A pile of money from institutional investors is sitting idly, waiting to be invested in the cryptocurrency space once three major issues are resolved, according to a new study by research and consulting outfit TABB Group.
Monica Summerville, TABB senior analyst and author of the report, commented:
“The word on the street is that a significant amount of additional institutional money is being amassed, sitting on the sidelines, held back by a lack of greater regulatory clarity, institutional grade data and enterprise-ready infrastructure, waiting for the right conditions to enter the market, expected to begin happening this year.”
According to Summerville, the study is the first in a series of reports that would take a closer look at the role of institutional players in digital asset trading markets and the execution platforms vying for their business. The report also touches on key elements for securing the digital asset market, discusses the evolving market dynamics, and features at least seven virtual currency exchange/platforms targeting institutions.
The next installment of the report will examine important blockchain technology developments that support both centralized and decentralized exchange models, as well as the methods employed by traditional buy- and sell-side institutions in digital currency trading and investing.
Exceptional revenue is major motivation for institutional investors
Summerville also notes that institutional interest has always been piqued by exceptional alpha and revenue. In the cryptocurrency space, the top exchanges are estimated to make as much as $3 billion daily in revenue from trading fees. Moreover, over-the-counter (OTC) cryptocurrency markets provide higher spreads or commissions compared to the mature financial markets, and investments in digital currencies offer bigger profit margins because of lower correlation to other asset classes.
She went on to say:
“That interest is coming from traditional buy-side players, specifically hedge funds, proprietary trading firms, pension funds and sovereign wealth funds, as well as private wealth, miners and early Bitcoin adopters. As a result, the venue and vendor community is responding with a range of new solutions targeting institutions.”
Financial institutions look for crypto opportunities
The results of the TABB study echo an earlier Thomson Reuters survey, which showed that nearly 20% of financial institutions plan to look for opportunities in cryptocurrency over the next 12 months.
Among the 400+ Thomson Reuters clients polled, 70% said they planned on becoming involved with digital assets within the next three to six months.