The volatility and high-profile bankruptcies of leading crypto firms has only strengthened the case for many institutional investors to use traditional regulated exchanges as their first foray into digital assets, according to a new study by Acuiti and Eurex – Digital Asset ETNs: A Smoother Path to Cryptocurrency Markets.
The study which surveyed 191 buy and sell-side firms, found that around half or 47% are already engaged in the market while 23% were currently considering doing so and 30% were not trading nor considering entering the fray.
However, for 60%, mainstream venues were the first port of call for either trading or considering trading digital asset derivatives.
The exception was native exchanges were the preferred option for spot markets.
This was not the case though with the mainstream sell side firms who have less appetite for trading derivatives on these venues, compared to buy-side and prop firms already active in digital assets
They are wary not only because of the lack of regulation and transparency for native exchanges, but also high capital cost associated with holding crypto assets on bank balance sheets.
The Basel Committee on Banking Supervision’s most recent proposals would give a 1,250% risk weighting to the riskiest crypto assets and as a result 100% capital charge even to those holdings that are hedged.
This explains why sell side firms have a greater preference for exchange traded funds and products as well as exchange traded futures and options which can be traded on conventional exchanges.
“A continued run of bankruptcies in the native crypto markets, including high profile names such as FTX, have given institutional investors cause to pause and reassess how best to add digital assets to their portfolios,” says Ross Lancaster, head of research at Acuiti.
He added, “Against that backdrop, the attraction of exchange traded products on traditional venues, which continue to grow in sophistication, is only likely to increase.”
