Wall Street Giants Set to Challenge Binance, Coinbase, and Crypto Exchanges

Crypto exchanges have come under close scrutiny following scandalous events, but the most significant roadblock could come from Wall Street.

According to a report by FT on May 31, traditional financial institutions such as Standard Chartered, Nomura, and Charles Schwab are actively involved in developing and funding new cryptocurrency exchange and custody platforms.

The market setback and price declines have turned away many investors. But Wall Street powerhouses remain confident that fund managers still have an appetite for crypto trading.

TradeFi Giants Bring More Challenges

The recent incidents involving FTX bankruptcy and the collapse of the Terra ecosystem have highlighted the risks associated with investing through unregulated exchanges. But firms take them as major advantages.

Well-established reputation and regulated characteristics could challenge crypto-native exchanges like Binance.

Gautam Chhugani, Senior Analyst of Global Digital Assets at Bernstein, emphasized that traditional institutional investors, with their preference for counterparties with a long history and regulation, lean towards established entities.

Chhugani stated, “The large, pedigreed, traditional institutional investors definitely prefer dealing with counterparties who they know have been in existence for years and have been regulated in the traditional sense.”

To regain the trust of crypto investors and differentiate themselves from last year’s failures and malpractices, traditional firms are leveraging their expertise in the finance industry, long-standing reputations, and comparatively lower regulatory scrutiny to attract clients.

Binance and Coinbase will face fierce competition from these new legacy-backed crypto platforms.

Differentiating themselves through increased transparency, traditional finance firms focus on creating more transparent operations, particularly by separating exchanges from asset custody to mitigate conflicts of interest and reduce risk.

Notably, BNY Mellon and Fidelity already operate separate divisions for crypto custody, and the Nasdaq is awaiting regulatory approval for its own service.

Jez Mohideen, CEO of Laser Digital, a crypto trading and VC firm owned by Nomura, pointed out that some crypto exchanges fail to provide the best execution or prices. He believes that the active involvement of traditional firms in the crypto space will bring about more transparency and convergence in pricing.

TradeFi Investors Are Still Interested

A recent survey conducted by EY-Parthenon, which included 250 asset managers, revealed that half of the respondents would consider switching from crypto-native groups to traditional-backed companies if they offered similar services.

Furthermore, 90% of the participants expressed trust in traditional financial groups to act as custodians for their crypto assets.

Another survey conducted by Consensus in April also revealed several key findings regarding the sentiment of institutional investors and asset managers toward crypto investing.

The survey showed that most participants were positive about investing in crypto. According to the findings, almost 70% of institutional investors and over 95% of managers favor crypto investing.

This is good news for the crypto industry, but it depends on regulators’ clear and favorable rules.

32% of institutional investors believe that large-scale institutional investments in crypto are already happening, while 16% expect it to occur within 1-3 years and 36% within 3-5 years.

Only 4% think it will never happen. Managers were less bullish in the short term, with 12% believing it’s already here, 46% expecting adoption in 1-3 years, and 30% in 3-5 years.

Despite their bullishness towards crypto investing, institutional investors remain concerned about the U.S. regulatory uncertainty surrounding crypto. The top catalyst to increase crypto investment is the clarity of the U.S. regulatory framework. The second catalyst is the availability of solid investment opportunities.

In response to recent events, 85% of institutional investors and managers expressed a commitment to enhancing their due diligence processes. They plan to spend more time carefully evaluating deals, asking for greater transparency, and investigating operational risks more thoroughly.

Of course, until the freeze of crypto winter thaws, it will be hard to know where any of this is going.

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