Thor Chan, the CEO of AAX crypto exchange. They recently announced their affiliation with the LSEG, also known as London Stock Exchange Group. The cryptocurrency market is very unpredictable and often we doubt its functioning and security. Let us try to understand this fluctuating market from one of the industry leaders and see how his company is changing the preconceived notion surrounding the above-said market.
Thank you for your time, Thor. Can you please explain to our readers, in brief, about your background?
Sure. I come from a traditional equities market background and served as an SFC (Securities and Futures Commission) licensed representative for the brokerage and asset management business in Hong Kong and China. I’ve been actively involved in the crypto space since 2016 and now lead AAX as its Chief Executive.
How has your experience with different Multinational Companies and that too in various capacities, helped you shape an efficient product at AAX? Any particular experience that you would like to share with us.
I have worked at established multinationals as well as startups, but while there are similarities, crypto businesses are really something else. This industry is developing so fast and requires us to move fast as well and constantly innovate. On the one hand, you need to be aware of what other crypto exchanges are doing and where the markets are heading, but the key to success is undoubtedly to carve out your own niche and aim to offer unique products and financial instruments that differentiate our exchange from others.
With the crypto-currencies prices fluctuating continuously, especially Bitcoin, what special advice would you like to give to the potential investors?
Let’s first look at the reasons for the bitcoin price plunge recently. Firstly, all financial markets are struggling. Stocks, commodities, bonds, currencies and even gold prices are dropping. Investment managers are busy closing their positions for cash and fund redemptions due to a big drop that caused the downward spiral. That’s the reason US markets got caught in an unstoppable avalanche. It’s a crisis caused by a lack of liquidity.
Secondly, digital assets plunged. People were dumping all kinds of assets, including Bitcoin, to a point that caused a massive amount of liquidations that liquidated low leverage positions escalating the downward spiral. Even worse, Bitmex broke down. This is significant, because BitMex is used by many exchanges, market makers and trading firms to hedge their positions.
Also, many people were trading Bitcoin contracts using Bitcoin for the maintenance margin. When the Bitcoin price dropped, the value of the maintenance margin dropped, people’s position got liquidated even quicker.
Crypto’s volatility is attractive to professional traders and for those engaged in the derivatives markets, but crypto is also about developing a long term view and investing accordingly. It’s all about perspective – recently, with all the commotion happening, $100 billion dollars vanished from the crypto market as institutional investors sought to defend their positions in financial markets. Bitcoin even dropped below $5,000. Some suggested this was proof that Bitcoin was failing, but many others saw this as a great opportunity to expand their Bitcoin holdings in anticipation of the asset’s recovery and the upcoming Halvening. If anything, crypto’s volatility really trains you and almost forces you to go back and revisit the fundamentals – once you formed your view, price fluctuations won’t distract you.
With the stock prices falling fast due to the spread of Coronavirus, how do you see the impact of this scare on the cryptocurrencies?
When Bitcoin plummeted, together with stock markets, some critics were quick to point out that Bitcoin was failing as a hedge. But this is inaccurate. Bitcoin, just like gold and pretty much all other assets, do not perform well when there is global panic. Big companies in the US, including great companies such as Apple, are now greatly undervalued, and it’s no different for Bitcoin. Over the coming weeks, when the liquidity crisis is over, Bitcoin will perform well, just like gold. Over the coming months, as we see interest rates cut, and economies shaking, we will see if Bitcoin will attract more investment and recover faster than the other assets.
How do you judge the right time to invest in the world of digital currencies?
Everything is relative. For example, we will soon be launching our own native exchange token, AAB. In the first three flash sale rounds, we will be offering AAB at a discount – seems like the right time to me.
In addition, AAB will be bought back using 100% of AAX’s futures revenue. The amount of AAB will be shrinking over time. With a deflationary model token, as long as the demand is there, earlier is always better than later.
Right now, Bitcoin is in search of support slightly above $6,000 – of course, it would have been better to buy in at $1, but Bitcoin still has ample room for growth. There is no right time as such, it just depends on your timeframe. This industry is only a decade young. If you believe cryptocurrency will see more adoption over the coming five years, then any day of the week is the right time.
AAX has been in the news recently for highlighting the LSEG technology and being one of the first in the market to implement the same. How does the adaption of this technology differentiate AAX from other digital asset exchanges?
We built AAX in anticipation of serious growth. As the industry continues to mature, and as crypto markets start to integrate with traditional asset classes, including commodities and real estate, and as regulation takes shape opening the gates for more institutional investors, there is a need for strong, high-performing exchanges.
LSEG Technology’s matching engine is the same technology that powers London Stock Exchange and other global capital markets. Without a doubt, this matching engine makes AAX one of the most powerful exchanges in the crypto industry – in fact, based on our capacity to handle large order volumes and liquidity, if we were a stock exchange, we’d be up there in the top 10.
What differentiates us from other crypto exchanges is that our vision extends beyond the crypto space as it is today – and this is shown in how we’ve designed our exchange, our partnerships, and the premium technology pieces that power the exchange.
AAX is an institutional-grade exchange. How important is this factor for a potential investor or a digital asset trader?
First, we have to think. What does it mean when we say ‘institutional-grade’? It’s not just a fancy term – it carries certain connotations that are vital to a healthy trading environment.
Institutional-grade means the exchange is powerful enough to handle a lot of trades at the same time, and not breaking down due to a traffic overload. It means there are systems in place to prevent, detect and counter market manipulation.
Institutional-grade also means we take security very seriously. We have robust CCSS-compliant systems in place that ensure assets and client data are safe.
Lastly, It requires compliance with international and domestic regulatory requirements and a strong commitment to integrity.
In that regard, our matching engine is MiFid II compliant by design, meaning it allows for pre and post trade transparency. We’re also implementing market surveillance technology, and we have strong AML/KYC procedures in place.
All traders benefit from this – except bad actors – and if we want to grow as an industry, this standard is really the only way forward.
AAX was launched in 2018 and since then, it has seen a spiking growth, adding more and more customers, under its kitty every quarter. Wh