Institutional Inflow Spurring Growth in the Digital Asset Services Sector

As institutions increasingly expand their portfolios into the digital asset markets, it seems that mergers and partnerships are on the rise. Existing players in the cryptocurrency space are seeking to broaden their appeal to institutional clients by increasing the scope of their offerings. The move marks a further shift of the cryptocurrency markets towards mirroring the traditional financial markets. 

For instance, one of the most prominent players in the cryptocurrency space, Coinbase, has reportedly been in late-stage acquisition talks with digital asset prime brokerage firm, Tagomi. The latter is co-founded by Goldman Sachs former Head of Electronic Trading, and has successfully raised $28m in funding, including backing from Peter Thiel’s Founders Fund. 

If the deal goes ahead, it will be the second acquisition targeting institutional customers by Coinbase this year. In August, the Silicon Valley firm confirmed it had acquired the institutional custody arm of digital wallet provider Xapo, bringing its total assets under custody to $7 billion. 

Elsewhere, prime brokerage firm Bequant announced it would be partnering with IT infrastructure provider Avelacom, as part of an initiative to lure high-frequency, algorithmic traders to its platform. The partnership provides Bequant with enhanced colocation services and global connectivity, reducing latency to enable high-speed trading. 

Organic Growth

Meanwhile, other established crypto exchanges are expanding their range of products and services to appeal to institutional traders. For example, Bakkt, the regulated derivatives platform owned by Intercontinental Exchange, recently confirmed it would start offering custody services. It has already signed several big-name clients, including Pantera Capital and Galaxy Digital. 

Considering Bakkt only launched its first product, Bitcoin-backed futures contracts, in the third quarter of this year, it’s growing its offering at an extraordinary rate. In late October, the exchange also announced it would launch options on Bitcoin futures in December, beating CME to the market. The rival exchange will only launch its options product starting from January

Deribit is another example of an existing player extending new digital asset services to institutional clients. The Dutch-based crypto-derivatives trading platform recently partnered with Paradigm to roll out a block trading solution with a minimum size of 40 Bitcoin or 800 Ether. 

A One-Stop-Shop?

While many firms in the digital asset space are scrambling to make their core business fit for institutions, there are also examples of companies taking a different approach. Rather than starting with one or two services and expanding, TroyTrade is developing a full-stack solution for institutional traders from the ground up. Mergers and partnerships are one way of ensuring that institutions have access to a broader range of services, but TroyTrade believes that it can provide a more seamless service by offering a one-stop-shop. 

The master-level trading platform offers access to global liquidity from all major exchanges. These cover both the spot and derivatives markets, including Coinbase, Kraken, Binance, BitMEX, and Huobi, among others. Alongside this, TroyTrade also offers a brokerage service with a competitive fee rate and fast order execution. 

The platform also caters to quant traders, with co-located infrastructure to ensure high-performance for algorithmic trading. Users also have access to a powerful data and analytics platform that aggregates market and trading data, social media sentiment, and blockchain data to help drive investment decisions. 

The Hong Kong-based company was founded in 2018, and earlier this year, it closed a private funding round after raising $10 million from VC firms. TroyTrade is currently in beta but will undergo a full public release before the end of 2019.

More Consolidation to Come? 

Offering a full-stack service like this means the company has to build everything from scratch. However, TroyTrade believes that the advantages for institutional players will prove sufficiently attractive to outweigh the effort involved. Clients don’t have to open multiple accounts, deal with different parties, or switch services between providers when new ones become available. 

Currently, the cryptocurrency world doesn’t have a prime brokerage offering the same range of services as, for example, Goldman Sachs in the traditional finance sector. However, with the entry of players like TroyTrade, and the expansion of Coinbase, Bakkt, and others, this appears set to change. 

Of course, the institutional cryptocurrency markets are very much in the early stages of growth, and it will take time for the services ecosystem to evolve. Nevertheless, it seems inevitable that those making it easier for their institutional clients, by offering the broadest range of services, will thrive. Therefore, we can expect that the current spate of consolidation and partnerships will continue for some time to come. 

 

 

 

Disclaimer: This content does not necessarily represent the views of IWB.

 

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