By using the AI-powered Reply Sonar platform we created an overview of relevant trends related to digital assets.
An overview of the current state of the market regarding digital assets to understand the actions taken by major global financial institutions and the new opportunities.
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#Digital Assets Products
Reply’s detailed analysis of major global financial institutions, sorted by their Assets Under Management, indicates approximately 40% are exploring services related to digital assets. Notably, European institutions demonstrate a 56% engagement rate in the digital asset market, significantly surpassing North American entities at 28%, and outpacing other global regions.
This strategy involves investments in companies, listed or unlisted, whose operations and value are closely linked to digital assets. These investments span across blockchain development firms, mining operations, exchange platforms, and custody services. While regulatory restrictions may be less stringent, diligent assessment of these companies is crucial.
We observe a trend of financial products that offer exposure to digital assets, particularly cryptocurrencies, without direct ownership. The market offers a variety of such products, including ETPs, funds, trusts, and ETFs on futures. These instruments provide direct exposure to leading cryptocurrencies and enable investment diversification.
Increasingly, major asset managers are focusing on spot ETFs that track the performance of digital assets. This involves direct accumulation of digital assets, leading to their recognition as a legitimate asset class. SEC clearance of the spot ETF on Bitcoin that occurred in January 2024 is indicative of this trend.
Due to the growing interest in digital assets and related services, regulators have been compelled to a global effort to establish clear objectives and solid legal frameworks aimed at preserving market integrity, ensuring investor protection, and promoting legal certainty for market participants. The overarching goal is to create a harmonized and consistent regulatory framework at an international level, acknowledging the need for coordinated regulatory approaches to manage the novel challenges posed by these digital innovations.
Traditionally, the primary revenue source for digital asset operators has been transaction fees, constituting over 65% of their income until 2022. These operators are diversifying revenue streams by developing other services such as custody fees, earning interest on stablecoins, staking rewards, and subscriptions for additional services like enhanced support and tax assistance. The strategic importance of Tokenomics in generating revenue and building reserves is also gaining recognition.
However, the industry has recently experienced challenges, highlighted by significant declines in cryptocurrency, NFT, and stablecoin values. This downturn has led to an emphasis on cost optimization and operational efficiency, evident in workforce reductions among top operators. These entities are also tasked with rebuilding trust within the international financial community and investors, particularly in light of previous failures, regulatory scrutiny, and perceived transparency issues.
Reply supports financial institutions in harnessing digital assets by adopting an end-to-end approach. This involves tailoring business and service models to the digital asset ecosystem, which includes defining technical and business requirements for existing platforms, sharing global product know-how, and implementing IT solutions. We facilitate the exploration of this ecosystem by analyzing specialized players' business models, identifying synergies, and integrating systems between financial institutions and specialized services, all within regulatory guidelines. Delve deeper into the topic by downloading our report.