Countries and governments are jostling to welcome these assets and institutions, while more and more investment banks are poised to embrace these new markets as a means of broadening their services and making themselves more attractive to clients.

President Biden’s recent executive order titled ‘Ensuring Responsible Development of Digital Assets’ demonstrates that the US wants to be seen as a leader in the international governance of cryptocurrencies and ultimately a good place to do business.

The UK Government also announced that it plans to regulate some cryptocurrencies, while Dubai is promising detailed regulations after recently granting its first virtual asset licenses to exchanges including Binance.

Despite concerns being voiced around criminality, regulatory oversight, environmental sustainability, and the impact that digital currencies could have on already established markets, these developments show that crypto is moving from its existential to its institutional phase.

The huge uncertainties in pricing, settlement challenges, and criminality are being replaced by a more mature ecosystem with an increasing base of market makers providing services to a larger body of mainstream investors. However, market volumes, venues, and the number of digital assets are now too big and fast-moving to be analyzed and managed by what was in place during crypto’s existential phase.

These new opportunities also present a new set of challenges. New exchanges, tokens, coins, futures, options, and swap contracts require systems and processes to help all parties – investors, exchanges and regulators – keep up with the rapid increase of pace.

Stability and Agility

Market participants need help to analyze the digital assets space and the technologies and processes created and perfected by financial institutions that trade and manage existing asset classes provide a solution.

Spotting and maximizing market opportunities or reacting to issues requires a strong data capability and the fundamentals behind trading and regulating crypto are very similar to those in traditional financial markets

These markets have long recognised the value of enhanced data management and analytics to drive alpha, reduce fraud, remain compliant and move faster. While cryptocurrencies and digital assets exist in a more dynamic market where there is an inherent distrust of doing things the ‘traditional’ way, the technologies that provide stability and agility in existing markets can do the same here.

Whether it’s investors seeking alpha with automated and/or algorithmic-driven trading, exchanges looking to add new features or authorities demanding market regulation, there are many use cases where existing technologies, such as real-time data management and analytics platforms, can add significant value.

Remaining Stable During Change

The application of technologies used in traditional financial markets will ladder up to greater stability, security, and efficiency in crypto.

Rather than stifling innovation and growth, we believe it will give existing and would-be market participants the confidence to increase their focus and investment, leading to more innovation and growth, not less. And competition and choice within the financial services sector can only be a good thing.

A Harvard Business Review piece from 2018 looking at the impact of these new digital currencies identified lower-costs, increased security and safety, real-time and more competitive payments as likely benefits to consumers and businesses over what they experience today.

The article also argued that such currencies could also connect unbanked or under-banked segments of the population to the wider financial system, a critical issue given the parlous state of the global economy.

However, the article’s authors also sounded a very real note of caution saying that, without robust legal and economic frameworks, there’s a risk that such currencies, in this case stablecoins, would be anything but stable. Indeed, we have seen recent examples of this with Terra Luna, although again, it now seems to be leveling out.

The robust legal and economic frameworks that enable traditional financial markets to operate are enabled in a large part by technology, and while challenges undoubtedly exist around how crypto and digital assets will work within existing jurisdictions, we see this as further evidence of a transition from existential to institutional acceptance.

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With the right regulatory and governance frameworks in place – ones that provide security and stability without stifling innovation – there’s no reason why cryptocurrency won’t be accepted within traditional financial structures.

Indeed, it can be argued that cryptocurrencies are simply new asset classes, and compelling arguments can be made for them to be included within the global financial services community.

With the right technologies, processes, and regulations, risk can be kept at an acceptable level while the innovation that the relatively nascent sector is renowned for can be encouraged, albeit within parameters deemed acceptable by Governments and regulators.

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