The anticipated flow of institutional capital into the crypto market has been a popular narrative over the last few years, but often with limited traction. Now, in the aftermath of the 2020 macro backdrop, it’s actually happening. Preparations for institutional involvement have been made, and enterprise-level solutions built for crypto custody, digital asset management, and trade execution brokerage.
As the crypto market recently topped $1 trillion for the first time and following projections for that to grow fivefold, it’s more important than ever that institutional-grade rails are in place to capture this critical mass. Some of the projects at the forefront of that task are leading the way for the institutional money flow that will benefit the entire space.
The Digital Currency Group subsidiary Grayscale Investments has been involved in the space longer than most. The GBTC Bitcoin Trust offering from the early adopters was one of the only available institutional products for the legacy market at one time, having debuted back in 2013. Its client base now boasts more than 20 institutions with investments of over $100 million, including Ark Invest and Rothschild Investment Corporation, and it recently hit $20 billion assets under management in its latest milestone.
Until Grayscale encounters greater competition in this area, perhaps in the form of a bitcoin ETF approval this year, its growth is likely to continue expanding at pace. It offers regulated institutional-grade investment products across a range of individual digital assets, including bitcoin, ethereum, and litecoin, as well as cryptocurrency baskets such as its large-cap fund.
Finxflo is the first hybrid liquidity aggregator, going a step further than Tagomi’s solution. It aggregates cefi and DeFi venues through one regulated platform, one KYC process, and one wallet, without the need to open multiple accounts. Its enterprise-level tools deliver the best of both worlds, providing a liquidity sponge for users to execute trades at the best prices via more than 25 exchanges and liquidity providers with minimal slippage, reduced risk, and zero withdrawal fees. It offers the required institutional protection from front running and optimal price without limitations on liquidity supply.
Finxflo also supplies an institutional-grade insured custodial storage solution in partnership with leading provider Fireblocks, ensuring client funds are held in encrypted, segregated vaults with access to insurance.
Adding further utility, the Finxflo ecosystem is fueled by the native FXF token, a blockchain 3.0 asset allowing users to access all the additional features of Finxflo including staking, governance rights, and reduced trading fees. It also opens up the world of DeFi protocols and cross-chain interoperability across the Ethereum and Tron ecosystems, introducing users to yield farming liquidity provision and arbitrage opportunities.
Tagomi, acquired by Coinbase last year, is a leading crypto prime brokerage platform providing trading, custody, margin, lending, shorting, staking, and financing in one account. Tagomi brings together access to over 14 exchange and liquidity venues, allowing users to combine balances in different accounts frictionlessly while accessing the best price execution, and advanced trading tools for institutional investors to segregate trading strategies.
Tagomi has already become the platform of choice for several well-known hedge funds and family offices, including Paradigm, Pantera, and Bitwise. By bringing in expertise from legacy finance firms like Goldman Sachs, Citadel, and KCG, it’s building out the foundations to onboard the next wave of institutional investors.
Fidelity Digital Assets
Fidelity Investments, one of the largest financial service organizations worldwide with $3.3 trillion of assets under management, launched Fidelity Digital Assets, helping to bridge the gap between legacy finance and the crypto market. Its new crypto division provides a full service, enterprise-grade platform for secure custody, trade execution, and investment services. More recently, it launched a bitcoin fund for qualified investors made available via family offices, registered investment advisors, and other institutions.
Fidelity’s survey of institutional investors highlighted the 80% of respondents who find something appealing about crypto as an asset class, demonstrating the pent up demand potential of the space, provided solutions like Fidelity Digital Assets can deliver the viable product-market fit required.
The Intercontinental Exchange (ICE), which operates the New York Stock Exchange (NYSE), established a new company, Baakt, in partnership with Microsoft, leveraging its cloud solutions to enable consumers to buy, sell, store, and spend cryptocurrencies on a global network. Bakkt delivers a range of digital asset services including a dedicated wallet and application, secure custody, and trade execution. It also offers bitcoin futures and options in a challenge to derivative products from the legacy provider Chicago Mercantile Exchange (CME), though settled in bitcoin rather than cash.
Building on initial success, Bakkt is set to go public via a merger with a special purpose acquisition corporation (SPAC), VPC Impact Acquisition Holdings (VIH). The deal has a value of $2.1 billion and is expected to close in Q2, providing vital investment to capitalize on growing institutional demand in the space. This follows a similar announcement from the cryptocurrency platform Coinbase and provides greater acceptability towards the digital asset market.
The Institutional Cycle
Central bank money printing has been in overdrive, especially in the US with M1 supply, which includes bank deposits in checking accounts and physical currency, up a staggering 70% year-on-year.
Understandably, institutional players are increasingly concerned at the prospect of inflation, one of the major factors driving greater interest in 2020 towards a crypto industry that can act as a safeguard against it.
This potential gateway use case opens up institutions to further utility in the space, facilitating significant adoption in this coming cycle. The projects at the forefront of this are building out the infrastructure needed for institutions to fulfill that role.