THETRADETECHFX DAILY in-depth exposure and regulatory rhetoric around banks and firms holding spot crypto on their balance sheets .
Institutional solutions “ Credit and counterparty risk are strong barriers for buy-side firms . This is why I believe the market from an institutional standpoint will evolve in favour of the OTC market . Banks obviously have very high regulatory and compliance thresholds and so that ’ s definitely part of the reticence on the physical market ,” Carlton says .
Yet , according to Carlton , demand will prove to be a key driver . This will mean banks will look at the solutions available , whether that is cash based derivatives , ISDA based derivatives etc . “ We will see institutional adoption as a growth area in the next few years .
We ’ re already seeing a broader adoption of institutions trading products like crypto options , for example .”
As there are similar characteristics to the asset class , many institutional traders in crypto already come from an FX background , according to Stickland . “ With purpose-built infrastructure , traders can access a broader range of alpha-generating opportunities . The FX community now has an opportunity to enter the digital asset market with little to no friction , making the opportunity considerable ,” he adds .
The road ahead However , many crypto exchanges only came into existence in recent years . Carlton notes that , for buy-side firms , it is a very different narrative and when they are facing the likes of Flow Traders , which was founded nearly 20 years ago , to trade the product on an OTC basis . “ We ’ ve got an extremely strong pedigree in the exchange traded product ( ETP ) market and these ETPs either track a single cryptocurrency or track an index based on cryptocurrency , but trade in exactly the same way as any other ETP would ,” he adds . “ There are similarities in the user experience , the pre- and post-trade setup is the same . Banks can trade these and many asset managers , funds , brokers are trading these products on behalf of their clients .”
The past year has also seen momentum on the regulatory front , especially within Europe .
A lot of firms are looking at the new markets in crypto-assets ( MiCA ) regulation which , at least form a European-centric view , will be very positive for the industry looking forward , says Carlton . In addition , central bank digital currencies ( CBDC ) are being seriously considered by a number of very credible central banks across the globe . “ This will be extremely impactful on a global scale in terms of building truly transparent and efficient markets ,” Carlton adds .
The instability seen in crypto in recent months has created some additional reticence , but according to Carlton the net positive trend over the past two years has been for greater adoption and interest for institutional crypto . “ Humans are relatively simple and we like the path of least resistance . When we ’ re looking at the crypto marketplace and how institutions are going to actually come into this space , the way that ’ s going to happen is via this path of least resistance ,” he adds . “ If we can re-create the ‘ user experience ’ that they already have in FX , with the same pre- and post-trade setups , then that is the quickest and most efficient way that institutional money is going to come into the space .”
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