Appetite for digital assets – despite the recent market turbulence – has been very strong over the last few years. According to a study by Fidelity Digital Assets, seven in 10 institutional investors anticipate that they will have allocations to digital assets soon.

“We are seeing more investors – both on the institutional and retail side – wanting to access a wider range of assets. In many instances, allocators are building up portfolios comprised of both traditional and digital assets,” says Ortiz-Repiso. He also adds that European investors are now starting to catch up with North American institutions by increasing their exposures to crypto assets.

Activity has been buoyant in the crypto-currency derivatives space. According to cryptoCompare, a crypto-currency market data provider, 63% of the total trading volumes in crypto-currencies is generated by derivatives trading. “Certain institutions – such as pension funds – do not want to invest directly into crypto-currencies, but they are looking to gain indirect exposures to the asset class via derivatives,” says Ortiz-Repiso.

Ortiz-Repiso notes that interest in crypto-linked exchange traded products (ETPs) has also been strong. Data shows trading turnover on the SIX Swiss Exchange in products with crypto currencies as underlying exceeded the CHF 8 billion mark for the first time to top CHF 8.6 billion in 2021, corresponding to a 673% year on year increase. The number of transactions also jumped sixfold in 2021 with 354,542 trades being carried out involving crypto-products – a 634% jump from 2020.

As client demand grows, post-trade providers need to make sure they have the infrastructure in place to support digital asset trading, says Ortiz-Repiso.

This is something which SIX is looking to facilitate. In March 2022, SIX and LMAX Group, a leading operator of institutional exchanges for FX and crypto-currency trading, partnered to launch cash settled, centrally cleared crypto-asset futures. The launch will include centrally cleared USD settled Bitcoin and Ethereum futures, trading 23 hours, five days a week, with the full product roll out to be extended to 24/7 trading. Read more.

Changing Waves in Custody

Although custodians have an impressive track record of pursuing digitalisation and innovation, Hänseler told TNF that the industry’s model remains largely intact, insofar as that its overriding purpose is to safekeep assets, process corporate actions, facilitate settlements and help customers with their various tax requirements.

The only difference, he says, is that clients now expect these services to be provided more cheaply and efficiently. These evolving client expectations are prompting providers to do one of two things.

The first is to embrace technological innovation. While disruption has been ongoing for decades now, Hänseler says the growing adoption of distributed ledger technology (DLT) and other innovations could help providers deliver superior services to clients at better value.

Alternatively, some providers may choose to consolidate amid the mounting cost pressures, although Hänseler warns this could undermine competition and choice in the market.

An evolving industry needs a forward-thinking counterparty

With clients looking to invest into digital assets – while simultaneously demanding superior services from their providers – custodians and FMIs (financial market infrastructures) are having to respond. At the heart of this lies innovation, something which SIX puts at its core.