In terms of spot bitcoin to fiat trading, LMAX Digital has the second-largest volume in the market. The inflow of institutional money seems to have become a self-reinforcing mechanism, especially following the high-profile investments of Square, MicroStrategy, and Tesla.As seen from the chart below, the trading volume for CME’s fully-regulated bitcoin futures has grown significantly since the beginning of 2020. On average, more than $2.6 billion worth of bitcoin futures changed hands daily on CME in May this year. Moreover, from the beginning of 2020, the open interest increased from around $200 million to above $3 billion, before decreasing to around $1.5 billion again with the latest market correction. These contracts are only available for institutional investors and show the explosive demand for bitcoin exposure from this investor group.
Although several crypto funds today effectively work like an ETF, the first to carry the ETF label was introduced in Canada in February this year. Several issuers have lined up to get approval for the first Bitcoin ETF in the U.S., but none have been approved yet.Part of bitcoin’s value lies in its ability to be self custodied. However, many institutions are unwilling to expose themselves to the risks associated with it. Instead, they seek custody solutions for digital assets as robust as those for traditional assets. Lately, we have seen the arrival of trusted custodians in the bitcoin market. Large financial institutions like BNY Mellon, Standard Chartered, and Northern Trust are getting ready to enter bitcoin custody, eliminating one of the biggest hurdles to invest for many traditional investors.Moreover, Fidelity has already built a bitcoin custody service for its institutional clients. These traditional firms are joining several crypto native custody providers, such as Coinbase, Gemini, and BitGo. The dominos are falling fast.With the domino effect at play, the trend of rising institutional demand is expected to continue. Some are beginning to dip their toes into the market. We have seen traditional financial players gain exposure to the market through their investment portfolios. Examples include Goldman Sachs investing in BitGo, Visa investing in Anchorage, Boston Consulting Group investing in Bakkt and BNY Mellon investing in Fireblocks.Bitcoin is becoming increasingly legitimized through the growing market and infrastructure, and continues to attract the attention of both retail and institutional investors as an emerging asset class.