“The
crypto industry has been held back by regulatory ambiguity, with a knee on its
neck for the last four years. But that’s about to change,” declares
Michael Higgins, International CEO of Hidden Road, in an interview with Finance
Magnates.
The
multi-asset prime broker and clearing firm recently secured a license under Markets
in Crypto-Assets (MiCA)
regulation in the Netherlands, marking a significant step in its strategy to
establish regulated infrastructure for institutional crypto trading globally.
The Hidden Road CEO outlined
the company’s strategic vision and shared insights on the evolving regulatory
landscape for digital assets. The license
acquisition positions the firm among just four companies approved under the
European Union’s comprehensive crypto-asset regulation.
“The
goal of MiCA is to provide certainty and clarity in the digital asset space,
which today has seen considerable ambiguity between different global
regulators,” Higgins, promoted
to the role of Hidden Road’s International CEO in November 2024, explained.
“This should allow larger financial institutions, who require known,
transparent, and certain regulatory oversight, to enter the market.”
The move
comes as the EU watchdog ESMA seeks
to introduce additional requirements for employees of cryptocurrency firms
under MiCA. It had also previously suggested that providers might be required to
establish separate legal entities to offer different services in the
digital asset sector.
The
discussion touched on the delicate balance between innovation and regulation in
the crypto space. Higgins emphasized the importance of not forcing traditional
finance regulations onto the emerging asset class.
“One
of the fears is that you try to shoehorn this new asset class into existing
TradFi regulations, which might not be the best idea as it could suppress
various trading strategies and underlying blockchain technologies,” he
noted.
BIG BREAKING 🤯 🤯 🤯 🤯 🤯 🤯
🇪🇺👀 Ten firms are currently approved to issue stablecoins in the EU under the supranational organization’s Markets in Crypto-Assets (MiCA) regulatory framework — Tether is left out.🤣 #XRP $RLUSD Could Grow Because Tether Isn’t Allowed in EU’s… pic.twitter.com/9InnPKKjwc
— 𝕏aif🇮🇳|🇺🇸 (@Xaif_Crypto) February 20, 2025
Managing Volatility, Risk
and Regulatory Landscape
Addressing
recent market volatility, Higgins highlighted Hidden Road’s risk management
approach. “As prime brokers, the blow-ups in that space are very rarely
from credit blowups but more liquidity blowups,” he said, emphasizing the
importance of proper margin management and counterparty credit risk assessment.
The
conversation shifted to the changing regulatory landscape in the United States,
particularly with new
leadership at the SEC and CFTC. Higgins expressed optimism about
potential regulatory clarity under the new administration, noting the
possibility of merging these regulatory bodies—a previously undisclosed
consideration.
Regarding Trump’s
approach to crypto, Higgins identified key policy changes that could impact
the industry.
“The
repeal of SAB 121 will allow banks to come in, especially on the custody
side,” he stated, adding that the removal of what’s known as
“Operation Choke Point 2.0” could be the most significant change,
potentially ending the de-banking of crypto firms.
SAB 121 was guidance issued by the SEC in 2022 that required financial institutions to report customer-held crypto assets as liabilities on their balance sheets. On January 23, 2025, President Trump signed an executive order on digital financial technology. On the same day, the SEC rescinded SAB 121 through SAB 122, replacing it with a requirement that institutions assess and report liabilities related to safeguarding crypto assets based on existing accounting standards.
The European Union is another concern. MiCA is shaking up the
markets, forcing
European exchanges to delist non-compliant stablecoins. Among them is
Tether, whose future in Europe remains uncertain. This raises questions
about the potential impact on a market largely dominated by USDT-based trading.
Institutional Adoption Challenges
The path to
institutional adoption faces several critical hurdles, with financial
transparency emerging as a primary concern. Higgins points to the resistance
of crypto exchanges to provide audited financials as a significant barrier
to institutional entry.
“Institutional
investors have certain requirements. First and foremost is their fiduciary
responsibility to perform KYC and due diligence on counterparties they interact
with,” Higgins emphasizes. “In traditional markets, best practice is defined
by regular financial transparency according to GAAP and IFRS accounting
standards.”
The lack of
audited financials from major industry players, particularly offshore
exchanges, creates a challenging environment for institutional investors bound
by strict compliance requirements. This situation is further complicated by the
absence of clear accounting guidelines, creating what Higgins describes as a
“chicken and egg” scenario where firms struggle to obtain audits even
when willing.
