Data Driver Investor: Crypto Risk’s Retards Institutional Adoption

By Rajat Gaur

In today’s time, institutional investors are steadily stepping into the cryptocurrency industry. Due to the increasing adoption of retail the risks associated with cryptocurrencies hold a massive size. 

Cristian Bohn, Co-founder and CFO of ParFin, the Company is offering clearing services for cryptoasset, which has a deep insights on the institutional investors are mostly indulging their feet in the cryptocurrency industry. This leads to solving the errors which have critical risks factors. 

Bohn expresses overview of the regulatory framework of crypto as an asset class is somewhat clear in a few countries that majorly host financial centers. Thus, such kind of institutional asset managers with minimum risk tolerance stay away from the industry. The one who has maximum risks associated may pretend regulators guidance to be closed in the future legal approach. 

Capital allocation is believed to be inefficient in terms of a barrier giving a stop on institutional investors from stepping in to the industry. With the lack of services and infrastructure required to handle cryptocurrencies and fiat currencies in between custodians, banks, exchanges leads to irrelevant terms of risks. 

Discussing the previous market scenario, the capital allocation was based on intermediaries that have hardly any compulsion in the cryptocurrency industry. Furthermore, smart contracts and automated software hold decentralized finance movements escalating the needs of institutional asset managers. 

Bohn has smartly covered a few major risk factors asset managers accounting an expert analysis in an investment. Moreover, these include security risks, counterparty risk, liquidity, operational, and market. In the cryptocurrency industry there is essential counterparty risk as counterparties encloses genuine information.

The data-driven investors recorded that institutional investors offer permits to use cryptocurrency counterparties with major risk policies to traditional financial market counterparties.

Operational risk is something to talk about, as the cryptocurrency industry loses private keys or provides access to send transactions to the wrong address. To bring this into the challenge, institutional asset managers use crypto custody solutions. 

Bohn believes that quality service from institutional asset managers with traditional financial institutions initiates to deliver crypto custody services.

Security token exchanges called tZERO might offer the regulated framework for institutional investors to step in the industry. It is possibly anticipated to become the most desired trading venue. Furthermore, more start-up forms are focusing on the issue of lack of infrastructure by institutions to enter the industry, among ParFim.