2023 has been an incredible year for digital assets, with Bitcoin seeing a surge of around 150 percent since the beginning of 2023. Blackrock, the world’s largest asset manager, has applied for a BTC ETF along with a growing handful of institutions, including Fidelity, WisdomTree, and Bitwise. Global institutional adoption of digital assets has dramatically increased by over 50% year over year, according to a Citi Securities Service institutional survey. Even funding and M&A have seen traction again, e.g. with the U.S. crypto firm Ripple acquiring Switzerland-based crypto custody firm Metaco for $250 million.
In particular, the European financial markets have been leading the way in terms of regulatory clarity for institutional investors in digital assets with the anticipation around the EU’s Markets in Crypto-Assets (MiCA) framework, which is set to come into force in early 2024. All this leads to institutional adoption of digital assets being at a significant threshold – which makes the decision for the right infrastructure all the more important for market participants such as banks.
Reducing Counterparty Risk: Essential Learning for Financial Institutions
In the realm of digital currencies, functions like custody and brokerage play pivotal roles, much as they do in traditional asset trading. These roles are typically kept distinct within the Traditional Finance (TradFi) sector, following strict risk management protocols. However, this critical separation of duties was overlooked by entities like FTX & Co, resulting in significant repercussions and their eventual collapse. Consequently, it’s crucial for banks to establish and strictly follow internal governance protocols, especially when engaging with cryptocurrency exchanges and related service providers.
As financial institutions navigate the digital asset landscape, they encounter a highly fragmented market. This market comprises numerous centralized and decentralized cryptocurrency exchanges, over-the-counter (OTC) desks, and brokers. To adhere to the best execution policy, as mandated by regulations such as MiCA, banks must integrate multiple liquidity venues into their systems. These venues often exhibit significant differences in pricing and liquidity, presenting opportunities for strategic order placement to maximize…
Click Here to Read the Full Original Article at Cryptocurrencies Feed…