“The
winners will be the institutions that conform to more of the requirements in
the traditional space,” Higgins predicts, highlighting the importance of
regulation, audited financials, and customer protection measures like tri-party
segregation.
“This is Not Going
Anywhere”
The Finance
Magnates interviewee also highlights the growing maturation of the market
and acknowledges that “this is not going anywhere,” referring to
cryptocurrencies. As an example, he cites figures from one of the derivatives
markets.
“Options
on IBIT, BlackRock’s ETF, on its debut, the market traded 73,000 contracts in
the first 60 minutes.” This development, he notes, is crucial as
“options tend to do is also dampen the risk to the downside,”
indicating a maturing market infrastructure.
Perhaps
most intriguingly, Higgins highlights a potential game-changer for the
industry: central bank participation. “Central banks holding digital
assets is certainly an area of focus,” he revealed, suggesting this
“could truly be the inflection point for digital assets as the next
investable asset class.”
This
observation emerged as one of the key takeaways from the CFC St. Moritz
conference, where industry leaders, founders, CEOs, and government officials
gathered to discuss the future of digital assets.
“The Future is
Global”
Looking
ahead to 2025, Hidden Road plans to expand its traditional market offerings
while maintaining its focus on regulated, institutional crypto trading. The
firm aims to improve the technology behind prime clearing and margin financing,
tapping into private market capital for deployment across assets and products.
“We’re taking a modern approach, really improving the technology behind prime clearing and margin financing and bringing a new balance sheet, which is really from the private markets, which have been growing over public markets in the last decade,” explained Higgins. “And being able to deploy that capital across large trading institutions, across multiple assets and products.”
When asked about the future balance between retail and institutional investors in crypto, Higgins predicted an evolution similar to other asset classes, with institutional participation eventually surpassing retail, though acknowledging crypto’s unique retail origins and ongoing use cases.
“Digital assets will evolve like other asset classes, and over time, institutional participation will be larger than retail,” said Higgins. “However, cryptos started in retail, and they currently dominate.”
The interview concluded with Higgins emphasizing the global nature of institutional crypto demand, noting that while the U.S. market shows promise, its regulatory developments are closely monitored by other major financial centers worldwide.
“The
crypto industry has been held back by regulatory ambiguity, with a knee on its
neck for the last four years. But that’s about to change,” declares
Michael Higgins, International CEO of Hidden Road, in an interview with Finance
Magnates.
The
multi-asset prime broker and clearing firm recently secured a license under Markets
in Crypto-Assets (MiCA)
regulation in the Netherlands, marking a significant step in its strategy to
establish regulated infrastructure for institutional crypto trading globally.
The Hidden Road CEO outlined
the company’s strategic vision and shared insights on the evolving regulatory
landscape for digital assets. The license
acquisition positions the firm among just four companies approved under the
European Union’s comprehensive crypto-asset regulation.
“The
goal of MiCA is to provide certainty and clarity in the digital asset space,
which today has seen considerable ambiguity between different global
regulators,” Higgins, promoted
to the role of Hidden Road’s International CEO in November 2024, explained.
“This should allow larger financial institutions, who require known,
transparent, and certain regulatory oversight, to enter the market.”
The move
comes as the EU watchdog ESMA seeks
to introduce additional requirements for employees of cryptocurrency firms
under MiCA. It had also previously suggested that providers might be required to
establish separate legal entities to offer different services in the
digital asset sector.
The
discussion touched on the delicate balance between innovation and regulation in
the crypto space. Higgins emphasized the importance of not forcing traditional
finance regulations onto the emerging asset class.
“One
of the fears is that you try to shoehorn this new asset class into existing
TradFi regulations, which might not be the best idea as it could suppress
various trading strategies and underlying blockchain technologies,” he
noted.
BIG BREAKING 🤯 🤯 🤯 🤯 🤯 🤯
🇪🇺👀 Ten firms are currently approved to issue stablecoins in the EU under the supranational organization’s Markets in Crypto-Assets (MiCA) regulatory framework — Tether is left out.🤣 #XRP $RLUSD Could Grow Because Tether Isn’t Allowed in EU’s… pic.twitter.com/9InnPKKjwc
— 𝕏aif🇮🇳|🇺🇸 (@Xaif_Crypto) February 20, 2025
Managing Volatility, Risk
and Regulatory Landscape
Addressing
recent market volatility, Higgins highlighted Hidden Road’s risk management
approach. “As prime brokers, the blow-ups in that space are very rarely
from credit blowups but more liquidity blowups,” he said, emphasizing the
importance of proper margin management and counterparty credit risk assessment.
