New research by Eurex, one of the world’s largest derivatives exchanges, has found that institutional adoption of cryptocurrency is still on track this year despite extreme price declines and crypto businesses’ failure that defined the market this year.
The study, conducted in collaboration with technology consulting firm Acuiti, is based on a survey of 191 companies selected across the market. The research project sought to understand institutional adoption of cryptocurrencies, the instruments being traded and the opportunities and challenges of trading digital assets.
Crypto Market Upheaval
In early November, troubled crypto exchange FTX filed for bankruptcy protection in the United States in the aftermath of its liquidity crisis. This was followed by the bankruptcy of BlockFi, an US-based crypto lender which had significant exposure to FTX.
Both events join the list of failed crypto enterprises that have marked 2022, including the crumbling of crypto lenders Celsius Network and Voyager Digital as well as the crypto hedge fund, Three Arrow Capital.
These events have had repercussions for the broad crypto market, with Bitcoin deposits on exchanges dropping to a two-year low in August. Furthermore, the market capitalization of the global cryptocurrency industry as at December 8, 2022, stands at about $860 billion (according to CoinMarketCap), down from over $2 trillion at the start of 2022.
‘Arbitrage Opportunities’
However, despite these trends, Eurex said, “institutions have not abandoned their interest in digital assets.” Instead, they “are likely to strengthen existing trends toward adoption.”
Check out this Finance Magnates London Summit 2022 session on re-imagining the crypto market structure
Eurex noted that institutions are continuing with their crypto activities despite decreasing positive perception of digital assets among their clients. This is “either due to the continued opportunities for arbitrage
Arbitrage
Arbitrage is defined as the practice of taking advantage of a price difference between two or more markets.In particular, this involves the simultaneous buying and selling of securities, currencies, cryptos, or commodities in different markets. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge over time.In order for arbitrage to occur, there must be a uniform set of conditions that need to be met. For example, the same asset does not trade at the same price on all markets, two assets with identical cash flows do not trade at the same price, and an asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate.Arbitrage in Cryptocurrency MarketsIn the cryptocurrency space, arbitrage refers exclusively to the practice of buying a crypto coin for one price on an exchange and then simultaneously selling it at a higher price on another.The profit that is earned from these temporary price differences is considered to be a risk-free venture for the investor.Arbitrage is especially prevalent on crypto exchanges given the price differences that exist. It is common for differences in crypto prices to vary by the region or where a crypto exchange is based from. For example, high Bitcoin trading volumes and accordingly high Bitcoin prices on South Korean crypto exchanges resulted in what became known as the “Kim-chi premium.” Traders who had access to exchanges in South Korea and exchanges elsewhere in the world where the price of Bitcoin was lower had the opportunity to earn arbitrage.This involved buying BTC on exchanges with lower prices and them selling them on South Korean exchanges where prices were inflated. Crypto exchanges are evolving however to control for arbitrage though opportunities for this practice are still occurring.
Arbitrage is defined as the practice of taking advantage of a price difference between two or more markets.In particular, this involves the simultaneous buying and selling of securities, currencies, cryptos, or commodities in different markets. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge over time.In order for arbitrage to occur, there must be a uniform set of conditions that need to be met. For example, the same asset does not trade at the same price on all markets, two assets with identical cash flows do not trade at the same price, and an asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate.Arbitrage in Cryptocurrency MarketsIn the cryptocurrency space, arbitrage refers exclusively to the practice of buying a crypto coin for one price on an exchange and then simultaneously selling it at a higher price on another.The profit that is earned from these temporary price differences is considered to be a risk-free venture for the investor.Arbitrage is especially prevalent on crypto exchanges given the price differences that exist. It is common for differences in crypto prices to vary by the region or where a crypto exchange is based from. For example, high Bitcoin trading volumes and accordingly high Bitcoin prices on South Korean crypto exchanges resulted in what became known as the “Kim-chi premium.” Traders who had access to exchanges in South Korea and exchanges elsewhere in the world where the price of Bitcoin was lower had the opportunity to earn arbitrage.This involved buying BTC on exchanges with lower prices and them selling them on South Korean exchanges where prices were inflated. Crypto exchanges are evolving however to control for arbitrage though opportunities for this practice are still occurring. Read this Term across trading venues or chance to gain exposure to price movements in digital assets,” the Deutsche Börse AG-owned company explained.
Crypto Derivatives Remain Top Choice
However, while institutional adoption remains, recent events have driven concerns about counterparty risks and a lack of regulation of cryptocurrencies to the top of the agenda of institutional investors. Hence, crypto derivative products listed on traditional exchanges remain their most popular method of getting exposed to digital assets, Eurex’s report said.
“About 60% of institutional firms surveyed considering or already trading digital assets choose this route to access. As this route is covered by derivatives regulation, it often slots into existing relationships with the exchange and benefits from central clearing. The likelihood is that their use by institutions will only grow,” the firm explained.
