eToroX Institutional Crypto Report

eToroX
January, 2021

Identifying the Formula for Institutional Adoption of Crypto Trading

 

When it comes to institutional crypto trading, the situation hinges as much on what is missing as what currently exists.ย 

The essential areas of the crypto market that could impact institutional participation are outlined in a comprehensive report conducted by the Aite Group, commissioned by eToro, addressing concerns on market structure and regulations, security and custody, the role of credit, innovation in technology and pricing, and liquidity.

The consensus among those surveyed is that it is not a case of if more institutions will move into the sector, but rather when. One interview respondent colourfully characterised his view on the state of the market as such:ย 

โ€œThereโ€™s a dot way out on the horizon that represents a mature institutional market for cryptoasset and digital assets. Itโ€™s sort of like weโ€™re not really sure how weโ€™ll get there, how long itโ€™ll take, and what weโ€™ll find when we doโ€”but weโ€™ve pointed the boat at the dot and set sail.โ€

The report, โ€œInstitutional Cryptoasset Trading: Looking for the Missing Bitsโ€ conducted in November 2020, is based on in-depth interviews with 25 institutional senior executives from leading liquidity providers, banks, brokers, exchanges, crypto funds, asset managers, and global technology vendors in November 2020. Banks and brokers constituted the largest share of interviewees (41%) followed by liquidity providers (27%) and fund managers (18%).

According to the report respondents, four of the main barriers to institutional market adoption of cryptoassets are:ย 

– Regulatory uncertainty

– Immature market infrastructure

– Concerns over reputational risk and security issues

– Insufficient market capitalization (which was cited as the single largest impediment to further growth)ย 

While these obstacles to institutional adoption still exist, the barriers are gradually comingย down, thanks in large part to innovative crypto-native market participants who haveย been first movers in the space.ย 

There are still many questions that need answers, and issues to be addressed. The lack of a standardized global regulatory framework in the cryptoasset market is one such issue. The report provides a dispatch of current steps regulators around the world are taking to bring crypto inline with traditional markets.ย 

Similarly, while it is widely believed that the current lack of margin providers or prime services should not be a barrier for institutional participation in crypto trading, by the same token, access to credit is viewed as a critical component of the asset class and absolutely necessary for wider institutional adoption.ย 

The final wave of growth in the crypto market must be led by the traditional institutional market participants and driven by increasing regulatory clarity, improved market infrastructure, and cutting-edge technology.

 

Download the full report

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