November 2, 2021 | Stamford, CT — Buy-side and sell-side market participants are eyeing derivative and synthetic instruments as a potential on-ramp for institutional participation in the crypto currency markets.   

Uncertainty around the rapidly evolving regulatory landscape for physical crypto assets is slowing the entrance of many traditional financial market players as either liquidity providers or buy-side participants. Meanwhile, beyond regulatory issues, banks interested in participating in the new asset class face their own set of challenges in the form of product and risk approvals in an entirely new product environment. 

Cryptocurrencies: The Road Ahead May Not Be Cryptic Anymore, a new report from Coalition Greenwich, suggests that non-deliverable forwards (NDFs) could provide an effective solution by fitting the crypto product into existing frameworks of risk management and technology, making the approval process quicker, and could offer a series of advantages for institutional investors. 

Because of their OTC nature, NDFs are relatively easy to manage (e.g., there are no margin issues with exchanges) and the technology and risk-management philosophy is well embedded into the current setup across all banks. Beyond 
this, the product provides flexible access 24 hours a day and has the ability for contracts to expire on bespoke days, which further contributes to its attractiveness.

“Our research makes it clear that, once they receive internal approval, virtually all large liquidity providers would be able to hit the ground running with NDFs and make markets,” says Subodh Karnik, Head of Client Intelligence Marketing at Coalition Greenwich.

Cryptocurrencies: The Road Ahead May Not Be Cryptic Anymore examines the challenges the physical market has faced in gaining acceptance from traditional financial market participants, and looks at how NDFs can help ease the transition of cryptocurrencies into the mainstream of financial markets.