Main Barriers to Institutional Crypto Trading

Main Barriers to Institutional Crypto Trading

Cryptocurrencies, like Bitcoin and Ethereum, are gaining interest from large investors during the last few years. Companies like Galaxy Digital Holdings, MicroStargery, Tesla, and others demonstrated their faith in crypto by pouring millions (and in the case of MicroStrategy, billions) of dollars into it. However, many companies still hold back from investing in crypto. In this article, we will discuss the main barriers to crypto adoption by institutions and see how they are dissolved.

The Main Constraints for Institutional Cryptocurrency Trading

The Main Constraints for Institutional Cryptocurrency Trading

Here are the key barriers to overcome for crypto adoption:

  1. Lack of liquidity. Despite the total crypto market cap reaching $1.57 trillion by December 2023 (according to Coinmarketcap), it is still far from the $250 trillion held in global equities and bonds. The crypto market is still subject to market manipulations and institutions may face insufficient liquidity when trading on exchanges. However, when choosing to trade on a reputable institutional crypto exchange (such as Binance or WhiteBIT), investors always reach the needed liquidity, as such platforms are in cooperation with market makers, that continuously pour liquidity into the markets.
  2. Counterparty risk. Because of the lack of regulations, there are cases when the parties are unable to fulfill their obligations, incurring financial losses to investors. This is what happened with FTX when this platform collapsed and many investors lost money. What such stories teach us is that we should always remain cautious and attentive, keep track of the latest news, and choose only reliable exchanges.
  3. Regulatory hurdles. The crypto world has some uncertainties due to a lack of regulations, making institutions hesitant about investing in digital assets. However, cryptocurrencies are regulated by various authorities globally. In the United States, the Securities and Exchange Commission (SEC) oversees aspects related to securities. Financial authorities in other countries, such as the Financial Conduct Authority (FCA) in the UK, and regulatory bodies in Japan, Switzerland, and the European Union, also play roles in overseeing and regulating aspects of the crypto market. The Markets in Crypto Assets Regulation (MiCA) in the EU entered into force in June 2023. These regulations relate to those issuing and trading crypto assets, covering transparency, authorization, and supervision of transactions. 

Conclusion

Crypto institutions have some concerns about liquidity and counterparty risks in the crypto sector. Using a reputable institutional crypto exchange, investors reach the necessary liquidity level for large-volume transactions. The regulatory framework for crypto projects and exchanges is under development, with efforts to establish clearer guidelines and frameworks for the growing crypto industry.

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