FinTech Interview with Nick Smart, Director of Intelligence and Security at Crystal Blockchain Analytics

Discover how to navigate the shifting cryptocurrency market, the impact of regulations, and Bitcoin ETFs.

1. Nick, could you please briefly share your journey in blockchain and crypto, leading to your current role as Director of Intelligence at Crystal.

I ‘ve spent almost 20 years working in Intelligence and Security roles; most of my career so far was spent as an intelligence professional in the UK MoD, before moving to a variety of information security related roles. I found my way into Cryptocurrency after working as a compliance officer at an OTC desk, before returning to my passion for intelligence at Crystal.

2. Why do Bitcoin investors highly value ETFs, and what features contribute to driving up Bitcoin prices through ETFs?

Investing in Bitcoin can be risky for investors who don’t have enough knowledge of the market, but an ETF can give a potentially safer option to them – where the security risks such as custody can be managed by a provider. Though it is perhaps against the purist’s view that ‘not your keys, not your crypto’, it does add a method for inexperienced or less technically skilled investors to enter the market with less exposure to technical irks.  For many, it is seen as a tacit acceptance of Bitcoin’s legitimacy, it having been laelled consistently a ‘fraud’.

3. Regarding the recent SEC approval of a Bitcoin ETF, what factors contributed to the delay, and how might this impact Bitcoin’s market dynamics?

The approval of Bitcoin ETF has been delayed several times, causing confusion and frustration. The SEC’s concerns about market manipulation is one of the primary reasons for the delays. Although the SEC acknowledges the potential benefits of a Bitcoin ETF, it is committed to ensuring the market’s integrity and stability. Interestingly, Congress was pressuring the SEC to approve spot Bitcoin ETFs. In a letter to SEC Chair Gary Gensler, U.S. Representatives Tom Emmer, Mike Flood, Ritchie Torres, and Wiley Nickel called for the immediate approval of spot Bitcoin ETF. They believe that regulated investment products like spot Bitcoin ETFs offer a secure pathway for investors to engage with Bitcoin. The lawmakers further emphasized the importance of regulatory clarity, stating that without a spot Bitcoin ETF, investors might opt for riskier and unregulated investment avenues.

4. How might the approval of a Bitcoin ETF affect traditional commodity and security trading, and what adjustments could traditional markets experience?

A Bitcoin ETF expands the number of people and institutions who can buy and sell Bitcoin, including those who are not experienced in trading cryptocurrency. This makes it easier for people to invest in Bitcoin without needing a lot of knowledge about the technical aspects of cryptocurrency.  There is a lot of speculation that Bitcoin will become a form of ‘digital Gold’, and though this has many detractions, it does seem a possibility.  This does tend to oppose the purist view, who wish for Bitcoin to replace all currency that it may be used for everyday payments.  

The perception of Bitcoin has already changed somewhat, having grown from an anarchic and fairly niche implementation of blockchain technology to a more commonly known terms, and this approval adds to its credibility. It is now possible that more established financial services firms with long term portfolios, such as pension and fund managers can seek exposure, though possible issues with volatility and security still is a large obstacle. 

5. With the intersection of traditional finance and crypto, what challenges or opportunities do you foresee from a regulatory and market perspective with the approval of a Bitcoin ETF?
The main goal of regulators is always to protect the health of the market, and by extension, consumers. It follows that there will be more stringent regulations, particularly for exposure and custody, as it becomes clear what risks may be associated with a Bitcoin ETF. An urgent requirement for regulators is to ensure their staff are upskilled and understand the risks that Cryptocurrencies or Assets may present to the wider market; a sudden devaluation of Bitcoin could trigger wider financial instability in markets.

6. Do other countries have crypto ETFs, and what insights can the U.S. draw from their experiences? How might SEC approval influence the global adoption of crypto ETFs?
Though the SEC ruling is seen by many as landmark, there are other countries with Crypto ETFs including Germany, Canada (2021) and Australia (2022) who are hardly regulatory pushovers.  Canada’s ETF market has grown substantially, with over $2.7billion USD worth of value held across 7 ETFs (Coingecko, Dec 2023) since its inception.  This pales into comparison with the US Spot exchanges now holding collectively around $27 Billion, so I would expect a slightly different risk profile!

It may be that the SEC’s approval may signal that ‘it can be done’, which may prompt other markets to follow suit; however, the SEC is also one of the most equipped and funded institutions of its type.  Other regulators may be acutely aware that they are not prepared to supervise such products at this point.  If anything, this action is likely to increase the volume of those lobbying for Crypto ETFs at the very least, even if the regulators are not ready.

7. Now that the SEC has approved a Bitcoin ETF, do you believe it could open the door for other crypto ETFs? What impact might this have on the overall cryptocurrency market?

Absolutely, SEC approval of a Bitcoin ETF will pave the way for other crypto ETFs – with the strong caveat that the process will be arduous, and for good reason. I do not expect a deluge of approvals to appear any time soon, and even if there becomes a regulatory framework following this action, the SEC will be robust in rejection as much as permission. That being said, this expanded range of investment options could attract a broader investor base and enhance liquidity in the cryptocurrency market. 

8. On a personal note, as someone deeply involved in blockchain intelligence, what strategies do you use to stay ahead of trends in the rapidly evolving crypto space?

Crypto asset markets are truly 24/7/365 – there is no escape, and the news cycle is ferocious.  My shortcut for getting the best news?  Look for the qualified critics, not the cheerleaders.  They’re going to tell you their version of the truth, but you can then reasonably calibrate your opinion from there.  Some of the things they’ll say are likely to be exaggerated, but you’ll at least be able to see some of the flaws in your own reasoning.  It takes a lot of humility though, and that may be lamentably absent in a bull market.  There is a lot of hype in this space – from the technology to the market itself, and much of it is noise.  I think it would help many people to listen to opposing views and understand what things are going wrong, and then work on solutions to address them. 

In terms of platforms, I find X has a lot of content on it (of highly varying quality) that is up-to-the-minute, but you really need that background knowledge to question what is there. There are some excellent news outlets too – I particularly enjoy 404 Media, Protos and Coindesk for more industry specifics – but you shouldn’t overlook the traditional media either; The Economist and Financial Times are my go to most days.

Final point on this; I worry it is a misattributed quote, but I believe Einstein said “If you can’t explain it simply, you don’t understand it well enough”.  I take this for my own understanding, not as an observer.  If I can’t explain it simply, I don’t understand it.

9. Given your expertise, what advice would you offer to readers navigating the complexities of blockchain analytics, crypto investments, and regulatory developments?

My advice would be to prioritize education and due diligence. Understand the underlying technology, stay informed about market trends, and conduct thorough research before making any investment decisions.   For blockchain analytics and intelligence, consider working with reputable providers who can offer comprehensive insights. Stay attuned to regulatory developments as they can significantly impact the market and investment strategies.

10. As we conclude, Nick, any final thoughts or key takeaways you’d like to share with our audience about the future of Bitcoin ETFs, the broader crypto landscape, and the evolving role of regulatory bodies?

The approval of a Bitcoin ETF is a significant milestone in the maturing of the crypto market. It signals a tacit, though seemingly begrudging acceptance from regulatory bodies and traditional financial institutions. This is little surprise given the general animosity and disdain for each other; lest we forget the reference left in the bitcoin genesis block to the financial crisis of 2009. However, it’s crucial to recognize that the crypto landscape is dynamic, and regulatory frameworks will continue to evolve. As the industry matures, and I think ‘matures’ is a very important word in this context, we will see increased enmeshing of traditional and crypto markets. 

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