Digital assets have taken the financial markets by storm in recent years in both terms of native cryptocurrencies and the concept of tokenisation, and the bridge between these products and traditional assets appears to be becoming increasingly sturdier.
According to a poll taken at TradeTech FX on Thursday, just over half (59%) of audience members stated that their firm currently has a named individual or team responsible for digital asset strategy, indicating growing institutional recognition of digital assets as a key focus area.
Alongside this evolving shift from more niche crypto-native firms to mainstream financial services adoption, the panel also turned to the preferred models used by different market participants when it comes to digital assets.
As Alexander Metzger, digital assets lead at Syz Group, explains, more traditional clients are leaning more on ETF wrappers in this space, and often do not interact much on chain, due to ease and regulatory comfort. Meanwhile, contrastingly, crypto-native clients prioritise direct ownership alongside transparency and on-chain interaction.
However, these two market sectors are increasingly beginning to converge, which in turn is driving a reshape of product demand.
Metzger adds: “What we’re seeing is a merging between those two worlds, which is pretty interesting given SEC approvals last year. So we’ve seen more and more clients shifting from one to the other.”
This uptick in digital and traditional asset ecosystems combining is expected to continue as the industry evolves, and as emphasised by Duncan Moir, president of 21shares, developments noted so far in this space are just “a drop in the ocean”.
He added: “But that’s the point of a nascent industry. It’s a technology, and it’s got a long way to go.”
This was also reiterated by Liz Lawson, director, digital assets strategy at T. Rowe Price, who affirmed that the integration of digital assets will be an “evolution”, asserting: “In my opinion, there will be a long hybrid period where to get the right outcomes for your investors, yourself, or as a dealer, broker or trading platform, you’ll need to be playing in both spaces to some degree.”
What is market close in a digital asset world?
Despite increasing institutional adoption of digital assets, sentiment towards this sector of the industry is not entirely confident, and development hurdles remain.
When questioned on whether tokenised funds or securities will be a meaningful part of their firm’s product range within five years, more than half of the audience indicated that they did not believe this would be the case.
Read more – Institutional demand for digital assets growing, yet obstacles to adoption remain
Uncertainty around how institutions will interact with these products also continued into panel discussions, and for Moir, a pressure point in Europe lies with how digital assets will function with and around the market close.
“For asset managers, hedge funds, wealth managers that are just buying ETPs on exchange or OTC, for them it’s a security that they hold so it’s easier,” Moir commented.
“But when they move to direct ownership – that’s a completely different kettle of fish. They need to think about the different liquidity providers, custodians and so a whole new procurement process.”
He also made reference to the EU’s MiCA regulation for crypto-assets, highlighting that while this is helpful for digital asset developments, such as ETPs, difficulties remain with settlement and due diligence.
Moir argued: “When it comes to 24/7 and settling the crypto trades after hours, how many companies in the EU can get their employees to go on contracts that go through to late at night? These are things that seem minor but they actually have a material effect. We want to be able to trade right up to the market close, so underlying assets have to trade as well. But what if you contact your custodian in Luxembourg – for example – and they’ve gone home?”
The question then as digital assets increasingly converge with traditional markets, lies with whether existing market infrastructure can adapt to a world of 24/7 trading, direct ownership and on-chain settlement.