Institutions Take the Reins in Determining Digital Asset Market Structure

Digital asset market structure to date has been built primarily with retail, high-net-worth, venture capital, family office, and crypto-native investors in mind, as they have been the most ready to adopt digital assets. The market has also been built around direct ownership of assets. Platforms were initially developed to support these types of investors who wanted simple means for buying and holding Bitcoin and other digital assets directly.

However, of late, it becomes apparent that the crypto market structure is evolving, increasingly influenced by the needs and preference of institutional investors and traders. This can be observed with the shift from physical ownership (e.g., holding actual Bitcoin) to both physical and financial instrument ownership (e.g., trading Bitcoin futures and/or holding Bitcoin ETFs).

Shifts in the market from spot trading and physical ownership to both physical and financial instrument ownership, including, for example, futures and ETFs, have seen the market begin to adapt to the traditional needs of institutional investors.

A survey released in Jan 2022 by Coalition Greenwich (a division of CRISIL) from 108 executives at global financial institutions and technology firms found that exchange-traded funds/products are favoured by 61% of buy-side institutions, compared to 27% for direct physical ownership.

44% of front-office professionals and 59% of the buy side expect most trading volume to be on fully decentralized exchanges in the next two years. In addition, 62% of front-office professionals expect the majority of trading volume to be on order books in the next two years.

The respondents comprised asset managers, banks, brokers, exchanges, market infrastructures, technology companies, and other market participants.

Full report here:

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