Navigating the Convergence of Crypto and Traditional Financial Markets

Key market structure developments explored are below:
• In terms of price action, Bitcoin, as a bellwether for the broader crypto complex, has become highly correlated with traditional asset classes like equities (S&P 500) and gold. Since 2020, the persistence and magnitude of these correlations have increased significantly, signaling one dimension of convergence between crypto and TradFi.
• The recent emergence of tokenized U.S. Treasury bills on public blockchains like Ethereum sit at the heart of crypto and TradFi, which is driven by interest rate differentials and the reallocation of on-chain capital towards exposure to risk-free rates in TradFi. The upshot of these capital flows is the development of new infrastructure and organizational practices that can significantly upgrade capital efficiency and risk management for crypto participants.
• From a product and services perspective, there has been significant growth in the number of listed crypto ETPs, with over 190 launches in the past six years and greater regulatory clarity expected in the U.S. The market is also moving towards implementing best practices in TradFi such as segregating the custody and clearing roles from exchanges and trading platforms.
• Although ubiquitous in TradFi, crypto lacks widely adopted industry classification standards which could unlock downstream indices and products that enable institutional investors to allocate capital towards bespoke strategies and accurately benchmark their performance.

The roles played by both regulatory-first Bullish and Flow Traders have also been identified, shedding light on their influence and contributions to the market, as well as challenges faced along the way.