Regulated exchanges hesitate on crypto exposure despite growing demand - report

According to a report published Sept. 5 by the World Federation of Exchanges, regulated stock exchanges remain reluctant to offer unregulated cryptocurrency products despite increasing investor demand.

The report is based on a survey of 29 regulated stock exchanges that are members of the WFE, including Nasdaq and CME Group. It found growing interest in crypto-related assets like Bitcoin among retail and institutional investors. However, significant risks give regulated exchanges pause.

The report stated,

“When considering the option of entering the crypto-markets, there are also concerns, notably around the lack of uniform regulatory standards, the high volatility observed in these markets, and the risk of cybersecurity threats.”

Roughly 40% of survey respondents already offer some crypto-related products like derivatives and stablecoins pegged to government currencies. Another 41% without current crypto offerings said they plan to introduce them.

However, regulated exchanges see more hurdles than benefits. The most notable risks were cybersecurity, high volatility, and operational challenges. Meanwhile, technological advancement, new revenue sources, and technological leadership were the most common benefits.

The dominant challenge highlighted was the lack of consistent government oversight. All survey respondents cited regulation as a primary obstacle to offering crypto-assets.

“In many jurisdictions, crypto-trading platforms have been operating without the high standards required from established financial markets and with very little regulatory oversight,” the report said. “As these markets continue to grow, it is clear that this may have negative consequences.”

Earlier collapses of major crypto platforms like FTX and TerraUSD stablecoin have increased calls for more oversight. The report said previous crypto failures are “a wake-up call for regulators to increase the regulatory focus.”

Though investor enthusiasm for cryptocurrencies remains strong, the report concluded that more government guardrails are needed around crypto-trading platforms. It said uniform standards would help instill confidence in regulated institutions to expand their crypto offerings.

“When considering the option of entering the crypto-markets, there are also concerns, notably around the lack of uniform regulatory standards, the high volatility observed in these markets, and the risk of cybersecurity threats,” the report said.