Why SIX Group could be about to change the institutional crypto landscape
When two worlds collide
2024 has been a watershed year for institutional adoption of cryptoassets, with the approval of eleven spot Bitcoin ETFs in the US in January generating greater institutional involvement in the cryptoasset world. Arguably, the spot ETF approvals marked the official integration of the traditional finance and cryptoasset worlds, which for several years had been segregated by mistrust, uncertainty and a lack of regulatory conformity.
While institutional crypto involvement has largely centred around increasing exposure to cryptoassets through spot and derivatives trading and providing custodial services, one noticeable aspect of it is the lack of participation from centralised security exchanges.
Although a few large institutions such as Deutsche Bank, Nomura and Standard Chartered have set up their own crypto trading platforms, involvement from centralised security exchanges and operators has been limited. This is largely due to regulatory shortfalls and fears over reputational damage, with cryptoasset and securities trading largely remaining segregated and having limited crossover. In fact, Cboe Global Markets, a leading provider of the global exchange network for derivatives, shut its spot crypto venue earlier this year due to regulatory challenges.
Much of the execution of cryptoasset trades has therefore been facilitated through OTC methods and centralised and decentralised cryptoasset exchanges (mostly via API), including platforms such as Binance and Coinbase. However, this could be about to change.
This week, SIX Group, the operator of SIX Swiss Exchange, the third largest stock exchange in the world, revealed it is exploring the creation of a European-based cryptoasset exchange platform.
Switzerland is one of the most crypto-friendly countries in Europe, with lenient laws around the trading and custody of cryptoassets not yet seen in other major jurisdictions. Banks essentially have free will to trade and custody a range of cryptoassets including Bitcoin and several types of altcoin.
If it materialises, the operation of a crypto exchange by the third largest exchange operator, globally, is hugely significant. Not only does it show the increased trust and acceptance toward crypto as an asset class from the orchestrators of centralised securities trading, it brings the potential for deeper integration between traditional securities and cryptoassets. One such prospect is the potential for seamless interchangeability between cryptoassets and securities trading, whereby a user can trade both types of asset on one interface or workflow and use features such as cross-margining between both crypto and securities accounts. In doing so, this could provide the potential to trade cryptoassets against securities, rather than only fiat currencies. In addition, application of institutional-grade technology and expertise to cryptoasset trading could help increase the rate of maturity of institutional cryptoasset infrastructure, which is currently lagging due to the retail-oriented nature of crypto trading infrastructure.
This is something we will be covering in greater detail in our Trends in Digital Assets 2024 report, which will be released later this year. Stay tuned for that.