Crypto Institutional Trading: Why Is It Attractive and Who Sets The Rules?

Institutional adoption of crypto assets has been gaining momentum starting from the 2020s. Companies participating in the crypto market include financial entities, tech corporations, hedge funds, and family offices. On the one hand, they don’t want to miss out on the opportunities offered by the crypto industry. On the other hand, they aim to stay within the regulatory framework when tapping into the crypto sector.

For example, when choosing a platform for institutional crypto trading, investors strive to adhere to laws and regulations in the jurisdiction where they operate and protect their funds from theft or third-party access. So there must be a set of rules for exchanges to adhere in order to meet all the regulatory requirements and maintain investors’ safety.

Today, we will discuss the benefits of crypto trading for institutions and the authorities that control crypto business in some countries.

Benefits of Crypto Trading for Institutions

Here are the reasons why companies engage in crypto trading:

• Decentralization. Cryptocurrencies function on decentralized blockchain technology, meaning they operate without control from any central authority.
• Security. Cryptocurrencies employ advanced encryption tools to secure transactions and fraud attempts.
• Accessibility. Cryptocurrencies are accessible to anyone with an Internet connection, it does not matter where you are and what your financial status is.
• High returns. Crypto assets (Bitcoin, in particular) have many times proved their possibility to add a few zeroes to the initial amount invested.
• Anonymity. Cryptocurrencies provide users with a level of anonymity, appealing to those who value privacy.

By engaging in institutional crypto trading, companies may participate in a market-making program and make a profit from bid-ask spreads and trading fees.

Regulations in Crypto

Institutional services offered by crypto exchanges must align with existing regulations. The lower house of Parliament in the U.K. approved the inclusion of cryptocurrencies under the governance of the Financial Services and Markets Bill. This indicates ongoing efforts to regulate digital currency holdings within the framework of the nation’s financial services regulations. 

The Markets in Crypto-assets Regulation (MiCA) was ratified by the European Council on October 5, 2022. Expected to be approved and published in Q1 2023, it will come into force 20 days later, with most rules becoming effective 12 to 18 months afterward. MiCA aims to establish a unified regulatory framework for crypto across the EU, making it the first global instrument to address issuers, institutional exchange service providers, and specific categories of cryptocurrencies.

Ongoing regulatory developments highlight a global effort to establish a clear framework for the crypto sector, enhancing investor protection and institutional trust.