Cryptocurrency trading is growing exponentially, and for institutional firms seeking alpha, it is rapidly moving up the strategic agenda. In response to growing institutional demand, a veritable plethora of institutionally oriented crypto exchanges have emerged over the past 24 months.
A survey from Fidelity Digital Assets, encompassing a range of nearly 900 investors including crypto hedge and venture funds as well as traditional hedge funds and other investor types, found that:
➤ 36% of institutional investors surveyed currently invest in crypto
➤ Crypto investments appeal to almost 80% of those surveyed
➤ More than 6 out of 10 investors believe that crypto has a place in portfolios
➤ More than 80% of investors expressed an interest in institutional investment products that hold crypto
The survey also found that the most common obstacles to inclusion of crypto in investment strategies and portfolios are price volatility, concerns around market manipulation, and lack of fundamentals and market data to enable valuation. Furthermore, trading firms and institutional investors – many of which have sophisticated trading strategies across other asset classes – want the same capabilities and the same access to markets and liquidity to which they are accustomed when trading traditional asset classes.
What do institutional investors want?
Traditional financial markets offer a highly regulated environment, with accessible, high quality and reliable market data, fast and standardized connectivity, and a host of other tools to enable confidence in investment decision-making and execution. The absence of regulatory certainty – and the piecemeal nature of regulation where it does exist in some jurisdictions – has to date posed a deterrent to more widespread adoption by institutional firms. However, this is changing, with many jurisdictions set to bring in regulatory regimes aimed at crypto service providers and their activities, such as the Markets in Cryptoassets Regulation (MiCAR) in the EU.
In the meanwhile, the market infrastructure that will support institutional crypto adoption at scale is under development. We are seeing the emergence of institutional-grade crypto custody solutions, with some crypto exchanges such as Gemini now offering this as a vertically integrated capability, alongside independent crypto custody providers such as Fireblocks in the US and DigiVault in the UK, and more forward-looking banks such as StateStreet launching their offerings in this area as well. As the pieces of the crypto trading puzzle fall into place, we anticipate that it will become an increasingly attractive asset class.
Moving fast and connecting things
In the fast-moving and often volatile world of crypto trading, firms need to successfully bridge the pricing gaps across multiple exchanges, which are located at points all over the globe. A diversity of geographical locations and price formation venues leads in turn to opportunities to exploit inefficiencies in these still-nascent markets. Volatility, and the large difference in spreads worldwide, gives rise to arbitrage opportunities. The integration of these arbitrage opportunities into a firm’s complex trading strategies and algorithms is a first step; the second is to develop the connectivity and infrastructure to enable execution of these strategies in a highly dispersed global trading environment.
In a market that never closes, crypto trading firms must be equipped for a multitude of scenarios – making reliable deterministic low latency a crucial ability so as to maintain their competitive edge. This is where speed, access to multiple key venues, and reliability are key to prevent price slippage, ensure access to liquidity and keep TCA costs low. Firms need an industry-leading technology-forward solution to these connectivity challenges, to ensure that their ability to extract profit can be maximized.
IPC can offer ultra-low latency marketplace global connectivity
Connexus Crypto is IPC’s flagship solution for cryptocurrency trading. This unique service is performance engineered to support complex trading strategies and provides low latency connectivity to global crypto exchanges, enabling instant access to liquidity.
Leveraging IPC’s low latency network, this service empowers market participants to cross connect to almost all cryptocurrency exchanges globally, while ensuring deterministic low latency, industry leading execution times & reliability. Furthermore, our global reach allows us to rapidly onboard new exchanges as soon as they go live, ensuring we can provide market access that keeps pace as the market grows.
Connexus Crypto is underpinned by IPC’s flagship multi-cloud platform Connexus Cloud, an ecosystem that interconnects more than 7,000 diverse capital market participants across 750 cities in over 60 countries, all bolstered by market-leading follow-the-sun customer support.
The Connexus Cloud portfolio includes Connexus Extranet, Connexus Ethernet and Connexus WAN, as well as Connexus Voice services. With our commitment to high performance, customer-centric designs, fast speed to market and low total cost of ownership, IPC is the right choice to keep you ahead of the competition, facilitating all your network needs, wherever your company is on its crypto trading journey.
✒️ ABOUT THE AUTHOR OF THIS BLOG
Richard Balmer – Director, Network Product Management, IPC – is a technology professional with 20 years’ experience of creating solutions for major Enterprises in Capital Markets. Richard’s experience spans the design, development and deployment of Service Provider and Enterprise networks, systems and business processes as well as the sharp-end of Key Account Management and Business and Product strategy. Richard is a dedicated and resourceful leader who enjoys helping customers achieve their goals and teams to reach new levels of performance.