment in crypto and from the infrastructure creation around it, which is going to give it actual legs and longevity.

DJ:
Okay. Now do you think it’s more on North American money now as opposed to 2017 when a lot of it was just from China?

Mark:
No, I don’t think it was just from China. There was a ton of money in Canada even going after it in 2017. I remember it pretty well. But maybe it’s a more equal global investment as opposed to some regions were hotter on crypto back then. But I think it’s mostly about institution versus retail now.

DJ:
Okay. What do you think of the DeFi tokens? Is Netcoins ever going to jump into that gig where you’re listing the Uniswap governance tokens, the SushiSwap governance tokens? Because that’s been just completely red hot and then super cold depending on what day of the week it is. Is that something you guys are going to get into?

Mark:
DeFi’s an interesting market, we’re watching it to see it evolve. Part of becoming a regulated entity is that you can’t jump on, you don’t want to jump on, trends necessarily until you see that they’re established.

That’s something we’d need to require more study I think to decide whether it’s part of a regulated trade platform. So TBD, it’s too early for us to say. We’re very selective now on the tokens that we will list because they need to have a certain amount of stability, liquidity, and proper custody, ability for us to store them for our customers in a safe way et cetera.

There’s a lot to be considered so we do it in a very considerate path. Maybe we list those eventually, it’s possible. Are we going to for sure, no, definitely there’re no guarantees. We run with right now with seven coins, and they’re the top by liquidity, and they’re the most institutionalized, in other words it’s through proper custody with them et cetera.

DJ:
Okay. So how are the conversations going, if there are any, how are the conversations going on with the Howe Street and with Bay Street? The brokerage houses back in 2017 absolutely knew nothing about crypto up until August 2017, went into it full bore until January to February of 2018, and then quickly left. Are there guys around on the street for now keeping an eye on crypto and are having conversations with you? What’s it like? Are you able to have informal meetings with these guys? And are they keeping an eye on this sector? Just give me a read on it.

Mark:
Absolutely. No, absolutely. The financial markets, everybody in brokerage houses whether it’s brokers or I-bankers, whether it’s the independents or the large banks, are very versed on this sector now and are definitely paying attention.

They have seen the institutional involvement that has come out over the last even year, and I would say absolutely the financiers of the country, and probably most countries, in Canada for sure, they’re definitely paying attention to this sector and they see that there’s lots starting to happen again, and it’s warming up again. So that I’m not concerned about at all, they’re absolutely engaged and watching the sector.

DJ:
Okay. Is there anything I missed? Anything you want to talk about that I haven’t touched base on?

Mark:
No. Not much. I think we have covered it pretty well.

DJ:
Okay. Sorry, one more question. So what’s the best news site or website you know of on crypto? Is there any that you read on a regular basis?

Mark:
I like Cointelegraph.com.

DJ:
They’re pretty good.

Mark:
Coindesk is not bad either. I’m an active contributor on Cointelegraph, if you go there and Google Mark Binns or just put Mark into the search on Cointelegraph you’ll see the couple of articles. Last month I wrote one of them, it was the number one article on Cointelegraph for about two weeks straight, it has the last time I looked 56,000 reads.

DJ:
Okay. Good. I’ll link to that then. Good.

Mark:
I was literally talking about how the future of crypto requires regulation and law enforcement, was the last article, which I know that’s one article and the other one’s about how banks are going to get disintermediated, destroyed, if they don’t start supporting crypto assets.

DJ:
I totally believe that. Whether the banks will smell the coffee is a different conversation all together, but I believe that.

Mark:
They will. They’re going to move a little slower, but all the big banks have crypto working groups that are already looking at it closely and deciding how they’re going to play in it. They definitely don’t have their heads stuck in the sand. They don’t talk about it publicly much, but I know that the banks are globally, including in this country are definitely looking at the space pretty closely.

DJ:
Great. Thank you for your time

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