2022 Links London - Fireside Chat with Blair Halliday and Michael Gronager

🎥 Feb 19, 2023 📺 Chainalysis ⏱ 27m

The cryptocurrency exchange Gemini came to market with a bold positioning: above all, they are known as the regulated cryptocurrency exchange. In this fireside chat, Michael Gronager, Chainalysis Co-founder & CEO, will sit down with Blair Halliday, Head of UK at Gemini, to discuss why Gemini believes their customers care about compliance, their vision for growth in the UK and Europe, their experience working with regulators, garnering their licensing and regulatory approvals in 2020, and what’s next for the exchange. — Connect with Chainalysis Website: https://www.chainalysis.com/ Contact Us...

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About Michael Gronager

In a February 2023 fireside chat, Michael Gronager discussed the decreasing relative usage of crypto for criminal activity, stating it had fallen from around one percent to roughly 15 to 20 basis points. He noted that law enforcement in the UK is on a steep learning curve regarding crypto, with increased liaison and coordination between industry and agencies. Gronager emphasized that regulation must be nuanced and well considered with consumer protection at its heart, warning that pushing crypto into highly restricted access risks driving ordinary users to unprotected venues. He also highlighted Gemini's focus on compliance and licensing, and discussed the potential of the EU's MiCA legislation to provide passporting opportunities for crypto firms. In an April 2022 conversation, Gronager recounted Chainalysis's origin story, explaining that while at Kraken he realized the answer to interpreting blockchain transactions was hidden in plain sight. He described how Chainalysis built the world's largest database of connections between real-world entities and digital identifiers on the blockchain, and how the company created KYT as a transaction-monitoring capability that surfaces only suspicious behavior to compliance personnel. Gronager noted that the algorithm had become several hundred times better through access to ground-truth data from customers and law enforcement. He also mentioned that newer finance players like Square, Robinhood, and PayPal had made crypto a core part of their revenue and a way to grow wallet share.

Source: AI-verified profile updated from Michael Gronager's recent appearances. Browse all interviews →

Transcript (20 segments)

Interviewer0:29

I'm really happy that you agreed to join us on the stage today. It means a lot, and I think it's very important for me to say that Gemini has always been on my radar. I remember talking to Tyler and Cameron back in the days when we were raising funds, and seeing them as part of the crypto ecosystem in the early days. I'm curious to hear if you can share any thoughts around their vision for Gemini.

Blair Halliday1:10

We're out of New York. We were founded on four foundational pillars: security, compliance, licensing, and product. Tyler and Cameron were early adopters of crypto, and when they entered the market, it was the Mt. Gox environment, a Wild West. They wanted to build an exchange more in keeping with traditional finance. The Gemini mantra has always been about being regulatory first. Those four pillars underpin everything we do.

We formally launched in the UK in 2020 after a detailed process with the FCA to get an e-money institution license and the FCA's crypto asset registration, which is like the golden ticket from Willy Wonka. It shows how important it is to us to operate properly. Regulation is a critical part of our business, but product is also a key pillar. So we can have excitement in our product while being mindful of regulation. That won't change, but we also want to show that Gemini is an interesting place for both consumers and institutions.

Interviewer4:10

I remember you had 'regulation and crypto' on the same banner on taxi cabs in New York. I saw that everywhere, and it meant something to me, because you didn't see that much from the industry. It was a very clear statement. Has that also informed your global expansion and how you approach global markets?

Blair Halliday4:31

Yes, for sure. We're a commission of forgiveness company. For the UK, we could have opened earlier and sought regulatory approval after the event, but that's not how we operate. We opened in October 2020. Getting that regulator approval and being able to demonstrate to the market that we are approved and have gone through that process was an important part of how we wanted to enter and market. Global expansion will be a big part of the future for Gemini. We are in other locations and developing in those spaces, but making sure we have regulatory approvals and can engage with regulators in the right way will always be key.

Interviewer6:11

That golden ticket from Willy Wonka, the FCA approval — I'm curious to hear how it's been working with the FCA, getting that approval process going, and also what your take is on the FCA's approach to the industry. A lot has happened over the last 10 years, and I'm curious to know what you see coming and how you have to work with the FCA.

Blair Halliday6:37

Everything changes and nothing changes. In the US, but here we think 2022 will be a unique year for legislation. 2020 was an important year for legislation in the UK, with crypto becoming more mainstream and accepted as here to stay. Last year was incredibly successful for the industry and for us as a company. We've moved beyond the tipping point of 'are we here to stay?' to conversations about crypto as a risk to financial services. Governments are mindful of that, and I think we'll see more adoption of different legislation this year, in the UK in particular.

On crypto and financial promotions for crypto companies: regulation is critical — it's the way crypto becomes more widely accepted, and it's an opportunity for strong companies to succeed and give customers confidence. However, regulation must be nuanced, broad, and well considered. Earlier this week I co-signed a letter from Innovate Finance about the Treasury's consultation. We need a very broad crypto mandate that enables crypto to flourish and positions the UK as a global leader. One concern is that proposals to restrict crypto to high-net-worth or sophisticated investors won't stop people from taking risks; it'll drive them to unregulated platforms where they aren't protected. We're working with the Treasury and the FCA to make that point.

