Having demonstrated several ups and downs in the past, the cryptocurrency industry is considered to be one of the most volatile in the world. 2022 was a landmark year for the crypto industry with numerous podcasts, headlines, and TV discussions. On the one hand, this industry faced increased attention from the part of regulations and governments. On another hand, it shifted to an institutional-grade adoption and the use of blockchain by major traditional finance companies. Who are institutional crypto investors and what approaches do they use the most? In this article, we will discuss the main aspects of institutional crypto trading and holding.
Who Participates in Institutional Trading of Crypto?
The key participants in institutional trading include hedge funds, investment banks, tech companies, payment processors, pension funds, high-net-worth individuals, venture funds, etc.
One of the most popular ways to engage in trading is to become a crypto exchange market maker. This is a highly beneficial role for an investor, who pours large trade volumes into a trading exchange and receives fee reductions and earnings from bid-ask spreads. A market maker must prove its credibility and capital, as well as compliance before partnering with a trading platform.
Another approach is to engage in crypto derivatives, such as futures contracts or options tied to the value of cryptocurrencies. These instruments allow for risk management and speculation on price movements. Investors should carefully learn the fees and conditions of an institutional trading platform before engaging in futures trading.
What is Crypto Holdings?
Crypto holdings refer to the digital assets owned and held by institutional entities. Crypto holdings encompass a diverse range of digital assets, such as:
- Cryptocurrencies – the most common are Bitcoin and Ethereum.
- Tokenized assets – tokens that represent ownership in real-world assets, such as real estate, art, or commodities.
- Stablecoins – cryptocurrencies pegged to the value of traditional fiat currencies like the dollar or euro. Stablecoins provide a stable store of value and are often used for trading and settlement purposes.
- Security tokens – represent ownership in traditional financial instruments like stocks, bonds, or other securities. Security tokens are subject to regulatory frameworks governing traditional securities.
While holding crypto, an investor should make sure their tokens are in a safe place. Institutional-grade custody solutions are provided by institutional crypto exchange platforms and ensure the safe storage and protection of private keys associated with these digital assets.
Crypto holdings play a central role in the investment strategies of institutional entities within the crypto space. Institutions may engage in long-term holding, active trading, or a combination of strategies based on their investment objectives.