Q1 | Torys QuarterlyWinter 2024

The next era of crypto investment: Q&A with Mark Connors


  • Mark Connors, Head of Research, 3iQ

Read commentary from Torys for the latest legal and industry trends in our article “Emerging trends in stablecoins: 2023 and beyond”. And for more industry insights, read our in-depth Q&A featuring Nick Cafaro, Head of Product, Polymesh.

There has been a rise in the adoption of digital assets in Canada, what can help push it further into the mainstream?

Two major shifts need to occur. First, there must be bank adoption in Canada. Currently, many banks are hesitant to solicit interest in BTC or ETH. And many banks have “read the room” and chosen to limit their digital asset services, if provide any at all. This decision is multi-faceted relating not only to client appetite for digital assets but having a capital and regulatory framework that supports digital assets as well.

Second, the Spot U.S. BTC ETF approval by the SEC will spur interest and institutional adoption globally, including in Canada.

What are the red flags you look for when assessing investment solutions?

Red flags are leverage, rehypothecation and centralization. Think Celsius, FTX and 3Arrows. These unregulated bad actors gummed up the pace of adoption for all by engaging in risky behavior without proper risk management frameworks in place. So, businesses that are unregulated, centralized and/or incorporate leverage and rehypothecation with little corporate or risk oversight definitely present red flags.

We choose a different framework when we evaluate any blockchain protocol. In this instance, we assess how a protocol solves for the blockchain trilemma of security, scale, and decentralization. Like a dilemma, which presents two events that cannot be solved at the same time to satisfaction, a trilemma presents a situation with three events, with only two that can be solved at the same time to satisfaction, leaving the third addressed to a lower standard.

For instance, Bitcoin’s network has best solved decentralization and security, leaving scale to be optimized over time. Ethereum, on the other hand, has chosen scale and security via staking, sacrificing decentralization to some degree. A red flag for these two protocols would be any denigration of their support of these three legs of the blockchain trilemma.

How have you seen the industry change over the years?

Our industry has been riddled with both inveterate financiers and engineers committed to the growth of these blockchain protocols. But we have also had grifters, as 2022’s fallout demonstrated. I see our industry becoming more judicious about who we partner with to limit reputation risk and actual loss.

Many consider crypto to be volatile. What advice do you give to those interested in the space but concerned about its extreme highs and lows?

BTC’s and ETH’s prices are more volatile than equities, bonds and gold. But they are less volatile than they were three, five and 10 years ago. As such, while digital asset price changes are still at the upper end of the volatility spectrum, we see such volatility reducing year over year as adoption increases.

What are your thoughts on digital asset investing legislation in Canada?

There is some legislative backsliding appearing on the docket, which will limit client access based on investor type and dollar amount. As proposed, these restrictions require further refinement, in my opinion. We are supportive of regulation and oversight but want thoughtful efforts that allow investors to access digital assets and the opportunity(ies) they present.

What’s your 10-year forecast for the blockchain industry?

We are very bullish on digital assets as payment instruments. In the next 10 years, in our best-case view, 10-25% of all bank’s settlements will occur on a blockchain network. USD Stable coins will be backed by U.S. Treasuries held at the Fed. Other sovereigns will follow suit. The Bitcoin network will see both institutional adoption of the token for investment purposes and layer 2s will emerge that allows for P2P money transfers, eliminating costly wires, and international remittances among other functionalities. Smart contract-based protocols and services will spur a new industry of auditing and innovation on the Ethereum network.

Mark Connors is Head of Research at 3iQ Corp. He has over 30 years of investment management experience in portfolio management, risk management and most recently as Credit Suisse's Global Head of Portfolio & Risk Advisory. Mark Connors is responsible for leading 3iQ's internal and external research around the global firm's portfolio management, risk management and digital asset investment exposures.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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