Amidst falling bond yields and ultra low-interest rates, surging Bitcoin prices have made the digital asset market impossible for institutions to ignore. Investment funds are now allocating a portion of their portfolios to cryptocurrency, corporate treasurers are adding Bitcoin to their balance sheets, and even cities like Miami are considering investing.
Yet as a new report from eToro, "Institutional Cryptoasset Trading: Looking for the Missing Bits" reveals, demand from this enormous class of investors is still tempered by lack of development in a few key areas.
As cryptographic assets that can be traded around the clock in a global marketplace, crypto trading doesn't play by the same rules as stocks and bonds.
The struggle to reconcile this innovative asset class with crypto regulation is a key concern for capital market players. Regulators around the world are laying down legislation to govern the emerging blockchain economy. Some are leading the way, and others are falling behind. This has led to fragmented regulation between regions, and between internal regulatory bodies.
As the eToro report highlights, the Internal Revenue Service (IRS) deems crypto-assets property, the Commodity Futures Trading Commission (CFTC) view them as commodities, and the Securities and Exchange Commission (SEC) has said that some can be considered securities.
Before institutions can comfortably move in, they need a consistent crypto-regulatory framework to govern digital asset activity.
Until then, regions like Gibraltar, which regulates eToroX with its pioneering blockchain license, offer a progressive solution. The jurisdiction's pioneering principle-based regulation gives institutions the assurance of operating within an established regulatory framework, and the flexibility to accommodate innovation.
Digital assets flow around the blockchain economy in a completely new form of financial plumbing.
This infrastructure has been built for the convenience of the individual retail traders that dominate the market. As such, it creates levels of counterparty risk exposure that are difficult for institutions to stomach — with unregulated exchanges acting as custodians, and traders needing to prefund vulnerable hot wallets.
While the custody issue has been largely solved with cold storage solutions, there is still an absence of prime brokers offering the liquidity, lending, and leverage that can help institutions hold and trade crypto with the same convenience as cash, stock, and bonds.
eToroX overcomes this by recreating the traditional market structure. Dedicated custody is provided through eToro's Custody-as-a-Service, and institutions can draw a credit line to trade on the exchange, supported by a white-glove level of service.
This delivers what the report states institutions need most: a "one-stop shop" for cryptoasset trading.
Shallow trading volumes in the digital asset market have led to thin order books, meaning big players can easily make a splash trading large accounts.
This lack of liquidity is a key concern for institutions. Not only does it limit trading opportunities and make it difficult to fill large orders, but it hinders industry development — blocking SEC approval of a long-awaited Bitcoin ETF.
Making matters worse, sophisticated digital asset traders have limited options for connecting with trading venues. High latency and poor API performance prevent them from plugging in the fast-paced algorithmic and arbitrage strategies that dominate traditional markets.
In light of this, eToroX offers institutional-grade connectivity through FIX, and taps deep liquidity from eToro — offering sophisticated traders a completely seamless cryptoasset trading experience.
To find all the missing bits needed to bring the digital asset market to maturity, download eToro's report on the state of institutional digital asset adoption. This covers the regulatory concerns, infrastructural challenges, and critical market milestones that the biggest institutions are waiting for before they deploy their capital.