Institutionalizing Crypto: Transaction Accounting and Processing Meets the Blockchain

The institutionalization of the crypto market is happening. While the market was kick-started by retail-focused platforms few institutions would trust – think: Mt. Gox, which initially traded “Magic: The Gathering” cards – today, some of the largest institutional investors and exchanges are developing crypto infrastructure, as firms including Fidelity and Intercontinental Exchange launch custody and exchange platforms. While the majority of asset managers are still only eyeing the crypto markets, there is a cadre of institutional investors that already have staked a claim in this nascent and institutionalizing world.

Even as an increasing number of firms dip their toes in the crypto and digital-asset markets, however, the processing of these securities remains very different than investing in traditional bonds, stocks and derivatives – but not for the reasons many believe.

At first glance, the big difference between crypto and traditional assets may appear to be their digital nature; but most traditional assets have been dematerialized for decades. While no one has ever held a physical Bitcoin, when was the last time you held a share of IBM, Apple or Vodaphone? Most people under 40 have never held a physical share of stock, or even a bond (maybe outside of a savings bond).

No, the big difference between investing in crypto assets versus traditional assets has more to do with where, and how, these assets are traded and transactions are processed. And the differences are significant.

To help you understand these differences before you plunge into the world of crypto and strike that first trade, this TABB Group note examines the post-trade processing challenges associated with crypto assets and the need for new infrastructure.