Institutional Interest in Cryptocurrencies Continues to Grow - The Industry Spread

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Rowan Crosby is an Australian based financial journalist and trader focused on Australian and US equity and commodity markets. He holds a Bachelor of Commerce and Economics from UWA and is heavily involved with quantitative research and analysis.

Cryptocurrencies

Institutional Interest in Cryptocurrencies Continues to Grow

April 26, 2018
Neill Penney, Managing Director and Co-Head of Trading, Thomson Reuters
Neill Penney, Managing Director and Co-Head of Trading, Thomson Reuters

The survey of more than 400 Thomson Reuters clients found that approximately 20% are considering trading cryptocurrency over the next 3-12 months. Of those that said they were interested in trading cryptocurrency 70% indicated they were going to do so over the next 3-6 months with an additional 22% planning to trade them over the next 6-12 months. This suggests that trading in cryptocurrencies is still only a short-term proposition and not something that many financial institutions are looking at with a long-term outlook.

Cryptocurrencies have seen a huge spike in interest thanks largely to some of the gains that were made in 2017. Bitcoin, the first and most well-known cryptocurrency gained more than 1,000% in 2017. However, many of the altcoins made astronomical gains. Ripples XRP finished 36,000% higher, while Ethereum was up by more than 9,000%.

Since that point in time, Cryptocurrencies have weakened. According to Coinmarketcap.com, the collective value of cryptocurrencies grew as high as $800 billion in December and January. Since that point, the value has now fallen to around $260 billion.

Arguably the major driver of cryptocurrencies has been retail investor interest. Institutions have been slow to get involved with liquidity being one of the key issues. However, the survey from Thomson Reuters, appears to be showing that the landscape is shifting.

The Thomson Reuters survey also found that there was widespread familiarity with cryptocurrencies. When Bitcoin’s price spiked to $20,000 in late December, the number of Google searches hit an all time high. However, since mid-February, searches for Bitcoin have also dropped coinciding with a decline in price.

 

Neill Penney, Co-head of Trading at Thomson Reuters believes that the survey is showing that Cryptocurrencies are slowly gaining the interest of financial institutions.

“Cryptocurrency is still a relatively small part of the trading market, but this survey makes clear this niche segment is starting to enter the mainstream of the financial services industry. This is a major change from a year ago,” said Mr Penney.

With the growing interest in this new asset class, Neill Penney says that it is imperative that traders have access to good data and news.

“The most important thing for our clients is seamless access to news and data around cryptocurrencies to facilitate informed trading decisions. As a leading provider of news, data, and trading capabilities, Thomson Reuters is well-positioned to deliver solutions that meet client demand in the growing cryptocurrency market.”

Sam Chadwick leads a number of fintech projects within the Financial and Risk Innovation Division at Thomson Reuters and believes there are different reasons why institutions are getting involved with cryptocurrencies.

“There are variety of reasons, such as: regulation, limited customer demand, volatility, fraud, lack of education about the technology, services to keep private keys safe, culture and mindset, lack of tools, distributed liquidity and money laundering concerns,” said Mr Chadwick.

Mr Chadwick also believes that despite the fall in prices of many of the leading cryptocurrencies, institutional interest remains strong.

“Volumes are certainly lower than January, but Bitcoin Futures are still seeing increasing volumes. So it depends whether the question is constrained to the underlying, or also includes derivatives.  Overall, I think interest is still increasing.  The volume today with BTC at $9000 is still considerably higher than when it was at $9000 last year,” he said.

Many institutions have faced issues surrounding liquidity and Mr Chadwick thinks that we are going to see more institutions OTC trading.

“It is very possible that more of the institutional money is shifting to OTC trading rather than on open exchanges, given that they have evolved over the last year – so we may not be getting a representative picture just by looking at exchange data,” said Mr Chadwick.

Thomson ReutersThomson Reuters

Thomson Reuters is the world’s leading source of news and information for professional markets. Thomson Reuters delivers transparent cross-asset insight into both traditional and new and emerging asset classes like crypto assets. Thomson Reuters currently provides prices for Bitcoin and other cryptocurrencies via their flagship financial desktop platform Eikon.

The company also recently launched a new version of our MarketPsych Indices (TRMI v3.0), which includes the first sentiment data feed for Bitcoin in addition to new and/or enhanced market sentiment data for several asset classes, new user capabilities and coverage.

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