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Among trading clients, interest in cryptocurrencies heats up

Neill Penney
Neill Penney
Managing Director and Co-Head of Trading

Trading clients seem to be warming up to cryptocurrencies, like Bitcoin and Ethereum, but they want more news, analysis and data before they take the plunge.

Cryptocurrencies are the stuff of headlines, philosophical debate and water-cooler conversations. But will they ever be an accepted aspect of the mainstream financial industry?

Maybe, judging by the responses to our recent survey on the topic.

Respondents to the 2018 Trading Client Cryptocurrency Survey indicated an interest in cryptocurrencies at a stronger rate than they did a year ago, but said they needed news, data, analytics and reporting measures to feel secure about cryptocurrencies.

What are cryptocurrencies?

Cryptocurrencies are unregulated digital currencies that are thought to have value without the backing or authority of a government. Encryption is used to verify the exchange of funds. The best-known cryptocurrency is Bitcoin, which is arguably the most popular application of blockchain, the encryption technique on which it relies. Coming in behind Bitcoin in terms of awareness are cryptocurrencies like EthereumRipple and Litecoin.

What do trading clients think of cryptocurrencies?

A third of the respondents to the survey said they were “thinking about” trading cryptocurrencies. When asked when they were thinking about trading cryptocurrencies, almost 90 percent of these respondents indicated it was within the next 12 months.

“The most remarkable takeaway is that over 20 percent of the survey participants are actively investigating launching a cryptocurrency trading function within the next three to six months,” said Sam Chadwick, Director of Strategy in Innovation. “That is a material increase compared to the market feedback just 12 months ago.”

As one might expect, Bitcoin was the cryptocurrency respondents indicated they were most likely to trade. Ethereum, Ripple and Litecoin came in second, third and fourth, respectively.

“Interestingly, the responses showed less appetite to trade privacy coins, such as ZCash and Monero, which one might conclude as related to perceptions that counter-party risks are higher with organizations and individuals associated with these coins,” Chadwick said.  “On the flip side, over 25 percent of the respondents looking into trading cryptocurrencies showed interest in trading other ‘altcoins’.  While even more speculative in nature given that many have existed for less than a couple of years, this could indicate the further emergence of diversified fund offerings.”

What’s next for cryptocurrencies?

Cryptocurrencies are actively debated from numerous angles.  Volatility, legality, utility as a store of value, privacy and taxation are just a few of the topics that are being discussed across the market.  The survey participants, however, felt that information to support their trading needs centered squarely around data (86 percent), news (84 percent), analytics (67 percent) and reporting (54 percent).

Large financial services institutions may continue speaking to clients to gauge demand for dedicated cryptocurrency trading desks or rise in number of hedge funds launching cryptocurrency funds to address the increasing appetite of institutional investors wanting to invest in cryptocurrencies.

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