Exclusive Interview: Coinhouse CEO Nicolas Louvet Says U.S. SEC "Stupid", Sees Crypto Convergence with TradFi
The firm is one of the few in the industry that combines advice with brokerage services.
The Paris-based company began life in 2015 as ‘La Maison du Bitcoin’ – a physical gathering place for people who were active or interested in the blockchain and crypto asset space, where they could discuss developments and trends.
Since then Coinhouse has grown to become one of the most respected crypto companies in France, where it was the first to be regulated by the Autorité des Marchés Financiers.
Today Coinhouse provides asset and portfolio management services as well as custody, savings accounts products and buying and selling services for 50-plus crypto assets.
Indeed, its tagline proclaims Coinhouse is ‘Better Than A CryptoBank’, and as we shall discover in the interview below, the company sees itself as a new sort of financial institution that will increasingly sit at the intersection between DeFi, digital assets more broadly, and traditional finance (TradFi).
In the first part of a wide-ranging discussion Louvet delves into regulations, stablecoins, Europe’s position in the global industry and the challenges and opportunities presented by the so-called Crypto Winter.
Controversially perhaps, he labels U.S. regulator the Securities and Exchange Commission (SEC) “stupid” for its myopic obsession with whether certain digital assets are securities.
He insists that the way forward has to be through partnership between regulators and industry players to create a transparent and level playing field that’s safe for consumers and fair for all institutions, big and small.
GM: Do you see the current so-called Crypto Winter as an event that represents both challenges and opportunities for digital asset platforms?
NL: So yes, you're perfectly right. The current crypto market conditions are pretty challenging, because for sure, it means a decrease in volume, a decrease in attraction of new customers.
And it also means that the existing customers, or for some of them, not all, a little loss in the current market conditions.
Some may not have really understood that the volatility could be so high and maybe they need to consider restating their vision about some coins and investments - they may decide that some projects are unlikely to survive or should be seen as a long-term holding.
For instance, if you take Solana or Polkadot for example over the past few weeks and months they might be challenged in terms of their valuation right now, so you need to get confident that the fundamentals behind the project are strong enough to remain positive for the future.
Also the current situation is a challenge not only for those clients new to crypto, but also those that invested because they really believe in crypto as opposed to just a short-term opportunity.
And when the price is going down rapidly, some become desperate and sell their cryptocurrency; they decided okay, it was not for me, it was a mistake.
Those customers may prove quite difficult to convince about returning to the market and probably didn't enter crypto for the right reasons.
We could say that the ones that are much more of an opportunity for us are those that really believe in crypto, and are looking to re-evaluate a project. They need a lot of information, a lot of advice, a lot of data, a lot of analysis on the project to understand really what will be the likely traction and interest around a project, what's its intrinsic value and so on.
So it's a good time from an investment point of view – an opportunity to reassess and maybe invest at a much lower valuation, and also decrease your average cost.
'Bitcoin at $20k is now a good entry from when it was above $40k'
Take bitcoin or Ethereum for instance, where the value was above $40,000 for bitcoin or $3,000 for Ethereum, and are now priced at $20,000 or $1,000, that's a good entry point.
In fact, decreasing your average investment will increase your capacity to generate much more profit when the market moves up again.
As for digital asset platforms like ourselves, it's also the right time for taking significant development initiatives, such as adding new products. Thinking about the next step in our evolution.
I don't believe that we'll stick with the current configuration of disconnected markets and platforms, with stocks and bonds over there or commodities over there or whatever asset it is; or with crypto on one side and traditional financial system on the other.
I do believe that this is the right time to explore the convergence between traditional finance and digital asset finance.
And in that convergence new business models will emerge as well as a bunch of new services that will be needed.
So for example, here at Coinhouse we do asset management and have created a payment system to make crypto convertible with fiat and so forth – the effect of these changes is that we qualify as being better than a crypto bank.
This is the right time for building the future, for preparing the next steps, which is really the convergence between the two spaces – digital assets and traditional finance.
And as a consequence, it's also a good time to purchase companies, to acquire new skills and new competencies. So it could be by doing a merger and acquisition, doing strong partnerships by maybe being acquired by another firm. Either way, for the digital assets industry, restructuring and consolidation will be important.
GM: Do you think your roots and strong position in the European region put Coinhouse in a good position in terms of navigating the MiCA (Markets in Crypto Assets) regulations?
NL: Definitely. Maybe I'm being a little bit arrogant but Coinhouse is probably one of the most – if not the most advanced – companies in the world in terms of regulatory compliance.
We can say that we helped to create the crypto regulations here in France – and these regulations are strong and rigorously applied.
That is absolutely not the case with what's happening in Asia and the US. There needs to be more working together between regulators and the industry.
As I say, we at Coinhouse are probably one of the most regulated companies in the crypto space right now, so we think we are in the vanguard of regulatory compliance if you like – very advanced.
Therefore being able to meet MiCA regulations is not an issue for us. Or FATF [G20 initiated global regulatory body, the Financial Action Task Force] for that matter.
GM: I notice the French government is being very accommodating with Binance – so is this part of a more general move by the government to become a hub for crypto globally?