New research by Eurex, one of the world’s largest derivatives exchanges, has found that institutional adoption of cryptocurrency is still on track this year despite extreme price declines and crypto businesses’ failure that defined the market this year.
The study, conducted in collaboration with technology consulting firm Acuiti, is based on a survey of 191 companies selected across the market. The research project sought to understand institutional adoption of cryptocurrencies, the instruments being traded and the opportunities and challenges of trading digital assets.
Crypto Market Upheaval
In early November, troubled crypto exchange FTX filed for bankruptcy protection in the United States in the aftermath of its liquidity crisis. This was followed by the bankruptcy of BlockFi, an US-based crypto lender which had significant exposure to FTX.
Both events join the list of failed crypto enterprises that have marked 2022, including the crumbling of crypto lenders Celsius Network and Voyager Digital as well as the crypto hedge fund, Three Arrow Capital.
These events have had repercussions for the broad crypto market, with Bitcoin deposits on exchanges dropping to a two-year low in August. Furthermore, the market capitalization of the global cryptocurrency industry as at December 8, 2022, stands at about $860 billion (according to CoinMarketCap), down from over $2 trillion at the start of 2022.
‘Arbitrage Opportunities’
However, despite these trends, Eurex said, “institutions have not abandoned their interest in digital assets.” Instead, they “are likely to strengthen existing trends toward adoption.”
Check out this Finance Magnates London Summit 2022 session on re-imagining the crypto market structure
Eurex noted that institutions are continuing with their crypto activities despite decreasing positive perception of digital assets among their clients. This is “either due to the continued opportunities for arbitrage
Arbitrage
Arbitrage is defined as the practice of taking advantage of a price difference between two or more markets.In particular, this involves the simultaneous buying and selling of securities, currencies, cryptos, or commodities in different markets. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge over time.In order for arbitrage to occur, there must be a uniform set of conditions that need to be met. For example, the same asset does not trade at the same price on all markets, two assets with identical cash flows do not trade at the same price, and an asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate.Arbitrage in Cryptocurrency MarketsIn the cryptocurrency space, arbitrage refers exclusively to the practice of buying a crypto coin for one price on an exchange and then simultaneously selling it at a higher price on another.The profit that is earned from these temporary price differences is considered to be a risk-free venture for the investor.Arbitrage is especially prevalent on crypto exchanges given the price differences that exist. It is common for differences in crypto prices to vary by the region or where a crypto exchange is based from. For example, high Bitcoin trading volumes and accordingly high Bitcoin prices on South Korean crypto exchanges resulted in what became known as the “Kim-chi premium.” Traders who had access to exchanges in South Korea and exchanges elsewhere in the world where the price of Bitcoin was lower had the opportunity to earn arbitrage.This involved buying BTC on exchanges with lower prices and them selling them on South Korean exchanges where prices were inflated. Crypto exchanges are evolving however to control for arbitrage though opportunities for this practice are still occurring.
Arbitrage is defined as the practice of taking advantage of a price difference between two or more markets.In particular, this involves the simultaneous buying and selling of securities, currencies, cryptos, or commodities in different markets. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge over time.In order for arbitrage to occur, there must be a uniform set of conditions that need to be met. For example, the same asset does not trade at the same price on all markets, two assets with identical cash flows do not trade at the same price, and an asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate.Arbitrage in Cryptocurrency MarketsIn the cryptocurrency space, arbitrage refers exclusively to the practice of buying a crypto coin for one price on an exchange and then simultaneously selling it at a higher price on another.The profit that is earned from these temporary price differences is considered to be a risk-free venture for the investor.Arbitrage is especially prevalent on crypto exchanges given the price differences that exist. It is common for differences in crypto prices to vary by the region or where a crypto exchange is based from. For example, high Bitcoin trading volumes and accordingly high Bitcoin prices on South Korean crypto exchanges resulted in what became known as the “Kim-chi premium.” Traders who had access to exchanges in South Korea and exchanges elsewhere in the world where the price of Bitcoin was lower had the opportunity to earn arbitrage.This involved buying BTC on exchanges with lower prices and them selling them on South Korean exchanges where prices were inflated. Crypto exchanges are evolving however to control for arbitrage though opportunities for this practice are still occurring. Read this Term across trading venues or chance to gain exposure to price movements in digital assets,” the Deutsche Börse AG-owned company explained.
Crypto Derivatives Remain Top Choice
However, while institutional adoption remains, recent events have driven concerns about counterparty risks and a lack of regulation of cryptocurrencies to the top of the agenda of institutional investors. Hence, crypto derivative products listed on traditional exchanges remain their most popular method of getting exposed to digital assets, Eurex’s report said.
“About 60% of institutional firms surveyed considering or already trading digital assets choose this route to access. As this route is covered by derivatives regulation, it often slots into existing relationships with the exchange and benefits from central clearing. The likelihood is that their use by institutions will only grow,” the firm explained.
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