The
conversation shifted to the changing regulatory landscape in the United States,
particularly with new
leadership at the SEC and CFTC. Higgins expressed optimism about
potential regulatory clarity under the new administration, noting the
possibility of merging these regulatory bodies—a previously undisclosed
consideration.
Regarding Trump’s
approach to crypto, Higgins identified key policy changes that could impact
the industry.
“The
repeal of SAB 121 will allow banks to come in, especially on the custody
side,” he stated, adding that the removal of what’s known as
“Operation Choke Point 2.0” could be the most significant change,
potentially ending the de-banking of crypto firms.
SAB 121 was guidance issued by the SEC in 2022 that required financial institutions to report customer-held crypto assets as liabilities on their balance sheets. On January 23, 2025, President Trump signed an executive order on digital financial technology. On the same day, the SEC rescinded SAB 121 through SAB 122, replacing it with a requirement that institutions assess and report liabilities related to safeguarding crypto assets based on existing accounting standards.
The European Union is another concern. MiCA is shaking up the
markets, forcing
European exchanges to delist non-compliant stablecoins. Among them is
Tether, whose future in Europe remains uncertain. This raises questions
about the potential impact on a market largely dominated by USDT-based trading.
Institutional Adoption Challenges
The path to
institutional adoption faces several critical hurdles, with financial
transparency emerging as a primary concern. Higgins points to the resistance
of crypto exchanges to provide audited financials as a significant barrier
to institutional entry.
“Institutional
investors have certain requirements. First and foremost is their fiduciary
responsibility to perform KYC and due diligence on counterparties they interact
with,” Higgins emphasizes. “In traditional markets, best practice is defined
by regular financial transparency according to GAAP and IFRS accounting
standards.”
The lack of
audited financials from major industry players, particularly offshore
exchanges, creates a challenging environment for institutional investors bound
by strict compliance requirements. This situation is further complicated by the
absence of clear accounting guidelines, creating what Higgins describes as a
“chicken and egg” scenario where firms struggle to obtain audits even
when willing.
“The
winners will be the institutions that conform to more of the requirements in
the traditional space,” Higgins predicts, highlighting the importance of
regulation, audited financials, and customer protection measures like tri-party
segregation.
“This is Not Going
Anywhere”
The Finance
Magnates interviewee also highlights the growing maturation of the market
and acknowledges that “this is not going anywhere,” referring to
cryptocurrencies. As an example, he cites figures from one of the derivatives
markets.
“Options
on IBIT, BlackRock’s ETF, on its debut, the market traded 73,000 contracts in
the first 60 minutes.” This development, he notes, is crucial as
“options tend to do is also dampen the risk to the downside,”
indicating a maturing market infrastructure.
Perhaps
most intriguingly, Higgins highlights a potential game-changer for the
industry: central bank participation. “Central banks holding digital
assets is certainly an area of focus,” he revealed, suggesting this
“could truly be the inflection point for digital assets as the next
investable asset class.”
This
observation emerged as one of the key takeaways from the CFC St. Moritz
conference, where industry leaders, founders, CEOs, and government officials
gathered to discuss the future of digital assets.
“The Future is
Global”
Looking
ahead to 2025, Hidden Road plans to expand its traditional market offerings
while maintaining its focus on regulated, institutional crypto trading. The
firm aims to improve the technology behind prime clearing and margin financing,
tapping into private market capital for deployment across assets and products.
“We’re taking a modern approach, really improving the technology behind prime clearing and margin financing and bringing a new balance sheet, which is really from the private markets, which have been growing over public markets in the last decade,” explained Higgins. “And being able to deploy that capital across large trading institutions, across multiple assets and products.”
When asked about the future balance between retail and institutional investors in crypto, Higgins predicted an evolution similar to other asset classes, with institutional participation eventually surpassing retail, though acknowledging crypto’s unique retail origins and ongoing use cases.
“Digital assets will evolve like other asset classes, and over time, institutional participation will be larger than retail,” said Higgins. “However, cryptos started in retail, and they currently dominate.”
The interview concluded with Higgins emphasizing the global nature of institutional crypto demand, noting that while the U.S. market shows promise, its regulatory developments are closely monitored by other major financial centers worldwide.