NL: If the idea is to try to attract large companies like Google or Amazon, or their equivalent in the new financial world, with the hope of molding them for the French or European market, to help develop employment, pay taxes and so on, then I think this is a little naive.
I've never seen companies such as Google being happy to pay 50% taxes in France. A major effort was expended by the EU to try to create a global tax like GAFA [a special tax in France only paid by Google, Apple, Facebook and Amazon], with no success.
I don't think that's the right approach.
But on the other hand if the approach is to try and encourage development here in Europe and to make sure US Big Tech abides by regulations, that's fine.
It makes sense to at least try to work with US big Tech and keep them close and understand what they can do.
So what we really need is for the rules to be the same for everyone, so that the small guys are treated the same as the big guys.
In reality though that's not really the case in most activities. Look at say the oil and energy industry, car industry, pharmaceuticals– there's still this danger where the big guys can win.
As European citizens we need to make sure there is fair competition.
GM: So this leads nicely into my next question – is Europe and the European Union in a position to lead the world in crypto regulations? Can MiCA be a template for other regions, even though there will of course be differences between the advanced economies and less developed economies regarding what they do in terms of crypto regulations?
NL: Yes and No.
What strikes me the most is the fact that the US, which is supposed to be one of the most pragmatic nations in the world, is not pragmatic regarding crypto.
The US is doing some really stupid stuff – for example in how the SEC is getting bogged down in whether a digital asset is a security and all of that.
So I believe that we in Europe still have the opportunity to lead with our vision around the world. But we need to keep an eye on pragmatism.
We need to always be pragmatic. I don't believe that in other parts of the world that people will necessarily follow what we do in Europe – they will be pragmatic and take what fits.
There are already in place some global organizations – like FATF – encouraging discussions about financial transparency, anti-money laundering, rules to fight against terrorism in their own countries.
And even when there are already regulations, there are companies that say they are regulated but do not behave like that.
So you can still have people investing up to €1,000 in crypto with just an email and the company concerned saying it does KYC (Know your Customer). I don't think getting an email is KYC.
So yes, maybe the European Union can take the lead in certain ways, but the governments of each country have their own privacy laws and other relevant rules that they will take into account.
But for sure, if you want to trade in Europe, you need to respect the European rules, as is the case for GDPR for instance.
GM: Stablecoins are a critical part of the crypto market infrastructure – especially in DeFi – and in some ways were seen as one of the strongest sectors of the industry, until Terra blew up. What are your thoughts on that and the implications for the industry?
NL: The market and industry did suffer to some extent from the situation with Terra, but the recovery is pretty clear right now – look at the USDC stablecoin project from Circle with the Euro stable card they announced a few weeks after as an example of that.
And yes, I think that it's still very important to have stablecoins out there. But these issues that arise should be seen as the growing pains that are part of the crypto economy.
On the question of algorithms or collateralized and a coin's strengths and weaknesses, a lot depends on how a stablecoin has been structured and the quality of the management.
We should not forget that to succeed as a company it's not only a question of technology – it's also a question of who are the people behind the business or product? What are their strengths? The same questions must be asked when it comes to stablecoin issuers.
Sometimes the people behind a project are a little bit geeky; passionate people who believe in their tech but they don't really have a strong background in terms of finance. This is compounded by the fact that it's so easy to raise money through an ICO, without the due diligence.
I mean, some guys raise so much money and they do nothing. The project is poor, they don't have a solid vision and so forth.
That kind of company wouldn't get venture capital backing, for example.
The guys would have been fired. I spent 16 years working in VC. I can tell you that we would have thrown out those kind of weak projects.
And I've done that in the past. And I'm sure that all my VC colleagues from the desk, and venture funds around the world, would do the same. Risk control was very amateurish at a lot of these failed stablecoins like Terra USD. We have to get much more mature in this market
We need trusted rating agencies for crypto, like Standard and Poor's – independent people being able to really focus on a project; that can say, okay, we've interviewed the team, we discussed with them, we have talked about the strategy in detail, just like a company would go through if it wanted to list on the NASDAQ.
So the company CFO will meet with an analyst and talk about business plan, market conditions, financials, KPIs, so on.
And if a company's answers are pretty bad, I'm sure that all the analysts will say, okay, those guys are absolutely not credible.
So yeah, we need to have much more professionalism in the space. We need to learn also about what is good for the traditional financial industry and replicate it. And of course we need stricter regulation.
GM: So do you think fully collateralized stablecoins are a better proposition and more transparent than ones like Terra USD that depend on very complicated algorithms and ultimately are backed by another crypto?
NL: Well it might be great on the face of it that a project has a balance sheet that shows it has assets equal to the number of tokens in circulation, but what have they done with your money, what are the assets exactly?
Is the collateral in junk bonds, for instance? Look at the problem with Tether since the product was launched. Just because you have strict collateralization, it does not mean the stablecoin will necessarily be stronger.
Once again I go back to the relationship with the team, what are their skills, where is the transparency.
We need different kinds of ratings agencies and auditors looking at these products – why are PWC and KPMG not in on this and making sure that everything is double-checked?
Maybe even the European Central Bank or the US Federal reserve will need to play a part in supervising and regulating stablecoins. As an industry we shouldn’t be afraid of that.
This is the first part of our interview with Coinhouse CEO Nicolas Louvet.