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Institutional Investment in the Digital Assets Space Still Modest, Regulatory Parity can Change it — BIS Report

The Bank of International Settlements looked into what motivates banks and other financial institutions to enter the crypto market?, and what factors can propel institutional activity in the digital assets industry? So, let’s look at the findings.

Key Takeaways
- As per the recently published BIS report, most of the recent growth in the digital assets space was attributed to the retail activity in the crypto world, with minimal information on the role of institutional investors.

- The report further states that major banks have only exposure worth $200 million to digital assets, which is minuscule compared to the total market cap of the global crypto industry.

- Regulatory Parity between banks and virtual assets service providers (VASPs) will bring more institutional investment into the crypto market.

A recent Bank for International Settlements (BIS) report looked at the level of institutional investment in the virtual assets market, which has grown by leaps and bounds in the last couple of years. The report argues that the retail activity in the crypto markets hogs all the limelight, with limited information available on the involvement of traditional financial organizations in the nascent crypto assets industry.

Thus, BIS decided to research: what motivates banks and other financial institutions to enter the crypto market?, and what factors can propel institutional activity in the digital assets industry? So, let’s look at the findings.

The Factors That can Attract Institutional Investors

The BIS report states that with growing user numbers, further innovation, economic development, and regulatory clarity, the crypto industry will be able to attract funds from the traditional financial sector successfully. So far, institutional capital has been relatively minimal, which is evident from the fact that major banks have only $200 million of exposure to digital assets. In comparison, the global crypto market at the time of writing is $1.3 trillion. It shows just how inconsequential is the involvement of banks in the virtual assets market currently.

Even with pretty limited exposure to digital assets, banks seem to prioritize virtual asset exchanges that are at the least lightly regulated. Thus, it goes without saying that traditional financial organizations will always stay clear of any crypto exchanges that aren’t regulated. Regulated exchanges are popular among both retail investors and institutional ones.

That said, regulatory parity is the need of the hour, considering the difference in the regulatory treatment of banks to that of crypto-based businesses, such as exchanges. Banks have immense support from authorities, which is something that virtual asset service providers don’t get. For instance, the Travel Rule, which was already applicable to the banks, and investment funds, among other traditional financial players, have been extended to the crypto industry, but minus the support.

The only way that Virtual Asset Service Providers have here is to ensure data privacy at all costs and take appropriate measures to offer the utmost privacy to clients.

Talking about Travel Rules, how can we miss mentioning “Veriscope”? After all, Shyft’s Veriscope is the best product available to comply with Travel Rule without any hassles. Plus, it solves the much-dreaded “Sunrise” issue that makes compliance with the Travel Rule a tricky process.

Make sure to visit our website to get a first-hand look at how Veriscope can enable your company to stay compliant. Follow us on Twitter, LinkedIn, Facebook, Discord, Telegram, and Medium to stay up-to-date on all things about the evolving regulatory landscape for VASPs.

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