DigiAssets 2023: Steps needed to increase institutional adoption of digital assets

Panellists highlighted the need for increased regulation within the asset class, while noting the need to work with existing workflows and processes to help with mass adoption.

At DigiAssets 2023, panellists discussed the latest developments in the digital assets ecosystem to help create safe, secure and liquid markets that will be accessible to buy-side firms and financial institutions.

Panellists shared their insights as to what more needs to be done for digital assets to experience mass adoption for institutional investors.

 “As an industry it always makes sense to take stock of where we’ve come from and have a think about where we’re heading,” said Simon Forster, global co-head of digital assets at TP ICAP.

“2022 will be seen as a watershed moment for the crypto asset industry and I think you see two very different tails on either side of 2022. The industry was predominantly retail driven, it was speculative that the number would go up and there were hundreds of vertically integrated exchanges, often operating in unfamiliar jurisdictions or lightly regulated jurisdictions. If you fast forward to 2023 and where we are today, you see much more meaningful activity from the buy-side.

“Whether you’re an asset allocator or whether you think about portfolio construction, Bitcoin has been one of the best performing assets over the last few years and it’s part of the conversation for the buy-side.”

Appropriate regulation has been suggested as one of the important developments necessary to help with the adoption of digital assets at an institutional level.

“In Switzerland we have a regulatory framework to help us classify tokens,” said Valerie Noel, head of trading at Syz Group. “From the trading point of view, we have seen some issues with accessing liquidity because you need to go to crypto brokers and for us it was quite difficult to find regulated crypto brokers. We are a regulated bank, so we need to trade with regulated parties and then to find firms that are able to aggregate all this liquidity.

“In the future we need people who can provide infrastructure to put all this liquidity together to have better access for the buy-side. We really need this traditional finance, this liquidity aggregation, for mass adoption.”

Claire Bridel, chief operating officer at Liquidnet noted that the crypto industry has been seen as parallel to the financial world, with standards below those of traditional finance. “As market participants, those standards need to align to those of the traditional markets to see greater adoption,” she suggested.

Panellists also discussed the importance of utilising existing workflows and processes to aid the adoption of digital assets by institutions; arguing that it is impractical to try and reinvent methods in order to cater to this relatively new asset class.

“Crypto is a reasonably insignificant asset class at the moment in terms of size; we think it has the potential to become much more significant, but we also think it’s very unlikely that big buy-side and institutional clients are going to change those workflows that they have established for traditional markets – equities and fixed income as an example. From our perspective, that execution component which is very mature and very well understood will not change,” Foster added.