Why the Rise of Fintech is Breaking Down Barriers for Institutional Traders in Crypto While there are signs of life in the cryptocurrency market after some major economic challenges that arose throughout 2022, the crypto landscape still struggles to present itself as an appealing prospect for institutional investors.

Emerging fintech is helping more institutional traders take full advantage of the world of cryptocurrency trading by breaking down the barriers to trading. Blockchain, in particular, with its leading role in the development of cutting-edge cryptocurrency projects, is leading the way in creating a more favourable ecosystem for institutions to trade.

Following a difficult 2022 for the cryptocurrency ecosystem, we're already seeing the return of cautious optimism to crypto markets in the first half of 2023. The continued growth of fintech firms in their pursuit of maximizing crypto acceptance is likely to help provide a more vibrant ecosystem for cryptocurrency trading moving forward.

As CoinMarketCap data shows, the total market capitalization of the cryptocurrency market has grown from around $800 billion at the beginning of 2023, to a peak of around $1.3 trillion by mid-April. Alongside this, trading volumes have grown from lows of $16.5 billion in early January to peaks of over $100 billion within Q1.

While there are certainly signs of life in a cryptocurrency market that's been relatively dormant in the wake of the major economic challenges that arose throughout 2022, the crypto landscape still struggles to present itself as an appealing prospect for institutional investors.

Although there are some challenges to hurdle, we're seeing more use cases in fintech firms addressing institutional concerns. With this in mind, let's explore the barriers to institutional traders in crypto, and how fintech is actively addressing them:

Prioritizing compliance.

One of the most significant hurdles that institutions face in the world of cryptocurrency trading revolves around compliance and matters of strict governance that can impact the way in which digital assets are handled.

For instance, institutional traders may not actually hold the assets that they're trading, which are in fact owned by their clients.

Because of the uncertain regulatory environment that surrounds crypto, the challenge of accounting and compliance can be especially complex for institutions attempting to keep up with tax implications surrounding their assets, especially if clients come from different countries and tax residencies.

Due to the decentralized and anonymous manner in which cryptocurrencies operate, it can be considerably more difficult for institutions to track their transactions and audit their records, but the emergence of cryptocurrency-focused tax solutions can help to provide specialized portals to professionally manage returns on crypto assets.

Counterparty risk.

In the wake of the surprising collapse of cryptocurrency exchange FTX, the matter of counterparty risk once again became a major talking point among cryptocurrency investors of all scales.

"When you look at digital assets and the way they trade, the market structure of exchanges and their positioning mean that for institutions it's very difficult for them to face counterparty credit risk with some of these jurisdictions," notes Sabrina Wilson, COO of Copper.co.

For institutional trading firms, counterparty risk can be a fatal threat. This is because the risk of a counterparty defaulting on its obligation can cause an institution to lose its clients' funds in their entirety. However, institutionally-focused trading terminals like Skarb are an example of how professional traders can better understand, minimize and diversify away from outsized counterparty risk.

Skarb's unique trading terminal offers clients a single point of access to manage trading, position monitoring, and risk management throughout multiple liquidity venues. This means that institutional traders can utilize a vast array of exchanges and liquidity pools to set up trades all within a single and robust user interface.

Skarb's unified terminal means optionality across liquidity venues and the opportunity for investors and traders to seamlessly utilize other asset safeguards such as custodial services — housing assets off exchange until they are to be transacted.

In terms of price discovery, Skarb's vast array of liquidity providers along with their pre-trade price analyzer provides traders with a path to optimal execution in an efficient and effective manner. Proprietary algorithmic trading tools take it a step further, allowing you to execute trades across multiple venues simultaneously — while real-time trade reporting and trade cost analysis tools round out the offering and complete the trading story.

Easing environmental concerns.

Another barrier for many institutional trading firms involves the fierce carbon footprint left by cryptocurrencies like Bitcoin, which can stop ESG-focused traders in their tracks.

Today, the readings aren't great for the sustainability of crypto. In the U.S., cryptocurrency activity is estimated to emit from 25 to 50 million tons of CO2 every year, while Bitcoin mining alone currently consumes more energy per year than the entirety of Norway.

Sustainability is a key consideration for modern investors and can weigh heavily on client-focused institutional trading firms. However, technological innovations are helping to ease the environmental burden of cryptocurrencies.

We're already seeing fintech leaders in the world of cryptocurrencies turn their hands to building more sustainable projects. In 2022, leading altcoin Ethereum switched to a proof-of-stake (PoS) framework, signifying a move away from the high energy consumption-based proof-of-work (PoW), which focuses on using CPU power to 'mine' crypto.

Other sustainability-focused crypto projects like Chia, Cardano, and Nano have all emerged in recent years as a green alternative to PoW coins, while other projects have been launched to counter the poor environmental credentials of the likes of Bitcoin.

The Sustainable Bitcoin Protocol has sought to introduce Sustainable Bitcoin Certificates, or SBCs, which are transferable assets that represent sustainably mined Bitcoin. This would operate as a financial incentive for Bitcoin miners who pass a renewable energy verification process.

Despite the challenge of cleaning up Bitcoin remaining a major one to overcome, it may potentially reshape crypto as a more energy-conscious investment option for institutions.

While these barriers are likely to remain in the short term for institutional traders, it's clear that the emergence of fintech has presented a growing range of solutions for overcoming these hurdles and positioning crypto as a more efficient trading option.

Although institutional investors are well aware of the vast potential of crypto, many barriers and risks persist for traders. While there are still barriers to hurdle, we can be sure that fintechs will continue to make the gap between traditional finance and crypto as small as possible in the future.