March 5, 2025

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Hi readers,

In today's newsletter, Catherine Chen of Binance points out that the private wealth segment has yet to enter the crypto space, and discusses what can be done to unlock access.

Then, Felician Stratmann of Outerlands Capital says that while digital asset markets are awash in data, this data lacks structure and standardization, deterring the entrance of institutional capital.

Thanks for joining us.

– Alexandra Levis

From the Analyst

What Crypto Must Do to Activate the Wealth Advisory Segment

The success of bitcoin spot ETFs combined with bitcoin's price action have driven investors to demand direct access or exposure to crypto from their service providers. Institutional investors and traditional financial services providers now have a responsibility to at the minimum learn about crypto, if not actively look into adoption.

The spotlight now is increasingly on the wealth advisory segment, with BlackRock's Head of Digital Assets recently telling Bloomberg that the asset manager is starting to see more wealth advisory activity in crypto. At Binance, our VIP & institutional business has likewise received increased interest from high-net-worth individuals and their wealth managers, who have told us they are taking a medium to long-term view as they look to incorporate crypto into their portfolios.

While the cryptocurrency industry has experienced tremendous growth, the vast majority of institutional capital, of which the private wealth segment makes up a significant portion, has yet to enter the space. There are several reasons why including a lack of understanding of the technology, regulatory uncertainty and concerns about volatility. Above all, private wealth is a traditional segment with its own nuances and high-touch requirements, while crypto can demand a good amount of heavy lifting with respect to due diligence, given the sector's nascency.

High-touch requirements and the DYOR ethos

Crypto is the first asset class to be developed by a distributed community and one that's made us rethink our financial systems. Traditional market participants have increasingly bought into bitcoin because they recognize the impact of crypto and how its core ideas of trustlessness, transparency and proof-of-reserves have the potential for new efficiencies and value.

But unlike traditional assets that have long been institutionalized, securitized and packaged into off-the-shelf products, the foundational pillars of crypto are still being built. This means crypto has a long way to go with institutionalization and eventual consolidation with the structures of traditional finance. Depending on an investor's risk profile and investment time horizon, this can represent new opportunities.

For private wealth investors who have accepted the volatility of crypto, the DYOR (Do Your Own Research) ethos nonetheless has become a recurring pain point. These investors and their wealth managers have expressed to us their strong interest in crypto, but have found the learning process challenging. To help them unlock access, we have to provide an experience that is similar to that found in traditional finance.

Private wealth clients are used to high-touch service throughout the lifecycle of their wealth management needs, supported by their wealth bankers and financial advisors in everything from onboarding to investment recommendations. The crypto industry needs exchange infrastructure solutions for wealth managers to support their high-net-worth investors (HNWI). More must be done to activate this segment, and the success of the crypto ETFs launched last year illustrates that product-market fit is key to meeting the pent up demand.

Besides educating investors about crypto, our industry must develop products that are tailored to the needs of HWNIs and family offices to make the onboarding process simpler. Bitwise's latest survey of financial advisors indicates interest in crypto from the wealth advisory segment is set to increase, but access remains a major blocker. Products that bridge crypto with traditional finance will help engage and unlock private wealth, further legitimizing the asset class.

- Catherine Chen, head of VIP & institutional, Binance

Institutional Outlook

Improving Blockchain Data Usability: A Key to Unlocking Institutional Capital

Data is an essential element of an efficient market. If market efficiency is the degree to which prices reflect all available information, having quality information is crucial. And to get to information, you need data. Traditional financial markets are data-rich and have high levels of standardization and accessibility, giving market participants abundant avenues for analysis. Digital asset markets are awash in data, but this data has less structure and little standardization, complicating many aspects of fundamental and quantitative analysis.

It's somewhat ironic that data is a sticking point for digital assets since a much-lauded aspect of public blockchains is their transparency. Transactions and data on the blockchain are available essentially immediately to anyone with access to the system. But transparency does not equal accessibility and, much less so usability. Without prioritizing accessibility, dissemination and context, masses of raw blockchain data won't automatically improve crypto market efficiency. And while blockchain data complexity may create alpha for savvy analysts, the lack of consistent data likely contributes to volatility, deterring institutional capital.

Until now, the somewhat disjointed state of blockchain data has not been an issue given a market dominated by retail flows. But if the market is to ultimately become institutionalized (that is, garner the involvement of serious allocators like pensions, endowments, and insurance), it needs to evolve.

To improve, the digital asset space can learn from traditional market approaches. Tokens are expected to accrue value in line with a project's success. Thus, key performance indicators (KPIs) should be readily accessible, acting like "investor relations" pages for token holders. It's unrealistic for start-up crypto projects to disclose information like public corporations do, but interim steps can improve the situation.

For example, there are data points that could be relevant for almost all projects to disclose, including: supply schedules (with details of inflation and burn mechanisms, as well as unlocks), fees, active users and daily transactions. Naturally, projects will not have all the same indicators — for example, KPIs for a smart contract platform will look different than those for an application or DeFi protocol. Smart contract platforms may want to show how many apps are deployed in the ecosystem. DeFi protocols may want to showcase TVL or volumes. Regardless of utility, each project should make an effort to disclose as many data points as possible.

Critically, this data should have detailed definitions and methodologies, along with reproducible code for how the information is derived from the blockchain. It should also be available with complete histories through time, and be easily downloadable or accessible via APIs.

Efforts by projects to systematically disseminate key information should reduce uncertainty (and thereby volatility) and aid capital inflows into the crypto space. Investors should expect this level of transparency and reward projects that prioritize showcasing KPIs, while pushing for improvement at portfolio companies that do not.

Larry Fink, CEO of BlackRock, noted in a recent earnings call that more transparency and analytics could broaden digital asset investment, akin to the evolution of markets like mortgages and high-yield bonds. There are already strong players like Artemis that are providing blockchain data and analytics and setting standards for digital finance. Such providers will be essential, just as platforms like Bloomberg and S&P's Capital IQ are in the traditional markets. However, each project building digital assets should do their part to enhance data availability for investors. As the crypto market matures in transparency and analytics, as many other nascent markets did before it, the scope for investment in the space should expand materially.

- Felician Stratmann, head of research, Outerlands Capital