In 2021, the crypto market boomed. Its capitalisation grew globally from $760 bn to $2.1trn with up to 295 million estimated users. These developments led to a new dynamic regarding trading execution venues. The new Crypto Trading Report 2022 by Finery Markets and PwC Switzerland provides an overview of the current trading landscape and analyses the key factors that impact the choice of exchange venues.
Survey results show that the right location is of paramount importance. Jurisdictions that promote the digital asset landscape and refrain from restrictive regulation have a high potential for becoming hubs for digital assets. In terms of having institutional investors that invest in digital assets and hold licenses in their country of domicile, Switzerland is regarded as one of the leading countries worldwide.
Dr. Jean-Claude Spillmann, Director at PwC Legal Switzerland, explained: “Switzerland has become one of the world’s most favorable jurisdictions for digital assets trading venues by offering a robust legal framework that has been specifically adopted to ensure a high degree of legal certainty for DLT-based business models and that allows [for taking] advantage of the respective particularities, a technology-neutral and approachable yet strict financial market regulator, a stable and secure political environment, the experience and reputation of having been a leading global financial center for many decades and, last but not least, by providing a great pool of well-educated international and local talent”.
Crypto market is in need of development
Several indicators hint an increase in the adoption of cryptocurrencies. For example, traditional financial actors show more and more interest for the crypto space. Seventy per cent of the participants in the survey already trade digital assets. However, 60% stated that they would like to improve their current trading setup.
This suggests that the market is not yet mature. This is also supported by looking at the number of trading partners. Nine per cent of institutional investors only use a single venue for execution, probably to equally distribute the risk of a single point of failure. Over 25% of the survey participants have more than 10 trading partners which shows a highly fragmented market and a need for consolidation.
When choosing an exchange, more than two third consider execution and liquidity quality as their key criterion. Regarding crypto instruments, 96% of the survey participants trade on spot markets but the majority combines this instrument with others, such as futures or options.
CEX remains predominant trading venue
Currently, over 18,000 currencies are available for users through more than 400 exchanges. The monthly volume traded diverges considerably. Although most investments were made below $10 million dollars, the report shows a shift to increasing amounts where investors trade more than $10 million dollars in crypto assets.
When it comes to choosing a venue to trade digital assets, every investor is likely to consider transactional factors. Ninety per cent of the survey participants trade on CEXs while around half trade on OTC. When trading in larger volumes the OTC desk solution is considered most effective. Despite regulatory uncertainty, 30% trade on DEX.
“Building a trading setup is essential for long-term efficiency of business operations,” said Konstantin Shulga, CEO of Finery Markets. “At Finery Markets we are excited to be part of the research that is intended to help institutions navigate in the fragmented digital assets trading space”.
