Institutions Stick to Crypto despite Market Upheaval in 2022

New research by Eurex, one of the world’s largest derivatives exchanges, has found that institutional adoption of cryptocurrency is still on track this year despite extreme price declines and crypto businesses' failure that defined the market this year.

The study, conducted in collaboration with the technology consulting firm, Acuiti, is based on a survey of 191 companies selected across the market. The research project sought to understand the institutional adoption of cryptocurrencies, the instruments being traded and the opportunities and challenges of trading digital assets.

Crypto Market Upheaval

In early November, the troubled crypto exchange FTX filed for bankruptcy protection in the United States in the aftermath of its liquidity crisis. This was followed by the bankruptcy of BlockFi, a US-based crypto lender which had significant exposure to FTX.

Both events join the list of failed crypto enterprises that have marked 2022, including the crumbling of crypto lenders Celsius Network and Voyager Digital as well as the crypto hedge fund, Three Arrow Capital.

These events have had repercussions for the broad crypto market, with Bitcoin deposits on exchanges dropping to a two-year low in August. Furthermore, the market capitalization of the global cryptocurrency industry as of December 8, 2022, stands at about $860 billion (according to CoinMarketCap), which is down from over $2 trillion at the start of 2022.

‘Arbitrage Opportunities'

However, despite these trends, Eurex said, “institutions have not abandoned their interest in digital assets.” Instead, they “are likely to strengthen existing trends toward adoption.”

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Eurex noted that institutions are continuing with their crypto activities despite decreasing positive perceptions of digital assets among their clients. This is “either due to the continued opportunities for arbitrage across trading venues or chance to gain exposure to price movements in digital assets,” the Deutsche Börse AG-owned company explained.

Crypto Derivatives Remain Top Choice

However, while institutional adoption remains, recent events have driven concerns about counterparty risks and a lack of regulation of cryptocurrencies to the top of the agenda of institutional investors. Hence, crypto derivative products listed on traditional exchanges remain their most popular method of getting exposed to digital assets, Eurex's report said.

“About 60% of institutional firms surveyed considering or already trading digital assets choose this route to access. As this route is covered by derivatives regulation, it often slots into existing relationships with the exchange and benefits from central clearing. The likelihood is that their use by institutions will only grow,” the firm explained.