What’s important for institutional clients?

01 Jul 2021

What’s important for institutional clients?

What’s important for institutional investors when deciding where to trade bitcoin, and what are the most significant infrastructure gaps in the bitcoin trading ecosystem today? LMAX Digital conducted a survey this spring, and we here provide the results.

LMAX Digital conducted a survey this spring among institutional market participants to better understand institutions’ needs in the crypto space and identify infrastructure gaps. The institutional market participants include banks, funds, asset managers, proprietary trading firms, HFTs, brokers, and corporates. The result, shared with Arcane Research, shows what’s important for this group of institutional bitcoin traders.

This blog post is an extract from our latest report: “The Bitcoin Trading Ecosystem”.

Trading and choice of execution venues

The institutional market participants were asked about the most important factors that they consider when selecting a cryptocurrency trading venue. As seen from the chart above, three factors stood out: 1) Reliability of technology (i.e., 100% uptime), 2) low latency and certainty of execution, and 3) depth of liquidity.

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Custody

When asked about the choice of custody solutions, most of the respondents said they use standard wallet-based custody services offered by the trading venue itself. Interestingly, a significant share of the respondents said that they use solutions provided by traditional custody specialists. The results are presented in the chart below. In another custody question in the survey, security was unsurprisingly highlighted as the most critical factor when selecting a custody offering. In addition, accessibility and convenience, together with exchange/liquidity connectivity, were also highlighted.

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Infrastructure gaps

As already mentioned, the infrastructure has improved, and it is now easier for institutional investors to hold and invest in bitcoin. But what are the most significant infrastructure gaps in today’s bitcoin market, according to the institutional market participants? As seen from the chart below, access to banking and access to credit are the two main issues today. Access to banking has been particularly highlighted by brokers, while proprietary trading firms and HFT firms see access to credit as a big gap. Notably, corporates see a lack of global regulation as a major concern.

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Institutions to dominate bitcoin trading?

Institutions are fully embracing the cryptocurrency space, and as seen in the previous section, bitcoin trading volumes have grown substantially among institutional investors since the beginning of 2020. This trend will not stop here, according to the respondents of the survey. As seen from the chart below, they expect asset managers, funds, and banks to be the most significant contributors to trading volume in the next three years.

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These survey results show us that institutional investors still see some issues with the current crypto market, but they expect to be a central part of it in the future. Throughout the rest of the report, you will see that several of these issues are being addressed already and that the bitcoin trading ecosystem is evolving rapidly. Traditional custody players are entering, lending markets and access to credit are on the rise, banks are embracing bitcoin, and liquidity in the market is improving substantially. All is set for institutions to continue their entrance into bitcoin.Download the report to learn more about the evolving bitcoin trading ecosystem.