One of the key worries of institutional traders about crypto adoption is the availability of liquidity, more specifically, one that is easy to access with little or no complications at all.
As we have come to realize, a lot of institutions have plenty of funds at their disposal, however, they are waiting for the perfect time, and the ideal conditions, to join the cryptocurrency trading market.
Aside from the fact that there is a need to adapt the crypto trading market to accommodate institutional traders, the availability of crypto liquidity also plays a significant role in the institutional adoption of cryptocurrencies.
A major player in the crypto sector that has strived to make a difference in this regard is FalconX, dubbed the most technologically advanced digital asset trading platform in the world.
It might not be enough to connect institutional traders to the crypto market, without also providing them with a reliable and scalable infrastructure with one-stop crypto liquidity, such as in the case of FalconX.
Speaking during an interview with Daily Coin, Austin Reid, the chief of staff at FalconX, spoke about how the company has grown into what he described as the “largest institutional-focused liquidity in the space,” in its only four years of establishment.
“Thankfully, we’ve just closed $210 million in Series-C funding round, valuing the company at almost 4 billion dollars. Similarly, we’ve been very fortunate to partner with a number of leading providers and continue to scale what we think is the early innings of institutional cryptocurrency adoption,”
Connecting institutional traders to the crypto space does not wipe away all of the standing concerns, as there is also a need to provide them with a deep liquidity.
According to Reid, FalconX provides partners with
“access to a robust combination of lit liquidity and proprietary dark pools.”
“We provide these institutions with great pricing, on-spot Cryptocurrency liquidity along with reliable and scalable infrastructure. We also work with them to basically provide short term fixed-rate financing around those trades in an attempt to increase the efficiency of the strategies that they’re running,”
He further elaborated, that they are able to help these institutions decrease the complexity of getting up and running in the cryptocurrency market; more so, to help institutions that are looking to get active in the space and continue to build allocations or run strategies.
Reid went on to add that the platform uses an industry-leading pricing engine that eliminates any kind of slippage for its partners, which includes crypto-native institutions such as crypto hedge funds, venture capital funds, crypto miners, crypto exchanges, and so on.
Furthermore, FalconX, according to Reid, provides a single account for institutions to trade on global cryptocurrency liquidity. In other cases, the platform connects these institutions to major spot exchanges, proprietary trading firms, market makers, and OTC desks, all of which are aggregated into a single account dubbed “FalconX,” against which clients can simply trade.
“They get the benefit to the broader market's liquidity on a post-trade settlement basis by only onboarding onto a single counterparty. In addition, we offer short-term fixed-rate financing around those trades,”
According to him, if you are an institution looking to trade cryptocurrency and use credit to help express your position, you can do so in an elastic manner. In other words, they can extend credit for a matter of hours, days, etc., and you’re only paying for it when your strategies are actually running and working.
“This further suggests that you’re not left eating that interest cost in a scenario where your assets are distributed across exchanges and your strategy may not be working,”
Institutional Adoption of Cryptocurrency
According to Reid, the reasons for crypto adoption by institutional traders are the main driving forces for mass adoption.
Specifically, Reid backed the widespread notion that the COVID-19 pandemic increased crypto adoption. He went on to say that “the corresponding central bank activities around Covid, as well as the increasing money supply across western countries and other geographies, had a key role in the path.”
Reid further emphasized that more institutions were looking for ways to protect their funds against inflation, prompting the allocation of Bitcoin and other cryptocurrencies as “the inflation hedge.”
Most institutions, according to Reid, were startled by how much money was being printed throughout the world, and chose to invest in cryptocurrencies as a means to avoid inflation.
“What we saw first, was basically institutions, specifically, more traditional hedge funds like Paul Tudor Jones, Stanley Druckenmiller etc. allocating to Bitcoin as the inflation hedge. To the extent the world is printing money, it seems like Bitcoin could be a good place to store a percentage of your assets to protect your portfolio against that inflation,”
Part of the reasons for adopting cryptocurrencies also include yield generation, where institutional traders are made to stake, or lock, a certain amount of cryptocurrency in order to farm profit over a period of time.
Doing this, according to Reid, provides institutions with a viable alternative to having capital sitting idly in a bank with no guaranteed interest.
“There is a huge opportunity for folks to get yield in the cryptocurrency ecosystem, and we’ve partnered with a number of different institutions to help facilitate that on their behalf, and give them the opportunity to earn the yield on their investments. We consider this to be a continued use case and trend in the market going forward,”
Finally, institutional traders, like most crypto enthusiasts, are drawn to the DeFi and NFT spaces because of their endless possibilities. With so many activities taking place in the cryptoverse, it’s almost impossible to ignore, or at least, it can’t be for long.
On The Flipside
- The DeFi ecosystem, which appears to be a point of attraction for institutional investors, is growing in popularity, although it is still largely unregulated. Investors may actively participate over time with regulatory clarity.
- Despite efforts to improve it with fresh upgrades, the relatively high gas prices associated with most cryptocurrency projects, particularly Ethereum, remain discouraging and could hurt adoption.
Why You Should Care?
The cryptocurrency space is rapidly evolving, and it is only a matter of time before it achieves mass adoption, thanks to players like FalconX who have ultimately de-risked the majority of the crypto environment with a flood of institutional capital that is here to stay.
Watch the entire interview here: