Ciara Sun, head of global markets at Huobi Group, took part in a Cointelegraph China Great Bay Area International Blockchain Week pre-event interview on July 27. She stressed that although security and lack of infrastructure services might be the biggest hurdle for the crypto industry, more clarity in regulation across the globe has led to a great surge in institutional crypto investors.

Systemic risks in crypto market infrastructure

The biggest risk in the digital asset space, according to Ciara Sun, is hacking. She stressed that while hacking doesn't typically lead to massive losses in traditional financial markets, the decentralized nature of digital currencies means there is almost no way to recover lost assets once they are stolen. She added that:

“Unlike banks, crypto exchanges simply act as ledgers for transactions. The actual assets are stored in cold wallets, so losses can be permanent if the keys are stolen. Traditional institutions also have very stringent requirements for insurance and escrow to protect users against losses, but the same can't be said about many of the smaller crypto exchanges that operate in this space.”

According to Sun, Huobi crypto exchange has made security a priority. She notes that there have been no major security breaches at Huobi for 6+ years. She added an example that:

“We've launched an on-chain monitoring tool called Star Atlas to identity and detect illicit activities. Our security team will plan to reveal the security report in a regular routine in the fourth season 2020.”

Lacking of infrastructure services in the crypto space

In addition to existing security concerns, Sun pointed out that a lack of services like insurance and custody are major hurdles that prevent many of the larger asset managers and institutional traders from entering the space. She explained:

“These larger institutions have higher compliance requirements but regulatory agencies have not provided enough guidance on digital assets in the past. This unclear regulatory landscape has made it riskier for larger institutions. Additionally, the digital asset space is still tiny compared to traditional markets. In the eyes of traditional institutions, crypto is in its infancy as an asset class but exchanges like ours aim to help provide the liquidity and market depth required for crypto to be a viable investment option.”

More regulation and clarity around crypto on the rise

Sun believes while still a nascent industry compared to traditional markets, the digital asset landscape has progressed quite a bit in recent years. “There is now much more regulation and clarity around cryptocurrencies. For example, Singapore, London, Hong Kong, and Japan have all begun regulating crypto with defined policies.”

As nations recognize and regulate digital assets as legitimate financial instruments, more institutional adoption starts to show. On Huobi, according to Sun, there is a 3-4X growth in institutional trading on both our spot and derivative markets since early last year. Institutional clients now account for 40% of Huobi’s trading volume, says Sun. She predicts that:

“2020 will be an especially exciting year for the institutional market as compliance and regulation matures. We are already seeing big Wall Street stalwarts like Tower Research, Renaissance Technologies, and some of the world's top hedge funds publicly announce their entry into the digital asset market. However, these larger institutions will not trust under-regulated digital asset exchanges, and we are still five years away from market maturity.”

Service providers vs institutional markets

The price volatility and high liquidity of digital assets are especially attractive to institutional investors, says Sun. The crypto market is unique in that it can fulfil both demands in liquidity and volatility. She continues with an example that:

“Traditional investments like real estate have price volatilities but lack of liquidity. Foreign exchange markets have high liquidity but lack price volatility. Institutional investors see arbitrage opportunities in crypto as an emerging market. The early adopters currently in the market are high-frequency trading institutions.”

Additionally, Sun also believes digital assets can offer institutions a way to hedge risk against volatility in traditional investment markets, adding that:

“Traditional assets are directly influenced by monetary policies and economic measures like quantitative easing, but digital assets are decoupled from the acts of any one nation or governing body. At a time when governments around the world are printing currency to stabilize their economies, digital assets can be one way to hedge against inflation.”