The institutionalization of the crypto market is going to take some time – be patient.
Panelists on the cryptocurrency panel at FIA Boca said there is still infrastructure building that needs to be done before the asset class becomes mainstream. Key issues that persist include better price discovery in the cash markets, more efficient custody services that are more in sync with trading needs, not to mention more clarity from regulators.
For a market that garnered all the hype a year ago, calmer, more balanced messages about patience and practical infrastructure are taking hold. Thomas Chippas, the CEO of ErisX, said the company is trying to address pricing, central limit order book and fragmentation issues in the market by offering spot and futures trading under one exchange roof. Bakkt, the ICE subsidiary, is also attempting to bridge the gaps with a full end-to-end solution for trading and consumer payments.
John Deters, chief strategy officer and head of multi-asset solutions at Cboe Global Markets said the trend is toward platforms like regulated exchanges. And with that, gateways are still being constructed and other institutional functions are still being built out. It’s also very early in terms of data tools and research for these markets.
“We’re at a very different place than a year ago and that’s healthy,” Deters said. “Valuations are coming down. There is a certain practicality that’s palpable.”
There is still a tug of war between those who advocate more decentralized systems, which would not require traditional clearing and settlement, versus centralized markets. Exchanges, of course, prefer their tried platforms with a clearing house. Deters and Tim McCourt, global head of equity index and alternative investment products at CME Group, said the momentum from the institutional crowd is surely behind the exchange and clearinghouse model.
How quickly things develop from here is still unknown. There are multi-jurisdictional regulatory issues still to sort out, as well as a host of investment requirements and legal issues that will have to be sorted out before institutions jump in fully. Some large FCMs such as Goldman Sachs and Societe Generale, for example, are offering bitcoin futures to select customers, but it is a long way from full scale adoption.
That will have to wait, as the access paths continue to get built out.