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By Krishna Hegde, Co-Founder of PYOR
Steve Jobs famously proclaimed, “Great technology is invisible.” Today, this is seen in the ascent of digital assets, a growing industry that is set to play a vital role in the future of capital markets. While some early adopters and retail investors were willing to take risks, many institutional investors remain on the fence, awaiting more reliable data on the staying power of this innovation. Building trust and confidence among institutional investors is integral to the mainstream adoption of digital assets.
The ecosystems around blockchain-based tokens and cryptocurrencies are dynamic and complex. The appeal of digital assets is growing rapidly amongst institutional investors, attracted by the need to diversify investment portfolios and maximize return potential. In 2022, 70% of institutional investors claimed that they plan to buy or invest in digital assets in the future, and more than 90% of those interested in digital assets expect to have an allocation in their institutions’ or clients’ portfolios in the next five years. This traction creates a significant demand for developing institutional-grade, auditable infrastructure to help investors navigate a growing but still evolving space.
Despite the growth of digital assets (now well over $1 trillion in market cap), several factors are holding back institutional investment. These include a fragmented market, inconsistent liquidity, price manipulation concerns, and regulatory clarity. Compared to traditional asset classes with familiar and established landscapes, digital assets are inherently more complicated.
One of the biggest barriers to investment is price volatility, primarily caused by expectations of an asset’s future performance—with large groups of retail investors paying higher prices for something they perceive to have a greater future value, or dumping assets they believe will be worth less. This kind of expectation-led behavior means that losses and gains are often fueled by sentiment changes accelerated by social media rather than market forces such as supply and demand.
Another significant barrier to investment is the shifting sands of crypto regulation. Despite emerging over a decade ago, we are only now seeing efforts to regulate crypto, and the people setting the policy agenda have a lot to contend with, from understanding the space to contrasting approaches around the globe. First and foremost, “crypto” itself is a relatively amorphous concept that groups together a wide gamut of digital products based on their technological similarities (cryptography and distributed ledgers).
However, with a myriad of use cases, objectives and actors, finding a one-size-fits-all framework is no easy task, putting it lightly. Another challenge for regulators is finding talent who can keep up with the rapidly evolving space, and understand it well enough to craft regulations that can protect the peace of mind of consumers and investors without scuppering innovation.
Despite these unique challenges, the key to getting ahead of the curve and harnessing the power of digital assets is the same as it ever was for investors—reliable data. Even in the comparatively formulaic space of traditional investment, where market forces and stringent regulation offer surface-level guidance on where to put one’s money, data is king. Data by itself, however, can only take you so far. Overwhelming volumes of unfiltered data, marbled with noise and irrelevant information, can paralyze the investor with too much choice.
High fidelity analytics are needed to parse the information with precision and granularity, and distill it into reliable insights that can guide decision making. You would be hard-pressed to find professionals in the financial services sector who don’t utilize some form of software to analyze financial information. These terminals provide users with real-time market data, fundamental information on assets, news, and a whole host of other data points that inform their investment decisions.
As it stands, investors do not have access to the same level of insight into digital assets. Some existing service providers have moved to include crypto on their platforms, but they can only offer so much without dedicated infrastructure. Thus, the current state of digital assets data is of inconsistent quality and lacking in institutional-grade features. After relying on high-fidelity analytics as an integral part of their workflows for so long, institutional investors would need to be certain that their crypto data is accurate and reliable enough to shepherd them through unfamiliar territory, and not just something tacked on to an existing offer.
Only when this infrastructure is readily available can we assuage any uncertainty amongst institutional investors, enabling them to invest in digital assets with confidence.
Widespread mainstream adoption of digital assets requires building trust and confidence among these potential institutional investors. The dynamic and complex circumstances surrounding this nascent asset class necessitate institutional-grade infrastructure. This will better equip investors to navigate the challenges of this space as it evolves and as the world around it comes to terms with the fact that crypto is here to stay.
The ultimate key to unlocking the growth potential of digital assets lies in the availability and interpretation of reliable data. High-fidelity analytics will grant investors the necessary visibility and understanding to participate confidently in this transformative market and propel digital assets towards mainstream acceptance and adoption.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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