Prime brokerage services facilitate institutional investment in bitcoin
In the framework of the Bloomberg Crypto Summit event, this Thursday, February 25, the issue of the so-called preferential brokerage ( prime brokerage , in English) in the bitcoin area was addressed and cryptocurrencies. Mike Belshe, co-founder and CEO of BitGo, and Genesis CEO Michael Moro participated.
The main or preferred brokerage groups a set of services that Investment banks and other financial institutions have been offering hedge funds and similar clients. These services include custody, loan and securities reconciliation, settlement, and consulting, as well as analysis and management of risk. The objective of the forum on preferential brokerage at the Blomberg event was to raise the opportunities it presents in the area of investing in cryptocurrencies.
Michael Moro begins by talking about the differences between the preferential brokerage services in traditional finance and the offer of these in the area of cryptocurrencies.
What BitGo and Genesis are doing in the area of these services for the world of cryptocurrencies is a product that stems from decades of a similar work in traditional finance brokerage, mainly to meet the requirements of hedge funds.
Michael Moro, CEO of Genesis.
The executive says that the intention is to create a comprehensive solution, which groups together various services, so that hedge funds can use the platforms of the preferred brokers for their transactions, loan and custody requirements, as well as administration of funds. “At the present time in the world of cryptocurrencies, we are trying to establish a bridge between traditional Wall Street and the world of cryptocurrencies.”
The idea is to make the experience of working with cryptocurrencies very similar to what can be expected from the traditional preferred brokerage environment, Moro emphasizes. “The differences do not come only from the type of product, but from the regulatory perspective. They must be taken into account in order to build that bridge that we mentioned, which joins the two worlds », said Moro.
For Mike Belshe, potential clients already have expectations about preferred brokers and they must meet those expectations. The tasks that ensure compliance with existing legislation, in the face of regulators, are the most demanding for companies that provide brokerage services, he points out. “And then, what we want is to take advantage of the advantages of cryptocurrencies, which are based on transparency and openness, and make sure that these are projected in the financial system of the future,” says the executive.
In some cases, says Belshe, it is necessary to work with clients from scratch, because working with cryptocurrencies is different from what is seen in other markets. “This requires a significant amount of work in the technology area,” says the executive. Preferred brokerage in the crypto area is in its infancy, Belshe believes.
The intermediation necessary for investment in bitcoin
Bloomberg journalist Olga Kharif, moderator of the panel, asks forum members about the advantages of doing trading through a preferred broker, as opposed to trading directly.
Michael Moro states that, when you think about stocks, they are associated with traditional exchanges such as the New York Stock Exchange or Nasdaq. “In contrast, in the world of cryptocurrencies, bitcoin and ether, for example, are traded on dozens of exchanges around the world. What ends up happening is that there are as many order books, each one limited to a certain exchange.
If an institution wants to access a certain level of liquidity in bitcoin, it is not easy to evaluate the best or the best offers between those exchanges, and you must also distribute capital among several exchanges. A preferential broker enables an institutional investor with the liquidity it requires; offers clients efficient capital management.
Michael Moro, CEO of Genesis.
Belshe refers to an infrastructure that is created and managed by the preferred broker to work with several exchanges and with several market makers simultaneously. “We have been working on that infrastructure so that our clients have access to the highest possible liquidity. This allows clients to have their cryptocurrencies, properly stored in cold wallets, with a qualified custodian who adheres to regulations, ”says Belshe.
There is also a significant educational effort towards organizations to understand the impact of investing in bitcoin and other cryptocurrencies, Belshe says. “How do they work? How do they affect the balance of the organization? How do the reports that are issued change, or how do they affect the taxes to be paid? These are some of the questions that the institutional investor must answer adequately when deciding to include cryptocurrencies among their investment alternatives “, Belshe sentence.
The Bloomberg event occurs at moments of interest growing in bitcoin and cryptocurrencies, especially in light of the increase in institutional investment, which manifested itself in a notorious way in 2020, as reported by CriptoNoticias. MicroStrategy, one of the companies that has achieved the greatest visibility due to its favorable position to incorporate bitcoin as an organizational reserve asset, organized an event at the beginning of February, to publicize its strategy around bitcoin , attended by more than 2,000 managers.
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