Pantera has invested into quite a few local cryptocurrency exchanges, covering Latin America, Europe, Asia, Africa, and the Middle East. The thought process is that Coinbase won’t likely dominate the entire world anytime soon, and those that are situated in these geographies have an advantage of knowing the local culture, being able to recruit and market, and having the ability to build relationships for banking and regulations.
The biggest risk of investing in an exchange internationally is the potential of regulatory crackdown. Before we make an investment, we travel to the geography to chat with banks and legal experts in the region. Even after coming out confident, you’re still banking on the entrepreneur to continue to build the company brand, strengthen the relationship with regulators, and to de-risk the investment opportunity by educating the central bank and creating/obtaining the necessary licenses for fintech or cryptocurrencies.
The hope is for governments and banks to work with the leading exchanges to develop regulations/licensing so that there is clarity and protection for customers. In negative instances, countries like China
have made it very tough for exchanges to operate by blocking their access to banking. Earlier this week, Mexico
also announced that they would like banking institutions to distance themselves from crypto exchanges.
We’ve seen this story before of blockchain banking access to exchanges and those companies have been agile through a few different strategies:
- Creating an offshore entity and obtaining licenses/banking there
- Setting up crypto-to-crypto exchange
- Enabling cash-to-crypto through a local bitcoins equivalent
- Looking into setting up a decentralized version of their exchange
The bet is that the teams will figure out ways to navigate the hurdles and continue their business, keeping a stronghold on their geography but opening up avenues for international expansion.