CRYPTO MOVERS AND PRICES
Crypto is unchanged this morning as bitcoin continues to hold a tight range. Spot volumes over the last 24 hours remain below a shrinking 30-day average.
CRYPTO STORY OF THE DAY
Last week, 3 large crypto service providers made some sort of announcement on launching prime brokerage services. To the extent that these efforts are trying to attract investors from traditional finance, we think some mistakes of the past are being repeated.
The announcements were Coinbase's purchase of institutionally-focused trade execution platform Tagomi. Genesis revealing the purchases of UK-based custodian Vo1t while subsequently announcing their intention to create a crypto-prime brokerage. Finally, BitGo, a primarily crypto-custody service, launched what they refer to as, 'institutional-grade service for trading cryptocurrency.' All 3 of these businesses now have a mix of trading, lending, and custody. These offerings loosely make up those of a traditional prime broker, however, the term risks becoming a bit of a buzzword.
The lack of institutional participation in the 2017 rally was one of the defining features of the period. We have maintained that one of the primary reasons for this was a focus on building out physical crypto services to target those investors. Our research suggests that institutional investors owning physical crypto in wallets is problematic from a regulatory and operational perspective.
Since 2017, the most widely adopted institutional products have been CME bitcoin futures. We believe these firms' renewed focus on physical crypto exposure, while bolstering the infrastructure for specialists, will do little to bring new entrants into the fold. The analogy we would draw is to the oil market. Focusing on building out the physical infrastructure is akin to saying, 'we will attract institutional investors with more effective storage tankers and physical trading mechanisms.' The reality is that, just like institutional investors will never use a barrel of crude for its industrial purpose, they are unlikely to spend their crypto on purchases. Again similar to oil, we believe the most desired method of exposure for generalist institutional fund managers will be synthetic.