As cryptocurrencies and digital assets continue their rapid growth, demand has never been higher.
In October 2021, total cryptocurrency market capitalisation reached an all-time high of $2.6tn, with much of the demand fuelled by increasing interest from institutional investors.
Regulators around the world are now working to establish clearer guidelines for investing in cryptocurrencies and other digital assets, which means that financial institutions with fiduciary responsibilities are starting to become more comfortable with the products.
Buy-side firms are increasingly including digital assets in their investment portfolios, sell-side banks and brokers are looking at how they can provide safe and secure access to the markets, along with custodial facilities and other post-trade services, and regulated exchanges such as CME now offer exchange-traded crypto products such as Bitcoin futures. Other exchanges, including SIX Digital Exchange are also launching digital asset products. Additionally, Cboe has acquired ErisX, a provider of digital asset platform.
More recently, the first futures-linked Bitcoin Exchange-Traded Fund (ETF) made its debut on the New York Stock Exchange. Providing investors with access to crypto-linked investment products through their brokerage firms, without having to navigate through the minefield of cryptocurrency exchanges. And in the UK, the Financial Conduct Authority (FCA) authorised index provider CryptoCompare to act as a regulated benchmark administrator for digital assets, which will further enable firms to create crypto-based investment products based on recognised reference pricing.
While cryptocurrencies are starting to reach early levels of maturity - Bitcoin has now been around for nearly thirteen years - newer forms of digital asset (i.e. assets created and maintained on a distributed ledger, or blockchain) are also generating interest among institutional investors
Non-fungible tokens, stablecoins, initial coin offerings, securitised token offerings, and other digital representations of both physical assets (e.g., gold or real estate) and intangible assets (e.g. equity and debt) are increasingly attracting the attention of financial institutions, who recognise their potential as investment vehicles.
For financial institutions looking to capitalise on this burgeoning digital asset marketplace; trust, confidence and security are major considerations. Firms want to be able to securely access dedicated crypto trading venues, market data providers and post-trade/custodial services using the same kind of solid, robust pre-trade and post-trade environments as they do for more traditional asset’s classes. So how can this be achieved?
The answer lies in working with a technology partner that can provide access to a well-established community of trusted counterparties and service providers, both for existing markets - equities, fixed income, FX, derivatives and so on. And for the rapidly growing crypto and digital asset markets, all within the same secure protected ecosystem.
Such an approach offers a fast go-to-market strategy for firms looking to expand into the digital asset space because all the key players are already there in the ecosystem. Another important factor is secure cloud-to-cloud access because many crypto exchanges, market data vendors and other crypto service providers operate within the cloud. So, it’s essential that the cloud-based endpoints for crypto and digital assets are treated with the same levels of security and control as endpoints for the trading of traditional asset classes.
An additional benefit of working with a partner operating a closed and secure community of participants, is that it facilitates the creation and ongoing operation of “permissioned” blockchain networks, for digital assets other than cryptocurrencies. Banks and other financial institutions are regulated entities, so for digital assets based on intangible assets such as equity and debt, they have clearly defined governance structures around who they are allowed transact with. Operating within such a closed, secure ecosystem can provide the necessary level of control for setting up such permissioned networks.
As cryptocurrencies and digital assets enter the mainstream and start to become more widely adopted by financial institutions, BT Radianz is the technology partner of choice for firms looking to rapidly scale their digital asset initiatives. We provide unrivalled access to an existing community of financial markets participants, trading venues and service providers as well as seamless, secure connectivity to multiple cloud providers and a growing number of cryptocurrency exchanges, data vendors and post-trade and custodial services, all through a single BT Radianz connection.
Find out more about BT Radianz for crypto and digital assets by contacting your account manager.