Our recent Focus Day provided a holistic overview of what institutional investors need to know when trading digital assets and their derivatives. Find out more in the five key takeaways we believe summarize the event.
1. Distributed ledger technology will change how capital markets operate…but it will take time!
DLT, or the blockchain, is set to fundamentally change the workings of capital markets but progress will be slow. DLT is not a panacea but does bring major improvements in efficiency to settlement and the transfer of ownership of assets and securities. Peak Blockchain-hype was reached in the mid-2010s. Since then however, several projects have been developed and launched. We are at the beginning of the DLT journey.
2. Innovation is creating more ways for institutions to trade digital assets
Exchange traded products, especially in the regulated space, like futures, options and other new instruments are being launched to provide institutional investors with different ways of gaining exposure to digital assets. This innovation is allowing more firms to come into the market and trade more sophisticated strategies. Institutional adoption of digital assets is likely to grow further in the wake of innovation and regulatory clarity.
3. The sell-side needs regulatory clarity in order to be able to provide services in the institutional crypto market
Without it, banks and non-bank FCMs risk being disintermediated as market structure adapts to their absence. Regulation for traditional sell-side firms, however, is likely to be highly fragmented over the next five years with different jurisdictions moving at different paces and taking different approaches.
4. Digital assets are an enabler of technological change and an asset class in themselves
As the environment for digital assets trading evolves, more and more assets and securities will become tokenized. The current landscape of digital assets is funding and fueling technological innovation at a rapid pace. As such digital assets are an asset class as well as an enabler of new technologies that will create massive efficiencies in capital markets.
5. Regulators can leverage technological innovation to become more efficient
The ability of regulators to monitor capital markets can be significantly enhanced by leveraging DLT and other emerging technologies. The future of regulation could be a smart contract or node on a blockchain automatically issuing fines for market abuse. Regulators also need to develop a new mindset to effectively oversee a decentralized market.
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