Institutional Crypto Trading: Gearing up for the next phase

Posted 15th May 2019
Peggy Sullivan
By Peggy Sullivan Chief of Staff Vela

Imagine if, at some point in the future, someone was to write the history of cryptocurrencies. Would that person look back at the current moment and see it as a turning point, as the start of the era when crypto went mainstream?

A case can certainly be made.

After several years of frenetic activity and innovation, it does feel like the early “toe-in-the-water” experimental phase of crypto may be drawing to a close and a new period may be starting. We might think of this new phase as the “crypto-gets-its-act-together” era. What seems to be unfolding are the key developments that are likely to make trading crypto assets in size not so very different from trading blue-chip stocks, fiat currencies or interest rate futures.

Building blocks for institutional crypto

History books, however, rarely feature neat, decisive lines separating one period from another. There is no official starting gun for “phase two”. That said, if we think of the building blocks for a mainstream market, the crypto industry does seem to have assembled an impressive list of them.

Trading venues around the globe? Check. Strong institutional interest? Check. The start of an international financial ecosystem? Check. Development of key data and information flows? Check. It’s as if, in business terms, the crypto industry has just demonstrated proof of concept.

Institutional crypto trading standards

To be sure, institutional crypto trading is also still very much a work in progress. Many of the firms that are developing the trading technology, venues and information systems for crypto assets are competing so fiercely with each other that they have not arrived at the point where a number of industry standards can be established.

For instance, many different venues have different APIs. For institutional players, that sets up obstacles because it means a lot more development is required every time a new venue gets added. What about security? Some industry watchers have argued that a wave of consolidation will be needed before standards can be firmly agreed.

Cryptocurrency regulation

Meanwhile, there are question marks as to what kind of approach international regulators will take. Will brokers, investors or venues be given clear guidelines that treat cryptocurrencies differently from other assets? Will trade reporting ever be required? Will oversight of institutional crypto trading be designated for specific regulatory entities?  And will regulators take their cues from market forces or seek to dictate from the start? These are questions that have only just started to be broached around cryptocurrency regulation.

But whether it is industry consolidation, regulatory clarity or some other factor that is most needed, the stage does appear to be set for this new phase to start. And, if history is anything to go by, it is a period that will be characterized by cooperation and dialogue.

Consider the start of some of the world’s most famous markets, from the coffee houses of London to the late 18th century “Buttonwood Agreement” which led to the formation of the New York Stock Exchange. The key ingredients, as they were then and have been ever since, are an understanding of mutual interest, a readiness to work together, and dialogue.

There are indications of that beginning to be seen in the crypto industry. And that could be the surest sign of all that trading of crypto assets is on its way to going mainstream. 


Click here to learn more about Vela’s cryptocurrency offering.

Enter a search term and hit return when you’re ready