Traditional finance institutions, commonly called “tradfi,” are increasingly seeking exposure to cryptocurrencies. According to Robert Quartly-Janeiro, the Chief Strategy Officer at crypto exchange Bitrue, growing client demand and the perception of cryptocurrencies as a new asset class are driving this change. Moreover, the collapse of FTX and Terra Luna in 2022, along with the ensuing bear market, have lowered the barriers to entry for these institutions.
Quartly-Janeiro, who has also served as a visiting fellow at The London School of Economics, elaborated that the negative events between 2021 and 2023 removed some of the cost-related barriers. Consequently, this has created an opportunity for traditional finance institutions to leverage their brand equity and financial capabilities to enter the crypto market.
Risks and benefits of tradfi’s entry into crypto
While the entry of traditional finance institutions into the crypto market has its advocates and critics, Quartly-Janeiro sees both sides of the coin. On the positive side, the entry of these well-capitalized entities could lead to increased trade volume, expanded consumer choice, and enhanced professionalism in the crypto space. Additionally, their presence will likely contribute to establishing industry standards, providing a more structured framework for market participants.
However, Quartly-Janeiro also pointed out potential risks. For example, existing crypto entities might view the influx of these traditional players as a threat to their business models. According to him, there could be risks of spillovers in areas like stablecoins, which are linked to real-world assets and currencies. Hence, the crypto industry is far from straightforward, and the long-term impact remains to be seen.
Strategies for seamless integration
For traditional finance institutions contemplating a foray into the crypto market, Quartly-Janeiro suggests two main approaches. One is through joint ventures with existing crypto entities, which would allow them to tap into established market expertise. The other is the acquisition of existing crypto firms, which would enable them to integrate crypto services more rapidly into their existing frameworks.
Significantly, for decentralized finance (DeFi) projects eager to collaborate with traditional finance, Quartly-Janeiro advises gaining deep knowledge of both the DeFi and traditional financial worlds.
Nonetheless, traditional finance institutions are recalibrating their strategies to include cryptocurrencies. Driven by client demand and favorable market conditions, they are making calculated moves to integrate digital assets into their portfolios. While the journey is fraught with both opportunities and challenges, the entry of these institutions is undeniably shaping the future contours of the crypto market.
