1. Accelerated institutional adoption
2020 was certainly the year that BTC caught the eye of traditional, global macro investors and hedge fund managers such as Paul Tudor Jones and Stanley Druckenmiller, both of whom are buying BTC as a "hedge" to "inevitable inflation" and expecting it to "work better" than gold. Large institutions have been adjusting their positions quickly, from Manulife to Guggenheim Investments. Most recently BlackRock, the world's largest asset manager, appears to have granted at least two of its funds the ability to invest in bitcoin futures which is a major milestone for institutional acceptance. We believe that this trend is set to continue in 2021, expect to see more high-profile names join the fray.
2. The year of crypto derivatives
Although crypto derivatives have been around since 2017, we are likely to see a much broader offering of crypto derivatives in 2021. Institutional investors demand more sophisticated products, allowing them to execute flexible trading strategies, effectively manage risk, and maximize capital through risk-averse strategies such as arbitrage. A broader subset of derivative products will be rolled out, and the uptake will increase as these are likely the vehicles of choice in order to achieve desired exposure by an institutional investor base. We expect to see variance swaps and volatility hedging products enter the market in the coming year.
3. European regulatory landscape evolves
Last year, we saw landmark moves to open the cryptocurrency markets in the U.S., including the Office of the Comptroller of the Currency (OCC) granting permission for U.S. banks to provide cryptocurrency custody services for customers and allowing national banks in the U.S. to use stablecoins and blockchains to facilitate the settlement of payments. This year, we expect to see more European regulators to communicate clearly their stance on digital assets, in fact just last week European Central Bank (ECB) President Christine Lagarde recently called for Bitcoin to be regulated on an international level. This is a space to watch closely.
4. Stablecoins grow in popularity
With Central Bank-led fiat printing policies expected to remain a fixture in 2021, stablecoins will allow investors to on-ramp into digital assets through fiat. We expect the market capitalization of mainstay USD-pegged stablecoins, such as USDC to grow substantially in 2021. Facebook's Diem (formerly known as Libra) is also anticipated to launch in 2021, which will be a momentous development for mainstream adoption of the asset class. The US dollar -backed stablecoin promises to operate with a more stringent emphasis on sanctions compliance, as well as clamping down on money laundering and terrorist financing.
5. Focus on trading efficiency
Unlike trading traditional markets like equities, cryptocurrency markets never sleep. There is no opening or closing bell, meaning that traders have unlimited opportunities to capitalize on the volatility and intra-day swings that have become the hallmarks of this nascent space. However, traders need advanced tools to manage their risk or maximize their gains. Expect to see a rise in tools such as Access, which offer fast execution and trading software such as Tbricks with innovative algos that allow traders to set rules, meaning they can capture trading opportunities around the clock.
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Richard is CEO of Diginex. He has 20+ years of experience spanning finance, start-ups, investment, and fintech sectors.
Richard is Hong Kong Regional Ambassador for the Global Blockchain Business Council (GBBC), and has spoken extensively around the merits of blockchain for business and finance at WEF (Davos) and the United Nations (Geneva).
Rob joined Itiviti as CEO in April 2019. He has a background of 25 years of experience in the financial technology market. Prior to Itiviti Rob ran many businesses for FIS including its Cross-Asset Trading & Risk unit which provided banks, hedge funds, insurers, asset managers and energy trading firms with front through back-office multi-asset class trading infrastructure and enterprise risk systems.
Rob has huge international experience having run global businesses and lived in New York for 10 years where he ran SunGard’s hedge fund businesses. Rob has a BA in Biology from Oxford University.