The rise in institutional demand: $40bn in AUM benchmarked to TradeBlock reference rates

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The rise in institutional interest in cryptocurrency markets over the past year has highlighted the importance of institutional-grade spot reference rates for the price of cryptocurrencies. Launched in 2014, TradeBlock’s reference rates are some of the longest standing and most trusted institutional grade reference products in the space.

The world’s first bitcoin ETF, which launched last week, utilizes the TradeBlock XBX Bitcoin price as the underlying benchmark. Additionally, at time of writing, more than $40 billion in AUM and millions in over-the-counter (OTC) trades are benchmarked across TradeBlock’s different reference rates. More AUM is benchmarked to TradeBlock’s reference rates than any other reference provider in the cryptocurrency space.
 

Rise in institutional demand
Over the past six months, a flurry of institutional capital has entered the cryptocurrency markets. Last week the world’s first bitcoin ETF was launched by Purpose Investments. Institutions have primarily sought exposure to large cap, liquid cryptocurrencies such as bitcoin and to an extent ethereum. For the first time, Coinbase’s exchange has seen greater trading volumes from institutional participants than from retail participants. In the figure below, we diagram a shift in make-up between institutional and retail volumes on the Coinbase platform–details of Coinbase’s operations have been revealed in the firm’s recent S-1 filings.
 

Figure 1: Coinbase institutional vs retail trading volumes


 

Similarly, for the first time public companies have added bitcoin to their balance sheets in order to hedge US dollar inflation in their cash & cash equivalents accounts. In the figure below, we diagram the notional bitcoin holdings across public companies with the largest exposure to bitcoin. While MicroStrategy was one of the first movers to add bitcoin to its balance sheet, in recent weeks we have seen Tesla and Square add or increase their bitcoin holdings. MicroStrategy’s blueprint for public companies to add bitcoin to their balance sheets can be viewed here.
 

Figure 2: Bitcoin holdings across top public companies


 

In addition to public companies, various institutional funds have seen an increase in new assets under management. Grayscale ranks as by far the largest asset manager in the cryptocurrency space with more than $31 billion in its largest investment trust, GBTC. A full list of Grayscale cryptocurrency trust offerings can be viewed here. In the figure below we diagram the largest fund holdings by bitcoin exposure.
 

Figure 3: Bitcoin holdings across top investment products


 

Use cases for institutional grade reference rates
Institutions can benefit for a variety of reasons from TradeBlock’s spot reference rates. From Fortune 500 banks to crypto native OTC desks to ETP issuers, TradeBlock reference rates are utilized by institutions at nearly every level of the cryptocurrency market. TradeBlock has designed and maintained the required infrastructure to support operation of its reference rates by ensuring replicability, availability, and performance for price calculation and distribution–a requirement in serving some of the largest institutions in the space.

TradeBlock reference products are utilized by OTC trading desks to create quotes around a reliable spot rate, hedge funds and money managers to track position performance, investment companies to launch investable products around, and auditors, law firms, and custodians to audit client asset valuations.
 

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