On the financial promotions legislation: we generally think it's positive. No one wants adverts that encourage inappropriate behavior. We want people to be excited about crypto but not lured into things they aren't prepared for. There are nuances, though. It's important that registered crypto firms can issue their own financial promotions and be accountable for them. We want to be accountable for how we promote, ensuring it's fair and not misleading.

Interviewer12:25

That makes sense. I remember one memory from the UK in December 2017, when there was a big growth in retail adoption. I was in a theater watching a Harry Potter play, and during the break everyone was sitting with their phones trading crypto. You could see on all the phones that they were on crypto exchanges. Also, looking beyond the UK to Europe, I remember in 2015 I got involved in a lobbying group that worked on the 5th Anti-Money Laundering Directive. Before that, crypto businesses couldn't even submit suspicious activity reports because there was no regulatory framework. That has changed, and now we have MiCA. Can you dive into what is happening with MiCA, the challenges with the 5th Directive, and what MiCA will bring?

Blair Halliday14:10

We have the 5th Directive in the UK as a legacy from before Brexit. The problem is it's not a passportable license — it's an AML approval, jurisdictional based. The opportunity that MiCA provides is a similar passporting opportunity, where a firm could be licensed in Ireland, for example, and that could be passportable across the EU. The legislation changes enormously once it goes through the trialogue and EU bureaucracy. But once it comes into fruition, it will give a really good platform for crypto to develop further in the EU. However, there's still a lot of road to travel. There's also news about a central AML regulator for the EU. MiCA will happen, and it will be a critical step for the EU to continue its positive trajectory on crypto. I saw your slide — Europe is the number one region in the world for crypto, and the UK is a huge part of that. So it's important that both the EU and the UK consider their legislation in a way that enables crypto to grow.

Interviewer17:11

One thing that decreased is the relative usage of crypto for criminal activity. We used to count it at around 1 percent, but now it's down to 15 to 20 basis points. So it's clearly declining. I'm curious to hear a little bit about what you've been doing — because fighting crime happens in the public sector but also in private compliance departments. If there's anything you can share about how you have worked with the public sector to fight crime on the platform.

Blair Halliday17:50

Sure. Law enforcement has come a long way. One critical thing is the increased liaison between law enforcement and the private sector. For example, two years ago I chaired the National Crime Agency's UK FIU cryptocurrency working group. That was a really important step. We had companies like ourselves, Circle, Coinbase, and others. We discussed trends and how we could help each other. It helped build trust and understanding. From that, I did a podcast and webinars for law enforcement through the NCA, covering crypto basics — what is Bitcoin, blockchain, crypto. Sometimes you have to go down to that basic level because there's so much misunderstanding. Also working with banks and other private sector entities, repeating the message that crypto is not something to be terrified of. We've moved on a lot since then, and it's up to all of us in crypto to help law enforcement when we can.

Interviewer21:10

We present to government groups, basically educating them on what these scripts are about. I know you have a page called Cryptopedia, which I really like, for educational purposes. Is there anything you want to share about how you work on educating the ecosystem and governments in that space?

Blair Halliday21:39,

Absolutely. Cryptopedia is a great reference tool — about 300 articles by 150 contributors. It's an important part of how we want to go about our business. We've really got to help people understand crypto to enable it to get broader acceptance. Cryptopedia is pitched at all levels — basic, intermediate, advanced. It covers things like how to protect yourself, what is Bitcoin, Ethereum, who is Satoshi. Also, we signed up for the 'Take Action to Stop Fraud' initiative, and we're the only crypto-native firm to be part of that. I'm really proud of that. It's important to make sure people get into crypto safely. Scams and bad actors are not unique to crypto — traditional finance has them too. We need to help customers come into the space safe and enjoy it.

On the regulatory piece: the Financial Ombudsman might have a role to play. At the moment, there isn't Financial Ombudsman accountability for crypto firms, and that is something that should change. We're happy to be accountable and want to give customers that safety and protection. Education is a big part of that, and accountability at the back end.

Interviewer24:41,

That makes a lot of sense. I want to shift gears a little. As you mentioned acronyms before — they never sleep. There's a new one today, a new one tomorrow. Over the last couple of years we've seen NFTs, the metaverse. Is there something that excites you, and what new opportunities are emerging in 2022?

Blair Halliday25:16,

With acronyms, I feel there should be a company that helps you quickly understand them because I'm too old to remember them all! But you're right. We saw a real manifestation of things in 2021 similar to 2017, and I think NFTs and metaverse are following a similar trajectory. We have Nifty Gateway as part of our NFT offering, and we envision that to grow even more this year. On the metaverse, Web3, and DeFi: we have the Gemini Frontier Fund, which invests in various projects in those spaces. Gemini started as an exchange and custodian, but we've grown into much more — with Nifty Gateway, a Gateway to DeFi, rewards credit cards, Gemini Earn, etc. I think NFTs, DeFi, and the metaverse will make for a really interesting year as the public becomes more conscious and comfortable through education.

Interviewer27:28

Thank you so much for coming on stage. I really enjoyed this conversation. It was awesome. Thank you.

Blair Halliday27:33,

Thank you. Thanks a lot.