Broker-Dealers Prep for Institutional Crypto

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Many on Wall Street plan to forgo first mover advantage so that they can prepare for the long game when it comes to cryptocurrencies and digital assets.

Nomura International has seen early demand for cryptocurrency exposure coming from high net worth retail investors and hedge funds that cater to that space, according to Christopher DeWinter, managing director, market structure & strategic investments at Nomura International, who participated in a panel discussion the Crypto Evolved conference in Midtown Manhattan.

The broker-dealer is spending more of its time and resources to serve the growing hedge fund market by having the appropriate processes in place to meet clients’ fiduciary responsibilities, he said.

“There is a lot of pressure from those who invest in these funds,” he said. “The funds, in turn, come to ask for solutions that get it right. They will not come in until they see an ecosystem that is set up and works for them and they can go to their customers and honestly say that they are comfortable with it.”

The overall size and liquidity of the cryptocurrency market, which equates to a small company on the Big Board, remains a significant gating factor for many financial organization from participating fully in the nascent market, according to DeWinter.

“If you are presenting this asset as something you can do and 50% of the user base cannot buy, there is not enough liquidity to support it,” added fellow panelist Maria Adamjee, founder and principal at Megalodon Capital. 

In the meantime, some firms may be content having smaller accounts trading $5,000, $50,000, or $100,000 at a clip, but the institutional market will not arrive until clients can trade $1 million at a clip as they do with swaps trade, said DeWinter. “We are focusing on the underlying infrastructure in the hopes as we get more comfortable that the asset is something that you can hold onto and Mt. Gox will not happen again.”