On Monday, crypto assets rose by 11.4%, with bitcoin being the first to pop. Coinbase announcement that its custodial crypto service was finally live might be the reason for such a surge. Cold storage, an institutional-grade broker-dealer and reporting services and a client coverage program are part of the services offered. Coinbase is about to onboard hedge funds. Despite the fact that the news gave a new look to the market, will institutional money have long-term ramifications, and what’s taken so long?
Kimley Kadoche is the head of Investor Relations at LGO which is poised to launch as an institutional-friendly exchange that will have the capacity to handle large fiat transactions. Nick Cowan is the CEO of Gibraltar Blockchain Exchange (GBX). His aim is to become an institutional-grade token sale platform and digital asset exchange, that will take onboard its existing Gibraltar Stock Exchange (GBS) clients.
Even though both individuals are kind of bullish on the prospects of institutional money entering the crypto market, they remain quite optimistic, as they have liaised with many of the profligates considering a move.
A bottleneck to the entry of institutional investors into the crypto space is the need for a suitable regulatory framework. They simply can’t invest their clients’ funds in the same free-and-easy manner as a retail investor. Nick Cowan on bitcoin says “[GBX] fundamentally believe that the technology is here to stay.” “We fundamentally believe in adoption…particularly institutional, but what will accelerate that, I think, is the implementation of certain regulations: consumer confidence, investor protection, transparency and those sorts of issues, which, at the moment, have been holding back a number of major players who might come into this market.”
Kimley says “in the US there is an appetite [among institutional investors].| |But for now they’re just waiting for something more concrete that offers a real solution. And most important that is SEC and FINRA compliant, because that’s the main issue, is you need to be able to report your crypto trading on the books.”
According to Kimley Kadoche, institutional investors have a “big appetite” for the crypto market. However, they require a “safe structure that offers them a solution” including custodial services. “The infrastructure that you have right now on the market is not super safe. There’s always an issue with the custodian, KYC procedures are not very safe, and also we’re waiting for the SEC to be fully transparent on what regulation and actions they want to take regarding digital assets.”
Liquidity is also quite an issue for institutional traders since they are going to be buying big. It is much more liquid to be leading cryptocurrencies such as bitcoin and ethereum than in the industry’s earliest days. However, a single large order can still move the entire market. Kimley acknowledges that “the third [problem that must be solved] is the liquidity.” “Financial institutions are going to be buying and selling big quantities and they need to have a seller or buyer of them to face them. So you need to be able to provide them what they want. You can’t just go on Coinbase and buy 1,000 bitcoin. Right now, there’s a latency problem and slippage.”
Kimley Kadoche from LGO and Nick Cowan from GBX believe that the presence of institutional money could be a good thing for the crypto economy. According to Kimley, it is “going to improve the trust in the market” and Nick says: “I think the long-term view is that [institutional] adoption will take place, leading to more people getting involved, and that can only be a good thing.”