Institutional leverage will stabilise crypto, claim leading digital asset bankers

A recap of key institutional conversations from day one of London's Digital Asset Summit

The economic stress of the Covid-19 pandemic has driven an unprecedented institutionalisation of Bitcoin, with major financial players globally flocking to the cryptocurrency to hedge inflation.

And now, regulators worldwide are beginning to wake up to the idea of digital assets, with financial agencies anticipated to begin tackling the emerging industry next year.

Needless to say, at London’s 2021 Digital Asset Summit – where Europe’s leading figures from across institutional finance get together to discuss the digital asset space – there were some serious conversations around the table. Here’s what the big players had to say…

“Only a few big players can offer billions in liquidity”

Chris Harmse, the Managing Director for BVNK (an institutional-grade cryptocurrency banking platform), explained the two types of leverage active in the market this year.

“There is increased institutional leverage, the type used by market makers,” he explained.

“100x perpetual futures … driving big candlesticks.

“But there is also excessive retail leverage.”

With regulation seemingly on the cusp – stemming from and attracting more institutional finance – it seems that payment companies, treasury companies, and monolith scale institutional lenders are all set to enter the space.

Leon Marshall, the Head of Sales at Genesis – the manager of the biggest derivatives book in the industry, agreed with this sentiment.

The Institutional Head described regulatory clarity as “the biggest moment in the space”, explaining that it would allow new participants in the lending markets – affording unprecedented liquidity for the markets.

“Only a few players can offer billions in liquidity,” he added.

And while regulators may seem focused on protecting retail investors, Leon explains that the institutional players “understand what they’re trying to do”.

Institutional leverage will reduce volatility

But it’s clear that many in the institutional crowd see this as a big opportunity. Charlie Meraud – the President of Woorton (a top-level liquidity provider) explained that “the next big move is to provide more options for institutional traders”.

Primarily, this would come in the form of increased liquidity for derivatives and options. He was excited to explain that it was likely this institutional lending market would have a solid one-to-two-year window until regulators turned their attention away from the retail side.

David Olsson, Senior Vice-President of BlockFi, believes this will have benefits for the whole of the crypto community.

“Leverage provided to institutions dampens market volatility,” he explained.

Institutional players are “not excited to see liquidations in high volatility” he clarified and insisted that retail investor protections would be incredibly healthy for the industry.

Olson also argued that he thinks the onset of Bitcoin and eventually Ethereum ETFs will bring an end to funding rates – as happened with gold – but while this is a big step he believes there is one massive issue to tackle.

“Interoperability,” he concluded.

Read more: The UK is “falling behind in crypto” ahead of largest capital event of 2022.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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