Traditional Finance Offers Safe Haven From Crypto Winter; Says Acuiti-Eurex Whitepaper

Market turmoil caused by the crypto winter is strengthening the case for many institutional investors to use traditional regulated exchanges as their first route into digital assets.

This is the principal finding of ‘Digital Asset ETNs: A Smoother Path to Cryptocurrency Markets’; a joint whitepaper by Acuiti and Eurex. The whitepaper explores digital assets markets from the perspective of 191 buy and sell-side firms.

It says that despite some firms’ taking to the native crypto markets, many remain cautious about how they trade the asset class.

This has led to many looking to gain exposure through the traditional venues where they already trade established asset classes, a trend that is likely to build in the next phase of the crypto market’s evolution.

This is particularly the case for institutions that want to trade exposure to digital assets but don’t need to optimise their strategies by trading against the retail flow.

Institutional investors retain a tentative interest in crypto, sustained at both its highs and lows. Despite price declines, the whitepaper recognises this continued interest as one of the most notable market features this year.

However, the continuing price volatility of digital assets and more pertinently, the high-profile bankruptcies of several leading native crypto firms this year are leading to re-evaluations of how to integrate digital assets into institutional portfolios.

Once these institutions develop their trading strategies on traditional regulated exchanges they are likely to broaden their exposures benefitting the entire digital assets ecosystem.

Key findings

• The slow pace of cryptocurrency regulation is pushing many institutions to consider gaining exposure to the asset class through traditional venues
• Many concerns that institutions have with cryptocurrency markets are soothed when they start actively trading the assets
• Sophistication is rapidly increasing in trading strategies, and this is driving the need for new products
• These factors are turning focus to exchange-traded products, like ETFs and ETNs

When traditional exchanges first offered cryptocurrency derivatives to their clients, futures and later options were the dominant instruments for creating exposure.

The diversity of products on these venues has grown since, with ETFs and ETNs now available for clients to trade.

This increases the range and sophistication of trading strategies that can be enacted on traditional venues. Thus adding to the existing advantages already on offer, such as central clearing and more solid regulatory foundations.

“A continued run of bankruptcies in the native crypto markets, including high profile names such as FTX, has given institutional investors cause to pause and reassess how best to add digital assets to their portfolios,” says Ross Lancaster, head of research at Acuiti.

“Against that backdrop, the attraction of exchange-traded products on traditional venues, which continue to grow in sophistication, is only likely to increase.”