Key Takeaways
- • According to the AIMA and PwC Global Crypto Hedge Fund Report, 55% of traditional hedge funds now have some exposure to digital assets, up from 47% a year earlier, shifting the institutional debate from access to how exposure is structured.
- • Off-exchange settlement lets institutions trade on a venue while eligible assets remain with a third-party custodian, reducing counterparty exposure to the exchange without eliminating risk.
- • Institutional clients are not a single category: asset managers prioritize custody and segregation, while market makers and quantitative firms prioritize liquidity, fast settlement and capital efficiency.
- • Three custody models are emerging: custodian-mirrored multi-venue balances, collateral held at regulated banks in segregated accounts, and technology-enabled arrangements such as client-controlled wallets with predefined permissions.
- • The article argues exchanges that offer flexible custody and settlement options will function more like market infrastructure than retail trading apps, as venues expand into tokenized stocks and gold.
Summary
The article, published by Crowdfund Insider and authored by Bitget CEO Gracy Chen, argues that the central question for institutional crypto has moved from whether funds can access digital assets to how that exposure should be structured. Citing the AIMA and PwC Global Crypto Hedge Fund Report, the piece notes that 55% of traditional hedge funds now have some digital asset exposure, up from 47% a year earlier.
The author contends that crypto's early model, in which exchanges act as broker, venue and custodian simultaneously, does not necessarily meet the governance, operational and risk requirements of every institution. Off-exchange settlement is presented as one remedy: an institution can trade on a venue while eligible assets remain with an independent custodian, reducing capital exposed to the exchange and allowing participation across multiple venues without pre-funding each one. The article is explicit about the limits, noting that exposure may accumulate between settlement cycles, collateral requirements can shift during volatility, each added provider introduces operational and legal dependencies, and not all assets are eligible, so firms may still need a mix of on- and off-exchange balances.
The piece argues that institutional clients should not be designed for as a single category. Asset managers and regulated funds face fiduciary, governance and segregation requirements, and for some, independent custody determines whether a venue is usable at all. Market makers, high-frequency and quantitative firms, by contrast, trade across several venues and value liquidity, rapid settlement and efficient redeployment of capital. The author describes three prevailing models: a custodian mirroring trading balances onto exchanges with periodic settlement, suited to multi-venue traders; collateral held in a regulated bank's segregated account against which the exchange extends trading capacity, a more conservative option; and technology-enabled custody using client-controlled wallets and predefined permissions. The article states that no single model is right for all firms.
The article also notes that trading venues are broadening beyond crypto to include tokenized stocks, gold and other traditional assets, which makes clarity on custody, collateral eligibility and settlement more important. For exchanges, supporting multiple models requires distinct technical integrations, reconciliation processes, collateral controls and clearly defined responsibilities among exchange, custodian and client. The author concludes that institutional crypto is becoming an infrastructure story, with venues that meet varied institutional requirements positioned to win share.
The author contends that crypto's early model, in which exchanges act as broker, venue and custodian simultaneously, does not necessarily meet the governance, operational and risk requirements of every institution. Off-exchange settlement is presented as one remedy: an institution can trade on a venue while eligible assets remain with an independent custodian, reducing capital exposed to the exchange and allowing participation across multiple venues without pre-funding each one. The article is explicit about the limits, noting that exposure may accumulate between settlement cycles, collateral requirements can shift during volatility, each added provider introduces operational and legal dependencies, and not all assets are eligible, so firms may still need a mix of on- and off-exchange balances.
The piece argues that institutional clients should not be designed for as a single category. Asset managers and regulated funds face fiduciary, governance and segregation requirements, and for some, independent custody determines whether a venue is usable at all. Market makers, high-frequency and quantitative firms, by contrast, trade across several venues and value liquidity, rapid settlement and efficient redeployment of capital. The author describes three prevailing models: a custodian mirroring trading balances onto exchanges with periodic settlement, suited to multi-venue traders; collateral held in a regulated bank's segregated account against which the exchange extends trading capacity, a more conservative option; and technology-enabled custody using client-controlled wallets and predefined permissions. The article states that no single model is right for all firms.
The article also notes that trading venues are broadening beyond crypto to include tokenized stocks, gold and other traditional assets, which makes clarity on custody, collateral eligibility and settlement more important. For exchanges, supporting multiple models requires distinct technical integrations, reconciliation processes, collateral controls and clearly defined responsibilities among exchange, custodian and client. The author concludes that institutional crypto is becoming an infrastructure story, with venues that meet varied institutional requirements positioned to win share.
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