How Should Bitcoin Exchanges Approach the Chinese Market Now?

Thomas Glucksmann, Head of Marketing at Gatecoin, talks about the issues shaping the Asian cryptocurrency markets.
Photo: Bloomberg

Thomas Glucksmann is Head of Marketing at Gatecoin, the regulated trading platform for cryptocurrency and blockchain assets. At the iFX EXPO Asia 2017 to be held February 21-23, in Hong Kong, he will take part in a panel of experts from across the financial industry discussing marketing in China.

To learn more about blockchain’s potential in disrupting the financial trading markets of Asia, register now to the iFX EXPO in Hong Kong.

Thomas began his blockchain journey in early 2013 at Tokyo-based Mt.Gox – once the world’s largest cryptocurrency exchange. While at Mt.Gox, Thomas worked on the first bitcoin PR campaigns for the G8 and G20 summits, the education portal Bitcoins.com, the first bitcoin debit card, and opened the first licensed bitcoin exchange entity in Hong Kong.

Finance Magnates interviewed Glucksmann to learn more the issues shaping the Asian cryptocurrency markets from his expert point of view.

How will the PBOC investigation into the activities of Chinese bitcoin exchanges affect future marketing efforts by cryptocurrency exchanges and other blockchain asset players in China?

Exchanges targeting Chinese investors should tread a very cautious line and adjust or design their marketing strategies to pre-empt upcoming regulatory guidelines from the PBOC. One best practice is to emphasize the exchange’s KYC and AML policies and ensure extensive risk disclosure across all marketing channels.

The PBOC has already warned exchanges not to position bitcoin as a hedge against the yuan as part of their marketing activities and has made it clear that it does not recognize bitcoin as an alternative to sovereign issued currencies or cryptocurrencies, of which China is currently developing its own.

Therefore, exchanges should be cautious in their definitions of bitcoin and other blockchain assets and focus on the utility of the applications these tokens support rather than arbitrary speculation on prices and performance to entice investors.

What are some of the major challenges for non-local cryptocurrency exchanges seeking to grow their client base in China?

With the most recent developments in China, the main challenge is to try to understand and anticipate the regulatory attitude towards exchanges in the coming weeks and months and what compliance requirements may look like moving forward.

Thomas Glucksmann, Head of Marketing, Gatecoin
Thomas Glucksmann, Head of Marketing, Gatecoin

If the major Chinese exchanges are able to survive the current scrutiny, China will still remain a crowded market, with a handful of major bitcoin exchanges taking up the lion’s share and a few specialized exchanges focused on altcoins and ethereum tokens. Any new player from outside of China will need to differentiate themselves by demonstrating proactive regulatory compliance processes, offering a greater variety and quality of listed assets, a superior trading experience, access to a range of other fiat currency pairs and better overall transparency of operations.

Localizing the brand name to fit Chinese tastes can also be tricky if the name is already well established overseas but is hard to pronounce or not very memorable for Chinese investors. Developing a globally appealing brand-name from the start could help and mitigates against rebranding later should the Chinese market prove very lucrative for that exchange.

On the technical side, marketing services and channels which rely on Google based tools or platforms which are not permitted or available in China may prevent effective communications with your current or prospective Chinese user base. Diversifying these channels to incorporate their Chinese equivalents and alternatives can be a good approach.

Identifying the right marketing channels in China can also be tough, especially with the niche nature of this asset class and the restrictions advertising on Baidu, for example. There a handful of Chinese language forums and new sites dedicated to discussing bitcoin and other blockchain assets where advertising and PR activities may garner conversions. However, this approach requires preaching to the converted, and besides arbitrageurs, many existing traders would need significant incentives to move to another exchange which would require lots of efforts by a competent Chinese community manager.

What may prove more useful is to build trusted relationships with high volume traders and miners who are more likely to be the biggest cash cows for the exchange. This is difficult without being on the ground and taking the time to establish and maintain those relationships, which without a personal introduction can be hard to initiate in the first place.

As the variety and structure of blockchain assets evolves beyond bitcoin, and security-like blockchain tokens become an increasingly popular investment class – how would you approach marketing this complex type of asset to prospective Mainland Chinese traders, especially to appease regulators?

With the vast variety and ever-evolving attributes of blockchain assets, it’s difficult for regulators to be adequately informed on the latest developments and until trading volumes of alternative blockchain assets begin to match those of bitcoin, they are unlikely to pay too close attention for the time being. This presents an opportunity to explore the appetite for more complex blockchain assets in the Chinese market and to disassociate these alternatives with the negative perception of bitcoin.

