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Insto’s crypto interest drives TradFi and DeFi convergence

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By Jessica Penny
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4 minute read

With institutional investors entering what historically was seen as a largely unregulated asset class, professionals believe we’re witnessing a convergence between TradFi and DeFi.

Binance ANZ general manager Ben Rose has emphasised that retail investors are no longer the sole players in the crypto space, with the asset class now experiencing significant capital influx from institutional investors spurred on by recent regulatory approvals in the US.

“Bitcoin is the first ‘ground-up’ asset class built by the community for the community, which is why we see such strong grassroots enthusiasm each time the crypto industry makes significant strides, such as the DeFi Summer of 2020,” Rose said in conversation with InvestorDaily.

“When we had the announcements in the US of the bitcoin ETFs, that drove a whole lot of retail interest, but also it unlocked a lot of capital that was waiting to be exposed to the price volatility of bitcoin.”

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While many investment firms are still conducting due diligence on the asset class, this initial influx of institutional capital seems to have “mainstreamed” cryptocurrencies more broadly and catalysed the convergence of traditional finance (TradFi) and decentralised finance (DeFi).

“Regulatory approvals for – and the subsequent strong performance of – spot bitcoin ETFs is especially meaningful, not only because they legitimise crypto as an investable asset class, but because they demonstrate that support for crypto has grown into the institutional space,” Rose said.

“Not only does this create an opportunity for significant capital inflows to the asset class, but also introduces traditional finance players who will build and further develop crypto infrastructure.”

Rose believes that as these two worlds collide, the benefits will flow in both directions – as crypto matures, and traditional finance evolves.

“We are seeing how crypto continues to build upwards momentum to reach institutions, while TradFi is building out institutional-grade crypto infrastructure to serve enterprise and retail customers,” he said.

“This bilateral exchange between DeFi and TradFi will become a virtuous cycle, until there is no difference between the two for users.”

Citing a recent example of this convergence in action, Rose highlighted the strategic investment made by NAB’s venture arm in bank-backed global digital asset custodian Zodia Custody last week.

The CEO of Zodia Custody, Kate Cooper, said at the time that Zodia Custody, which established its Australian operations in late 2023, is “the next level up” for institutions and for the Australian digital asset ecosystem.

“The investment from NAB is another great endorsement of our mission and vision. But more than that, it signifies a turning point, with institutions and infrastructure providers jointly building the mainstream future of digital assets, without compromise,” Cooper said.

Rose agreed, adding that: “I think [this] is a really good thing for both industries”.

“With the energy, innovation and relentless focus on the customer that the crypto industry embodies – and that has seen it grow from zero penetration to almost one in four of the Australian population – there is much for the traditional finance sector to gain from embracing its digital asset counterpart.”

Retail investors remain more sensitive to global shake-ups

Bitcoin dipped below US$65,000 for the first time in over a month last week and has since been on a gradual decline, trading below US$62,000 on Wednesday.

CoinShares, which noted earlier this month that digital asset investment products outflows were mostly made up of bitcoin, said the Federal Reserves’ more hawkish-than-expected decision to maintain rates has prompted retail investors to scale back their exposure to fixed-supply assets.

Commenting on this, Rose explained that retail investors are more sensitive to changes on the global stage compared to institutional counterparts.

“For crypto investors, because this is a global asset class, they do have to keep an eye on announcements made by central banks around the world and the policies that they may adopt, which impact their local interest rates,” he said.

“Those, in turn, impact investor appetite for different assets.”