Bank of America: TradFi Still Preferred by Institutional Crypto Investors

In the Brief:

  • Bank of America notes institutional demand spurs institutional-grade crypto products like Nasdaq's custody services
  • Institutional investors remain engaged despite recent crypto company collapses
  • Traditional finance institutions should fill any gaps
  • SEC rules may push traditional finance to offer more digital asset services
  • Tokenization is key as it permits asset trading, price discovery and liquidity increase

3 - 4 minute read

The cryptocurrency landscape is still growing, according to Bank of America (BAC), despite the market correction and bankruptcies seen in the previous year. BAC states that institutional demand is driving the offering of institutional-grade products, with Nasdaq being the newest addition to the financial industry in the digital assets space by planning to launch a digital asset custody service by the end of this quarter.

Institutional investors are one of the main drivers of the cryptocurrency market. They are typically high-net-worth individuals or large corporations that invest large amounts of money in digital currencies. The report from BAC suggests that institutional crypto investors are focusing primarily on the disruptive nature of blockchain technology, and that they remain engaged despite the recent collapses of crypto companies.

BAC expects the collapse of these crypto companies to cause institutional trading to slow down as they “reevaluate counterparty risk and ensure that custody, exchange, and broker-dealers are distinct entities or siloed.” However, the void left by these collapses creates an opportunity for “trusted and experienced TradFi firms offering institutional-grade products” to come in and fill the gap.

“We believe that TradFi institutions remain the counterparty of choice,” BAC said in its note.

The U.S. Securities and Exchange Commission’s Enhanced Safeguarding Rules could further drive TradFi institutions into the digital assets space, as it limits the ability of registered investment advisers to provide custody for clients’ tokens on most crypto-native exchanges. BAC notes that the SEC’s new rules will push traditional finance firms to offer more services in the digital assets space.

Bank of America also pointed out that the tokenization of real-world assets is a crucial driver of digital asset adoption. With a market worth trillions of dollars, the tokenization of assets will allow them to be traded freely, facilitating price discovery and increasing liquidity.

According to BAC, institutional investors are not deterred by the short-term collapse of crypto companies. They remain focused on the long-term potential of blockchain technology and recognize TradFi as the counterparty of choice. Furthermore, the report states that the SEC’s Enhanced Safeguarding Rules will force traditional finance companies to offer more services in the digital assets space.

The Bottom Line

The report from Bank of America suggests that the market correction and bankruptcies of crypto companies have not deterred institutional investors from investing in digital assets. The void left by these companies collapsing creates an opportunity for “trusted and experienced” TradFi firms to offer institutional-grade products that can meet the demands of the volatile market. This indicates that the interest of institutional investors in digital assets remains strong. Furthermore, the tokenization of real-world assets can be a significant driver of digital asset adoption, which traditional finance firms could use to their advantage.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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