Focusing on educating prospective investors in China on the applications and goals of the projects behind each blockchain token or cryptocurrency is critical to demonstrate that these assets have longevity and aren’t just another crypto-based get-rich-quick scheme.

Building excitement around tokens that can be used on a decentralized application like Augur, demonstrates the need to exchange fiat or another cryptocurrency for it’s token, in this case Reputation (REP).

For tokens that have share-like properties, where holders are entitled to ownership, dividends and voting rights, investors should be encouraged to scrutinize the project in the same way they would a listed or private company.

Exchanges can do their part by thoroughly vetting every token and cryptocurrency they decide to list and engaging with third party auditors of smart contracts code, legal and accounting processes and security for example should be a requirement for each project as an additional signal of legitimacy.

Frequent and detailed communication should also be provided to show that the project is on track to deliver what they promise in the case of applications that are still under development. Almost all token crowd sales and subsequent listings have taken place without a working application, aside from detailed prospectuses and marketing materials. This enables token holders to become amateur venture capitalists supporting promising ideas, but due to the uncertainty of a yet-to-be-launched ‘dapp’, prospective investors must be fully aware of each project’s risk of failure, which traditional venture capitalists are better able to identify and stomach.

Thanks to lack of attention paid to these alternative blockchain assets in mainstream Chinese media, exchanges and other ecosystem stakeholders have the chance to engage directly with regulators and local law enforcement agencies at the early stage to educate them on these tokens, how they work and try to elicit responses and attitudes on future legal classification and regulation.

If we look at the rest of Asia, where do you see some of the major growth markets for cryptocurrency and blockchain asset trading?

Japan will be the fastest growing market over the next two years thanks to the upcoming regulation on cryptocurrency exchanges by the FSA this year, which has been a positive signal to banks, merchants and other licensed entities. Already we’ve seen Japanese exchanges benefit from increased amounts of funding coming from traditional financial institutions, client accounts at the larger banks and merchant solution partnerships with some of the country’s major retailers. Once bitcoin and other cryptocurrencies are adopted as a method of payment and value transfer by more people in an advanced economy like Japan it sets a precedent for other economies, such as Australia to follow. At the same time, if Japan based hedge funds and other alternative asset managers start to increase their exposures to blockchain assets, we could see a lot more liquidity pour into the market without having to wait for the SEC to approve a bitcoin ETF.

India has the most untapped potential considering the interest in gold and commodities trading in the country and with recent limits on cash denominations we could see the emergence of new exchanges and services catering to the growing appetite for digital assets.

How can blockchain asset exchanges attract Asian clients from traditional and established alternative asset management industries? What are some of the key channels for establishing close B2B partnerships?

The main hurdle for blockchain asset exchanges when approaching traditional and alternative asset managers is to mitigate the concerns of compliance risk. In all jurisdictions (except for Japan this year) cryptocurrency exchanges do not yet fall under any existing or bespoke regulations, whereas for an asset manager to operate legally, they must be properly licensed and regulated per the rules governing traditional financial markets. AML compliance is a universal requirement, so for exchanges to be taken seriously or considered as a legitimate partner to these firms they must demonstrate stringent KYC procedures and AML policies. This can be achieved by acquiring a traditional payments or securities license, although not yet required, as it serves as a signal of pre-emptive regulatory compliance and may help to allay the reservations of regulated firms.

For Gatecoin, our MSO (Money Service Operator) license has helped us to initiate discussions and established partnerships with a large variety of financial institutions. However, many firms are still waiting for the HKMA or another regulatory body to regulate cryptocurrency exchanges before they will do business with us directly.

In the meantime, the best we can do is to educate asset managers on the applications associated with these blockchain assets and demonstrate the scale and activity of the decentralized application ecosystem. Seminars, panel discussions and workshops targeting traditional financial market players rather than existing blockchain asset or fintech stakeholders has proven very effective for us so far, and although we don’t get a high amount of conversions in the short term we are laying the ground work for a revolution in financial markets, in which we will have a very influential role.

Unlocking Asia

Held on February 21-23 at the Hong Kong Convention & Exhibition Centre, iFX EXPO Asia 2017 will be an amazing networking and learning experience, with over 80 exhibitors and 2,500 attendees. Panels will cover topics such as FX in China, regulations, technology, marketing, commodities trading in Asia, and of course our signature CEO round-table.

This year’s agenda is tailored to the needs of the region’s many industry participants, as well as of international brands seeking a deeper, firsthand understanding of the Asian market. Attended by leading global leaders of the biggest trading firms, the extensive event promises to fill you in on the latest regional developments in the Asia Pacific market. To see all the panel speakers click here.

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