The rise of Crypto ETPs in traditional exchanges as crypto winter deepens

Institutional investors are increasingly looking at traditional regulated exchanges as their first route into digital assets amid market turmoil caused by the crypto winter and the collapse of several big names within the space, including FTX.

Acuiti and Eurex surveyed 191 buy and sell-side firms on their views of the digital assets markets in order to reach the abovementioned conclusion in a report called ‘Digital Asset ETNs: A Smoother Path to Cryptocurrency Markets’.

Despite some firms’ taking to the native crypto markets, many institutions have remained cautious about how they trade the asset class, which 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, Acuiti found.

Institutions that want to trade exposure to digital assets but don’t need to optimize their strategies by trading against retail flow are especially interested in going the exchange traded product (ETP) route.

Rise of ETPs amid slow pace of regulation and institutional caution

Interest in the cryptocurrency market is undeniable as it was encountered both as the asset class embarked on its record bull market and as it entered the crypto winter of this year. The report states that this has been one of the most notable features of the market this year.

The continuing price volatility of digital assets and more pertinently, the high-profile bankruptcies of several leading native crypto firms this year, however, are forcing institutional investors to reevaluate their approach to digital assets. 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 in Digital Asset ETNs: ‘A Smoother Path to Cryptocurrency Markets’ include:

• 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

Ross Lancaster, Head of Research at Acuiti, said: “A continued run of bankruptcies in the native crypto markets, including high profile names such as FTX, have given institutional investors cause to pause and reassess how best to add digital assets to their portfolios. Against that backdrop, the attraction of exchange traded products on traditional venues, which continue to grow in sophistication, is only likely to increase.”

Traditional exchanges already offer cryptocurrency derivatives, namely futures, options, ETFs and ETNs. This has increased the range and sophistication of trading strategies that can be enacted on such venues, adding to the existing advantages already on offer, such as central clearing and more solid regulatory foundations.