Navigating Crypto Market Evolution: Insights from Expanding Connectivity Study_

The crypto markets are poised for increased segmentation as trading firms seek to expand their trading venues, according to a study by Acuiti and BSO that investigated connectivity intentions among institutional trading firms.

Among the surveyed firms engaged in crypto trading, 57% expressed their desire to diversify the number of trading venues they engage with. The motivations behind entering new markets varied, with market entrants aiming to broaden their network connections, while more established firms sought exchanges offering competitive trading costs and margining strategies.

For some, the prevailing regulatory uncertainties have prompted a reevaluation of their trading market choices.

The insights, as unveiled in the report "Expanding Connectivity: Navigating Challenges and Solutions for Trading New Markets," indicate that the landscape of crypto venues is still in the process of maturation.

In the realm of futures markets, whether this evolution leads to a winner-takes-all scenario, as commonly observed in traditional finance (TradFi), remains uncertain. The crypto market remains notably fragmented, with market share dispersed across multiple trading platforms.

Although the options market displays a more concentrated market share, with Deribit accounting for nearly 90% of daily volume, signs of fragmentation emerge as the overall market expands.

A pivotal aspect that will shape this evolution is the establishment of regulatory frameworks in pivotal trading jurisdictions.

Different regions are at varying stages of implementing such frameworks.

For instance, authorities in Dubai have already introduced a comprehensive regulatory structure for crypto, including a dedicated regulator overseeing the asset class.

The Markets in Crypto Assets regulation (MiCA) has been passed in the European Union and is slated for introduction in the coming year. Meanwhile, the UK government is conducting consultations for its crypto asset regulatory framework. Similarly, other jurisdictions, such as Hong Kong and Switzerland, are developing comprehensive regulations to attract the crypto market.

Regulation's influence on trading venues manifests in two ways: first, established offshore-regulated native media seek authorization in regions like Dubai; second, new platforms are emerging in the EU and UK, among other areas, operating under existing regulatory frameworks, in anticipation of their domestic regulators developing transparent and regulated rules for crypto trading.

In a survey question by Acuiti, participants were asked about their predictions regarding the evolution of crypto trading over the next three years, particularly concerning the shift in trading flow destinations.

Interestingly, opinions were divided: roughly a quarter of respondents believed the flow would migrate to new onshore regulated crypto markets or remain predominantly offshore native markets. 15% anticipated a shift to established TradFi markets, and 8% foresaw movement to over-the-counter (OTC) markets.

Notably, the most significant percentage, 31%, predicted that native markets obtaining onshore regulation would expand their market share.

These venues benefit from significant existing market shares and substantial retail participation. Additionally, they possess established connectivity and familiarity with processes and workflows.

The future structure of the crypto market remains uncertain, but the findings of this report suggest that incumbents continue to play a pivotal role.

Download the report here to read the complete lists and learn more about how firms approach new markets. 

*This is not the original blog. The original article was written and published by acuiti.io  on the 9th of August, 2023.