It’s been more than 10 years since cryptocurrency burst forth with the mouthwatering exchange of pizza-for-bitcoin. Retail investors have been diving into crypto with gusto, yet institutional investors have appeared reluctant to jump into the digital asset market, largely citing concerns related to security and compliance.
Yet changes in the industry may be tempting Wall Street. Market insiders, including the likes of Bloomberg, have reported that institutional investors and other big players – asset managers operating pension funds, family investments, and similar, plus certain hedge fund managers – have been taking nibbles of cryptocurrency, with some 27% of American players now owning Bitcoin and other cryptocurrencies.
While the number of institutional investors open to trading digital assets is on the rise, what is mostly missing for this market cohort is a trading venue with the same high standards of security and commitment to regulation compliance as found in the large financial institutions across Wall Street.
Making digital assets more palatable to institutional traders
Based on the blockchain, crypto inherits all of the technology’s various attributes, such as anonymity – for which it is much appreciated. However qualities such as cryptographic keys have proven somewhat more challenging, in particular key storage. Stolen keys, though not a common occurrence, is indeed a hazard of crypto ownership.
Major security breaches have continued to keep institutional investors wary of making a big stake in the fledgling industry, in part due to the greater capital at play, as well as their own obligation to operate within stringent fiduciary regulations, which they may believe do not apply to crypto trading.
Whetting the appetite of institutional investors for crypto requires all the same standards found in traditional investment houses: security, opportunity, and adherence to regulations.
eToro’s advanced cryptocurrency exchange, eToroX, is dedicated to bringing professional cybersecurity to its customers’ accounts, protecting funds against even the most formidable hackers. With ongoing code reviews and an active bug bounty plan offering incentives to those who uncover deep-level potential vulnerabilities, eToroX is extremely active in keeping users — and their accounts — safe. Not only are there account-level security processes, including the storage of customer deposits in highly secure, FIPS 140 standard cold-storage wallets; but also there is a thorough KYC Level 3 ID verification; and during sign in, users are urged to use 2FA protection, among other safety procedures.
Crypto regulation across the globe
Globally, governments are responding to potential crypto exchange security breaches and other illegal activity by creating specific regulations devoted to cryptocurrency.
For example, following the Mt. Gox cryptocurrency exchange hack of 2014, Japan implemented a set of rules for the industry. Other countries followed suit including Malta, Gibraltar and several others in East Asia hoping to attract startup crypto companies.
More recently, other countries have been spurred into action, possibly resulting from Facebook’s anticipated move into the industry with Libra. In February 2020, US Treasury Secretary Steven Mnuchin spoke of rolling out “significant new requirements” in the industry, while the Fifth Anti-Money Laundering Directive (5AMLD) of the European Union demanded that European crypto exchanges provide greater protection against digital asset crime and ensure greater transparency in transactions.
Whether obligated by statute or not, exchanges are taking compliance issues seriously, secure in the knowledge that they are protecting users from cyberattacks, fraud, digital hacking, money laundering and other illicit activities.
One example of this is eToroX, a regulated distributed ledger technology (DLT) provider, licensed by the Gibraltar Financial Services Commission (GFSC). This tiny British Overseas Territory sitting at the tip of Spain, has transformed itself from an economy based on the British military and local shipping of 50 years ago, to one based on international finance, with a strong oversight body in the financial services, the Gibraltar Financial Services Commission (GFSC).
Following the 2017-2018 enactment of an innovative regulatory policy for distributed ledger technology (DLT) by the GFSC, Gibraltar identified itself as a jurisdiction leading the sector with legislative standards designed for Gibraltar-based businesses involved in using DLT for “storing or transmitting value belonging to others.” The regulation includes nine principles to be applied to any GFSC-authorized DLT provider, which ensure flexibility in this fast-changing and innovative field as well as a commitment to supporting and overseeing the safety of organizations operating in the digital ledger technology space.
The core principles dictate that organizations operate with honesty, integrity, professionalism, and a customer-first approach; undertaking reasonable due diligence, cybersecurity protections, responsible corporate governance and client asset protection.
With ironclad-security protocols as well as the adherence to regulatory compliance obligations and the acquisition of the DLT license by GFSC, eToroX offers the same strict professional standards as the world’s leading financial institutions, so that fund managers and other institutional investors can trade cryptocurrency with confidence.
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