While institutional investors are welcoming digital assets with open arms, they require enterprise-grade market infrastructure which can be integrated with existing technology and processes to run in properly regulated environments. Hirander Misra explains how GMEX Fusion powered by the IBM Blockchain Platform provides an institutional solution that satisfies the growing demands of institutional investors for digitally enabled market infrastructure fit for regulated environments.
When it comes to digital assets, the world is their oyster. Moving on from early adopters such as crypto hedge funds to traditional institutional investors, digital assets are fast finding their place in the sun.
Indeed, as the potential impact of blockchain technology on financial markets — new and old — becomes more readily apparent to them, institutional investors are increasingly engaging with digital assets, whether directly or through service providers.
No wonder that a survey conducted by Fidelity Investments digital assets team, which was published in May 2019 found that around 22 percent of investors already have some exposure to digital assets, while 40 percent say they are open to diving into this exciting market over the next five years. The survey findings also noted that, of those that have exposure, most investments were made in the last three years.
Specifically aimed at gaining an understanding of how institutions, financial advisors and investors perceive digital assets generally and as part of an investment portfolio, the survey also found that over half prefer to invest in digital assets directly, while nearly three-quarters favour investment products that hold digital assets.
For the research, the company said it polled over 400 US institutional investors, including pensions, family offices, crypto, and traditional hedge funds and financial advisors, as well as endowments and foundations to gain a holistic overview of the market that has traditionally been seen to have a niche appeal with early adopters but is now being seen to move across the spectrum to traditional institutional investors as well.
Contextualising digital assets for institutional investors
Among the main obstacles to digital asset investments cited by respondents to the survey were — the need for greater clarity around regulations, the absence of a robust track record, lack of fundamentals, and price volatility.
Also, as there is a maturation of interest in digital assets from early adopters, like crypto hedge funds, to traditional institutional investors like family offices and endowments, it becomes clear that there remains much more work to be done in terms of providing digital assets with structures that are familiar to the older generation of investors.
Notwithstanding these obstacles, institutional investors remain bullish on this sector with investment continuing apace, complemented by an increasing number of security token offerings (STOs) and high transaction activity, which is blockchain enabled. Greater institutional awareness of these developments in the current context, compared to even six or twelve months ago, is paving the way for continued interest and adoption of these emerging technologies.
As a final word on obstacles for institutional investors, the report notes that many institutions showing interest in this space either own digital assets and need a custodian or they want to invest in digital assets, but first need a custodian.
The digital word on custody and counterparties
On custody and counterparties, survey findings indicate that 18 percent are using third party custodians, 13 percent are doing self-custody while another 6 percent are using a non-custodial exchange. When gaining exposure to digital assets, more than a third of investors overall prefer to deal with a traditional financial firm, followed by nearly a quarter who prefer dedicated crypto-focused financial firms.
However, what was common across all institutional segments was that, when considering a custodian for digital assets, as many as 76 percents of institutions surveyed placed security and safety as their most important considerations.
Indeed, while institutional investors have increasing interest in digital assets, they profess a clear requirement for enterprise-grade market infrastructure which can be integrated with existing technology and processes to run in properly regulated environments.
Against this backdrop, it came as an exciting development for industry observers when GMEX Technologies Ltd (GMEX) announced on 19 September 2019 that it is collaborating with IBM to enable the GMEX Fusion Digital Capital Markets technology suite (GMEX Fusion) on the IBM Blockchain Platform (IBP). It may be noted that GMEX provides multi-asset post-trade business and technology solutions as a wholly owned subsidiary of GMEX Group.
With this collaboration, a new approach for supporting digital assets in areas such as trading, clearing, settlement, registration, custody and management of traded cryptocurrencies is now possible using GMEX Fusion software. Indeed, this path-breaking technical advancement enables institutional investors with a hybrid network to support both traditional and digital assets.
What does the collaboration involve?
Ultimately, the collaboration between GMEX and IBM paves the way for a unique industry approach as it will enable multiple pools of liquidity to connect with multiple custodians with a single aggregated trading, clearing and settlement solution. GMEX Fusion powered by IBP provides an institutional solution which satisfies the growing demands for digitally enabled market infrastructure fit for regulated environments.
Designed to support multi-cryptocurrency transactions, GMEX Fusion is now available to clients across multiple cloud networks using the IBP built on Hyperledger Fabric, an open source project of the Linux Foundation. It provides a secure platform to build, govern, operate and grow blockchain networks, with the ability to deploy components in multiple cloud or on-premise environments.
GMEX Fusion delivers state-of-the-art digital asset token issuance, trading, exchange and post trade digital asset solutions for traders, exchanges, clearing-houses, central securities depositories (CSDs) and custodians, using the latest hybrid blockchain technology. It has a direct Blockchain adaptor interface to IBP allowing connectivity between different nodes.
As the icing on the cake, it can handle multiple types of digital assets; including cryptocurrencies, security tokens, tokenised commodities and margin traded crypto derivatives; with inter-bank message flows to facilitate settlement downstream, and exchange messaging upstream. It can also be interfaced with IBM Blockchain World Wire, to enable cross-border payments in near real-time, with the use of stable coins and other tokens.
In conclusion
With GMEX Fusion tapping into IBP to support multiple digital asset categories, institutional investors will finally find their need for digitally enabled market infrastructure for regulated environments addressed to their complete satisfaction.
GMEX has deployed GMEX Fusion for regulated digital exchange ecosystems, such as SECDEX Group to facilitate token issuance, exchange trading and digital custody. It also enables the tokenisation of regulated funds such as Digital Investment Fund PCC, in addition to numerous other market infrastructure clients as demand for transformational digital market infrastructure grows.
An exciting era is dawning where digital assets are gaining increasing industry acceptance while institutional investors are widening their portfolios against the backdrop of robust market infrastructure for digital assets — in a win-win scenario for both.
Article first published on Medium.com
Hirander has expertise in extensive electronic trading and FinTech spanning 25 years, with successful syndication to investors and substantial exits. He is the Chairman & CEO of GMEX Group and its climate fintech platform-as-a-service ZERO13, which won the COP 28 UAE TechSprint for the use of blockchain to scale climate finance. He is one of the Top 10 influential business leaders of blockchain technology in the UK All Party Parliamentary Group report. He is also featured in LATTICE80’s Top 100 influencer list for the UN Sustainable Development Goals agenda for pioneering blockchain technology solutions. Hirander was also recognised as the Most Influential CEO 2024 – UK (Carbon Credits) by CEO Monthly, a digital magazine published by AI Global Media.
Previously he was the co-founder and Chief Operating Officer of Chi-X Europe Limited, instrumental in taking the company from concept to successful launch. At the time of his departure in February 2010, Chi-X Europe was the second largest equities trading venue in Europe, just behind the LSE Group, and was subsequently sold to Bats Global Markets (now part of CBOE Global Markets) for $365M.
