Regulation and infrastructure: levelling up crypto and digital assets

On its arrival, the current generation of digital assets presented an exciting, untapped frontier for trading. But the ‘wild west’ can’t last forever, and increased regulation promises more than just security for these markets – it also provides them with the power to truly thrive

Virginie Barbot, Head of South East Asia Pacific, Market Technology, Nasdaq

Virginie Barbot, Head of South East Asia Pacific, Market Technology at Nasdaq, believes the future of successful digital asset markets will be defined by three watchwords. Namely, infrastructure, integrity and the institutionalisation of new industry verticals.

1. Scalable market infrastructure

Since bitcoin’s creation in 2009, cryptocurrency markets have evolved rapidly. 2021 trading volumes, in particular, saw especially remarkable growth, hitting all-time highs in May. Scalable, stable technical infrastructure is now critical to providing fair and orderly markets capable of managing high, sustained transaction loads and coping with peaks during volatile trading conditions.

Increasing trading volumes and unpredictable market conditions can create additional challenges when it comes to market infrastructure. Take Bitstamp – one of the world’s longest-running crypto exchanges – as an example. As digital asset popularity increased, Bitstamp’s platform rocketed to serving more than 4 million customers. Keeping pace with client demands was essential to maintaining its success and remaining competitive. Rather than investing additional time and resources in building out its in-house matching engine, Bitstamp partnered with Nasdaq to ensure it met market demands while also remaining able to focus on its core competencies.

Barbot comments: “With robust infrastructure in place that crypto markets can trust and grow with, our customers are able to focus, listen to the market and develop their businesses with confidence and at speed. Nasdaq’s marketplace technology enables crypto exchanges to leverage proven and scalable trading and surveillance technology from Nasdaq as a service, deployed on-premises or in the cloud and operated by our experienced teams, while maintaining a lean and focused organisation.”

2. Market integrity

Digital asset trading is a focal point for global regulatory bodies seeking to protect institutional and retail investors, and combat financial crime. In Asia, territories such as Singapore, Thailand, Japan and the Republic of Korea lead in defining regulatory frameworks and licensing programmes for crypto and digital assets. However, for crypto and digital asset exchanges to succeed, they cannot wait for regulatory bodies to implement guidelines – it’s up to the exchange to integrate market integrity controls into infrastructure. This promotes investor confidence in the fair and transparent execution of trades, and reduces potential reputational risk associated with nefarious trading behaviours.

Barbot explains: “The importance of building transparency and ensuring confidence in crypto markets is imperative to achieving institutionalisation. Incorporating market surveillance into an exchange’s infrastructure ensures the market is detecting and preventing potentially manipulative behaviour, encouraging greater participation from retail and institutional investors alike.”

Humans alone cannot keep up with the trading pace and increased volumes that occur on digital asset exchanges. Automating surveillance practices is critical to being able to effectively monitor these markets. Nasdaq’s Market Surveillance solution is currently leveraged by 10 crypto exchanges, with real-time 24/7 monitoring of up to 60 billion transactions per day. Nasdaq’s crypto-forward surveillance strategy is tailored for crypto and digital asset exchanges, including the ability to monitor currency pairs and fractional volumes.

3. Institutionalisation of new industry verticals

In addition to cryptocurrencies, there is a growing appetite to trade a range of novel asset classes – such as non-fungible tokens and real estate tokens – in an institutional-grade, trusted marketplace environment.

As adoption of these asset classes increases globally, even amid intense volatility and increased regulatory scrutiny, firms need to prepare for institutionalisation – the participation of banks, broker-dealers, payment providers and the like – to ensure market integrity and scale flexibly with increased demand.

Barbot comments: “To further progress institutionalisation, Nasdaq has partnered with several of these new market types to ensure reliable and scalable technology and infrastructure that meet current and future regulatory frameworks. This, in turn, enables them to more effectively grow and attract serious investors while ensuring a trustworthy marketplace experience for all participants.”

Learn more

For more about recent developments in the cryptocurrency space and the creation of a modern legal framework for digital assets, download the full Cryptocurrency regulation summary: 2022 edition white paper by Nasdaq

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