Number of traditional exchanges set to offer crypto-related services on the up despite risk – The TRADE

An increasing number of incumbent exchanges are planning to introduce crypto-related assets and services going forward, despite established risks, new research by the World Federation of Exchanges (WFE) has found.

The recently published report found that around 40% of the surveyed exchanges which as yet do not offer these services are planning to do so in the future.

Of the respondents (exchanges) which already have a crypto offering, all accept crypto-currencies as a medium of exchange, allowing traders to utilise cryptocurrencies in order to trade exchange-listed products.

Some of the respondents to the survey included exchange group giants such as CME Group, Intercontinental Exchange and Cboe Global Markets.

As regards the main drivers behind developing crypto offerings, respondents highlighted that technological advancement, new sources of revenue, and technological leadership were the primary benefits. 

Pedro Gurrola-Perez, head of research at WFE, recognised the growing demand for both crypto services and products, and also highlighted how increased attention on the sector links back to the discussions surround lack of regulation, among other factors.

“Crypto-related innovations are seen as an opportunity to advance technology development and increase investor choice, however, the lack of minimum governance and investor protection standards of unregulated crypto platforms, as well as the high volatility observed in these markets, and the risk of cybersecurity threats, is a concerning mix.” 

Read more: The TRADE predictions series 2023: Crypto and digital assets

When asked about the principal risks when it comes to offering crypto-assets, 33% of the exchanges highlighted cybersecurity, market volatility, and operational risk.

Moreover, in terms of the main challenges when empirically introducing crypto products, 26% of exchanges responded that at this stage, the most significant are: regulation, market infrastructure conditions, and reputation.

Regulation was the standout comment however, with all exchanges highlighting it as a key hurdle. Looking at the respondents, the EMEA appeared the most prepared and “welcoming” when it comes to implementing crypto products and services, according to WFE.

The report went on to highlight that “the risks unregulated crypto-trading platforms bring are compounded by the fact that they frequently carry out further activities that would not be permitted, or would be closely regulated, in a traditional trading environment”.

Lessons must be learnt from the disasters of the – not so distant – past, where high-profile crypto trading platforms suffered widely publicised failures. It appears that crypto is on its way to coming under the widening brim of the regulator’s umbrella, driven by the market’s demonstrably unswerving focus on incorporating crypto into offerings. 

Read more: Venues set to bear the brunt of monitoring crypto market abuses under proposed UK regulatory regime

Nandini Sukumar, chief executive of the WFE, said: “Crypto is at the forefront of all of our members’ minds and we are in constant dialogue with them about how to capitalise on the new opportunities in the area.

“As this industry and market matures, coming into the mainstream of financial markets, the exchange-traded model which places investor trust, transparency, accountability and investor protection at the heart of platform, will gain further momentum.”

The WFE research on exchange engagement with crypto markets is the first of a two-part research project.

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