This is not about crypto-volatility: institutions need better data

Institutional crypto adoption has skyrocketed in recent years. Many corporations now hold BTC and other crypto assets on their balance sheets, crypto exchanges like Coinbase have gone public, while the world’s largest fund manager Blackrock now offers a private bitcoin trust. However, a significant portion of institutional capital is still on the sidelines, with the global crypto market currently valued at around $1 trillion. For context, the global stock market is valued at $120 trillion.

In a 2021 survey by Fidelity Digital Assets, 54% of institutional investors surveyed cited volatility as a critical barrier to entering the crypto market. However, a closer analysis shows that concerns about volatility stem from a lack of market intelligence. For example, although studies show that bitcoin is less volatile than many S&P 500 stocks, many institutions still consider the leading cryptocurrency to be nascent and volatile.

Institutional investors have historically thrived on reliable market intelligence – a fundamental weapon still missing from their crypto investment arsenal. The largely fragmented and unregulated nature of the crypto market makes it difficult for institutional players to leverage on-chain data to understand the correlated reasons behind price action and position their portfolios accordingly.

In this piece, we dive deeper into the challenges that hinder the availability of reliable crypto market intelligence and data for institutional players. Understanding and addressing these bottlenecks always opens up the crypto industry to more institutional adoption and value growth in the years ahead, with specialized crypto-native fintechs like Nuant providing digital asset managers with the right tools and contextualized data- provide intelligence to overcome these challenges.

Bottlenecks for crypto market intelligence data and its impact on institutional players

Fragmented storage solutions

The inherent security risks of holding cryptocurrencies require institutions to develop sophisticated internal storage solutions or use third-party custody solutions such as Fireblocks or Coinbase Custody. While this simple approach works for longer-term portfolio management, it has significant hurdles for the larger population of institutional investors who operate actively managed discretionary and systematic funds.

In the cryptocurrency industry, institutions lack the depth of global liquidity found in traditional stock markets. Portfolio managers must therefore obtain liquidity from a fragmented pool of centralized and decentralized exchanges – fraught with counterparty and timing execution risks. For example, best price trade execution often requires the PM to move digital assets between third-party custody solutions, exchange accounts and wallets – exposing the PM to market timing risks and costs with each transfer. The barrier is further exacerbated by the lack of interoperability across blockchain networks for DeFi execution, which requires the movement of funds across risk-sensitive bridging solutions.

Institutional portfolio managers must actively manage and monitor their assets from a total portfolio perspective in relation to the market and its movements. They must combine this single view of all the assets in the portfolio with real-time market data and deep insights into on-chain data and the drivers and correlations between them to truly manage risk and uncover opportunity. The complication for digital asset portfolio managers is that to minimize counterparty risk while achieving best execution, the assets that make up the portfolio must be held across a myriad of centralized exchange accounts, on-chain wallets and custody solutions. Managers were therefore left to rely on rudimentary portfolio tracking applications or invest themselves in the development and ongoing support of in-house tools to not only understand deep analytics for monitoring and decision support, but in many cases just to get a point. . -to-market for the entire portfolio once or twice a day, in a market that is always on, 24/7.

Institutions therefore need a leading-edge solution to manage portfolios from a single platform view, regardless of the location of the accounts and wallets that hold the portfolio assets. Such an institutional-grade tool would enable the real-time visualization of valuable on-chain data along with market data and analytics for asset managers to accurately gauge the risks and opportunities.

Barriers to on-chain data usage

Blockchain data provides market intelligence to enable digital asset investors to optimize their portfolio performance. However, such intelligence is difficult to access, even at the basic level. There is no authoritative source for primary data, such as asset prices, as they are quoted differently on various exchange platforms.

Additionally, existing on-chain data sources are fragmented and extremely difficult to bring together in a centralized location to build actionable insights with real meaning and gain a holistic view to support investment decisions. Institutions must therefore rely on themselves to manually integrate on-chain data through complex API documentation to code and build custom insights and analytics, thereby increasing the time and development effort required to access such data for meaningful use , to increase.

Portfolio managers also typically have to maintain several different subscriptions to on-chain analytics providers and rely on the dashboards provided by these platforms. Any attempt to create custom data visualizations using open source tools like Dune Analytics will require at least some experience in writing SQL queries to query blockchain networks. In many cases, tools to query these new age networks do not exist, limiting access to on-chain data.

Without sophisticated portfolio management solutions, it is almost impossible for institutions to get a 360° overview of their crypto investment strategy or use on-chain data to their competitive advantage. This bottleneck also slows the formation of predictive analytics models, another valuable data-based element that institutional investors need to thrive.

Lack of predictive analytics models

Predictive analytics models in investing refer to the use of historical data and algorithms to make reliable predictions about the performance of an asset or strategy. At the basic level, investors can model specific economic scenarios to determine associated risks and opportunities using probability distribution measures.

For example, Wall Street analysts provide largely accurate earnings forecasts on companies by considering metrics such as historical stock prices, sales volume, production costs, industry growth, and macroeconomic factors. Compared to the traditional financial industry, the cryptocurrency market is relatively new, which presents a primary challenge for companies increasing allocations to the sector without any real fundamental analysis to support their assumptions.

It is difficult to accurately assess the fundamentals for cryptocurrency projects or predict their future price action, with most projects only existing for less than five years. In most cases, institutions must rely on simple evaluation models as used in traditional finance, such as company profiles, user statistics and product-market fit.

Industry consensus is that predictive analytics models for cryptoassets will improve significantly as the market matures and more historical data becomes available. Meanwhile, institutional-grade cryptocurrency portfolio management solutions like Nuant empower institutions to leverage a curated and condensed sample of key-in-chain insights and metrics, along with price and volume data to build what-if scenarios that drive portfolio returns a give a boost

How Nuant unlocks superior crypto market intelligence for institutions

Nuant is an integrated solution that enables institutional professionals to solve the bottlenecks associated with managing cryptocurrency portfolios. Nuant provides a single interface for portfolio managers to view real-time data, analytics and institutional-grade research material tailored to their portfolio composition. Clients can connect multiple exchange and wallet accounts across blockchain networks to monitor portfolio performance at the aggregate portfolio level

Nuant’s approach to data management for both its own on-chain data service and leading third-party market data, integrated into the core platform, saves crypto portfolio managers valuable time otherwise spent in rigorous data cleansing, normalization and integration of multiple data feeds from on-chain data providers . Nuant also supports custom analytics and model creation using its proprietary query language, enabling customers to use its data to create, backtest and implement proprietary models that generate alpha while managing risk and maximizing returns.

This content is sponsored by Nuant.

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