Institutional interest in digital assets is gaining traction. As of the end of Q1, more than 900 institutions based in the United States had disclosed spot Bitcoin exchange-traded fund (ETF) shareholdings exceeding $100 million, equating to $10.7 billion combined.
In addition, leading asset management firms, including BlackRock and Franklin Templeton, have launched tokenized treasury funds. Recent data indicates that more than $1 billion in treasury notes has been tokenized on public blockchain networks.
A bi-annual survey conducted by KPMG in Canada further found that institutional investors located in the region greatly increased their crypto holdings in 2023. According to KPMG’s survey, 22% more financial services organizations offered crypto asset products and services to clients last year than in previous years.
A total of 937 financial firms have disclosed their Bitcoin ETF holdings in Q1 2024.
To put things in comparison, Gold had just 95 firms invested in its first ETF quarter! 🤑 pic.twitter.com/hwoLkTKYnw
— Guru Vedas (@VedasGuru) May 16, 2024
Institutions Need Better Data Management Tools
While notable, digital asset data is still a challenge for institutions.
Isabella Henderson, Director of Product Strategy at Amberdata, told Cryptonews that digital asset data is dense and complex.
“Each crypto exchange uses different tickers and hundreds of thousands of asset instruments,” said Henderson. “This makes consistency and reliability a challenge for institutions.”
Henderson pointed out that in traditional finance, standardized security masters and asset references solve these challenges by aligning front, middle, and back offices.
Yet she noted that the digital asset space lacks such solutions, resulting in a fragmented view of the crypto sector for institutions.
An Open-Source Master Security Database for Digital Assets
To solve this problem, Amerberdata recently launched an asset reference and classification tool. Known as “ARC,” this is an institutional-grade security master database for digital assets.
A security master database is a data store that contains reference data about financial products. Such a tool is used by market participants to organize their records across trading, risk, clearing, and settlement operations.
Asset Reference and Classification Methodology 🔖
Asset Reference and Classification (ARC) is an institutional-grade security master database for digital assets that aims to provide a transparent and robust approach to the digital asset market to promote effective regulation,… pic.twitter.com/sfyD3t7PuZ
— Amberdata (@Amberdataio) May 16, 2024
Henderson explained that ARC is an open-source dataset that enables financial institutions to segment and view the digital asset sector consistently.
“By combining reference details, classification, and categorization, ARC is a solution that provides transparency into the operations and use cases of any digital asset,” she remarked.
Unifying Crypto Data Sets
Henderson elaborated that ARC unifies front, middle, and back offices for institutions holding digital assets. This is done through data collected by Amberdata, which tracks traded crypto pairs across over 150,000 spot, options, and futures instruments.
“ARC shows token addresses, contract and trade specifications, price limits, exploits, and more,” said Henderson. “ARC IDs also map an asset’s associated instruments across the digital asset ecosystem, using a tagging classification system to flexibly classify industries and proper use cases.”
Henderson believes that such a tool can help institutions with analysis and reference, trading, and for other instances.
“For example, ARC will help institutions keep records of the highly dynamic universe of digital assets with a repository of accurate asset and classification information for reference and analysis,” she said. “It can also optimize execution workflows to enhance trade execution strategies.”
Data To Evaluate Digital Asset Risk
Institutions also require data management tools to evaluate risks associated with digital assets.
A recent Deloitte poll shows that executives involved in managing digital assets expect risks to increase and the regulatory environment to become more complex this year.
Tim Davis, a Deloitte Risk and Financial Advisory principal and U.S. Blockchain Leader, believes, “Digital asset risk should be a mainstay board agenda item for any organization that actively uses digital assets in its operations.”
Given this, a Chainalysis spokesperson told Cryptonews that institutions could use Chainalysis on-chain data to evaluate risks associated with digital assets.
“For example, we can help clients understand how widely distributed an asset is, how liquid it is, what segments of the crypto economy are holding and using it, and whether those segments skew toward being illicit or risky,” the spokesperson said.
Will Institutions Implement Digital Asset Management Tools?
Since digital assets represent a fairly new sector for institutions, it is questionable if data management tools will be immediately implemented.
Yet Henderson noted that Amberdata expects institutions to use ARC moving forward.
“We have heard from many financial institutions and crypto native firms – both clients and not – that mapping assets across exchanges and markets is a major pain point across the trading life cycle,” she remarked.
Henderson added that Amberdata has already initiated the process of ARC integration for a few institutions. She further pointed out that because ARC is open-sourced, it will advance within the digital asset industry through community contributions and insights.
“There is a vast community of financial professionals and digital asset investors who will contribute to ARC, keep the dataset relevant and up to date, and eliminate proprietary biases on how to classify digital assets,” she said.
Yet challenges may arise. Sebastian Higgs, Chief Operating Officer and Co-founder of Cordial Systems – an institutional-grade self-custody software provider – told Cryptonews that while transparency benefits public blockchains, there is an extreme side for institutions who want to build products on blockchain infrastructure.
“They are still beholden to customer data privacy laws, confidentiality, and will want to retain certain processes or business logic as private instead of publishing them for the general public to see,” said Higgs.