Hyphe Markets, the German subsidiary of Dutch digital assets liquidity provider Hyphe, has received its licence to operate as an investment firm from its outpost in the southern city of Munich.
On August 29, Hyphe announced that it had obtained its securities trading licence from the German financial regulator Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), which allows the firm to operate in the country, where it plans to offer trading services to regulated financial institutions.
The EU’s biggest economy has seen growing interest in crypto-related activities over the past few years, bringing with it a rise in fraud cases. Currently, cryptocurrencies are not considered as a legally approved monetary option in Germany. They are instead classified as assets or financial instruments and, therefore, bound to the regulatory frameworks of investments and securities.
In spite of the current limitations in Germany’s cryptocurrency trading sphere, Hyphe’s CEO, Dolf Diederichsen, believes that the country is the perfect starting point for Hyphe’s expansion before the EU’s Markets in Crypto Assets regulation (MiCA) enters into full effect.
With a footprint in both the Dutch and German markets, “we will be very well equipped to then start focusing on our European expansion in the coming years”, he says. The expansion of its business will allow Hyphe to add more products and services to its portfolio, he adds.
The licence granted to Hyphe Markets represents the highest regulatory standards currently available on the market before MiCA, aimed at managing the crypto market, goes into effect next year. It allows Hyphe to operate as an investment firm and bring its trading solutions to the German market.
“This licence allows us to actively address the German market,” says Mr Diederichsen, adding that the firm can now target its institutional clients in the country, align itself with impending EU and national regulations on cryptocurrency trading, and work with security tokens.
A multi-layered system
Riding the digital wave comes with its fair share of challenges. Mr Diederichsen says that counterparty risks and crypto integration are among the main hurdles that banks and financial institutions face when expanding into the field of digital currencies.
“Banks are very aware of counterparty risks, so we offer a number of solutions that help mitigate those fears, which include trading with us without any pre-funding, and we provide API [application programming interface]-based integration tools for institutions that want to start trading digital currencies,” he says.
By using Hyphe’s APIs, financial institutions can access the firm’s own liquidity pool, for a low fee. These pools are digital reservoirs of cryptocurrencies that allow for quicker transactions by making liquidity easily available to traders.
Expansion within the eurozone
Under MiCA, firms that want to trade and issue cryptocurrencies and other tokenised assets within the EU are required to obtain a licence to operate. The rules are put in place to prevent money laundering activities linked to crypto asset transfers and reduce tax evasion. The new framework is expected to enter into full force in 2024.
Until then, EU firms involved in all aspects of cryptocurrency trading are required to comply with the regulatory framework of the country where they are stationed or where they wish to do business. Despite the global usage of digital liquidity, there is still no international legislation that regulates its trade. While some countries like the US, the UK and Germany allow for their use within their economies, other nations like China and Saudi Arabia still have not taken the steps required to legalise cryptocurrencies.
In Germany, cryptocurrency-related activities are regulated by BaFin, which requires all cryptocurrency exchanges in the country to be licensed and asks German traders to report their earnings in their yearly tax returns.
Hyphe’s main client group includes banks, brokers, asset managers and other financial institutions. “Our main demographic includes brokerage services with retail or institutional clients that already trade stocks, bonds or other financial instruments and want to add crypto to their portfolio,” says Mr Diederichsen.
The Amsterdam-based firm serves European financial institutions by providing tools that allow it to offer digital currency trading and investment opportunities linked to digital assets to its customers. Such tools include trading and settlement platforms run through the use of open APIs.
