Barriers to institutional digital asset adoption: regulation and market structure
Fundamental differences with cash, stocks, and bonds, mean cryptoassets don't slot neatly into traditional finance. Instead, they need specialized market infrastructure and unique regulations.
In eToro's new report, “Institutional Cryptoasset Trading: Looking for the Missing Bits”, these two stumbling blocks are identified as critical barriers to widespread institutional adoption.
Regulators around the world are grappling with the need to promote digital asset innovation while preserving financial stability and protecting market participants. Different approaches to these objectives have created a fragmented global regulatory framework, with different regulatory classifications and levels of oversight between jurisdictions and domestic authorities.
eToro's new report identifies this "lack of a standardized global regulatory framework" as "the biggest obstacle for institutional market participants to actively engage in crypto trading."
Yet while most authorities have yet to roll out specific digital asset regulations, certain small jurisdictions have already pioneered laws that encompass all digital asset activity. Gibraltar, which regulates the institutional-grade exchange eToroX, is one such nation. This British outpost provides a complete regulatory framework for companies that use distributed ledger technology (DLT).
This framework ensures that all blockchain businesses operating in Gibraltar fall in line with international regulations, including the Travel Rule, which holds crypto firms to the same standards as banks — requiring them to share transaction data about senders and recipients.
Under the supervision of the Gibraltar Financial Services Commission, and through partnership with Chainalysis, eToroX proactively ensures compliance. Stringent know-your-customer (KYC) and AML procedures are matched with real-time transaction monitoring to prevent institutional crypto traders from being exposed to regulatory and reputational risk.
Mature market structure
Unlike the cryptoasset market that has sprung up over a single decade, traditional market structure has been refined over more than two hundred years of booms and busts. This has resulted in distinct legal structures, with trading and custody divided between independent entities to prevent conflicts of interest and minimize counterparty risk.
The cryptoasset market on the other hand, has its own unique structure. Dedicated custodians are few and far between, and exchanges often act as combined broker-custodians. This not only leads to high levels of counterparty risk that compromise the fiduciary duty institutional crypto traders have with their clients, but has led to concerns over market integrity — blocking the launch of institutional-grade investment vehicles like a Bitcoin ETF.
On eToroX, institutions can trade spot cryptoassets on a regulated platform with a traditional market structure, using dedicated secure custody and credit lines to manage risk.
The first-mover advantage
As the eToro report identifies, the slow rollout of regulations and institutional-grade digital asset infrastructure has created a "limited first-mover advantage" for pioneering traders that now have the opportunity to get a foothold in the rapidly growing cryptoasset market.
To find out what is keeping this window of opportunity open — including regulatory concerns, infrastructure challenges, and market cap milestones — download eToro's report on the state of institutional digital asset adoption.
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