The Bitcoin Trading Ecosystem and the Emerging Institutional Infrastructure

To better understand the needs of institutional market participants in the crypto space and identify infrastructure gaps, LMAX Digital conducted a survey in spring 2021. Over 200 institutions took part in the survey, including banks, funds, asset managers, proprietary trading firms, HFTs, brokers and corporates. This article highlights several key points taken from the survey, including trading decisions and venue selection in the bitcoin/crypto ecosystem.

‘The Bitcoin Trading Ecosystem’ report published by Arcane Research, powered by LMAX Digital, provides an in-depth analysis into the institutionalisation of bitcoin.

Bitcoin has come a long way since the early days of relative obscurity. The evolution is fuelled by a flood of institutional money, both around the infrastructure but also directly into the asset.

2021 has been marked by speedy institutional adoption, from corporates to hedge funds, to major investment banks revising their crypto initiatives. Most of the biggest names on Wall Street have now announced plans to offer their clients access to cryptocurrencies.

To better understand the needs of institutional market participants in the crypto space and identify infrastructure gaps, LMAX Digital conducted a survey in spring 2021. Over 200 institutions took part in the survey, including banks, funds, asset managers, proprietary trading firms, HFTs, brokers and corporates.

Institutional investment in bitcoin has long been considered paramount to a reach a multi-trillion-dollar market capitalization. With institutional infrastructure in place and growing, an optimal macro backdrop, and broader acceptance as an asset, the leading cryptocurrency is primed to receive allocations from institutional investors.

It has become a lot easier from both a regulatory and practical perspective for institutional investors to hold and invest in bitcoin. Despite the increase in institutional investing into bitcoin, not all institutions are embracing the asset.

The report explores entry barriers and gives insights into how institutions trade, their preferred custody solutions and what are seen as the biggest infrastructure gaps. It also explores the key players and current clusters of the larger bitcoin ecosystem and the current state of it, the differences between retail and institutional trading and provides an overview of the current state of the bitcoin ecosystem and who the key players are within the space.

Key highlights

The top 3 for institutions when selecting a crypto currency trading venue were identified as:

  1. Reliability of technology, i.e. 100% uptime
  2. Depth of liquidity
  3. Low latency and certainty of execution

The main infrastructure gaps in the current marketplace came down to:

  1. Access to banking
  2. Access to credit
  3. Lack of global consistent regulation

Finally, Real Money (Asset Managers & Funds) and Banks are expected to become the two major client segments to dominate crypto trading in the next 3 years.

To access the full report,”The Bitcoin Trading Ecosystem and the Emerging Institutional Infrastructure,” click here.

Photo Credit: Roger Brown from Pexels

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