FinTechTalk: The power of data in the Digital Asset market

On 12 March 2024, FintechTalk host Charles Orton-Jones was joined by Deborah Algeo, Director of Innovation, NAB; James Harris, Chief Commercial Officer, Zodia Custody; and Shawn Douglass, CEO, Amberdata. 

Digital assets and how data can help reduce related risks 

Crypto has a reputation for being the wild west, but it’s increasingly moving into the mainstream – it has now the necessary tools, data and custody services. Data in this context means a full telemetry into centralises and derivative exchanges from an orderbook event level to trades to aggregations to reference rates etcetera. This data falls into three different categories – accounting, the fundamentals for blockchain networks, as well as price action and discovery. Prior the ETF launch, Amberdata processed 240 billion dollars per day in notional transaction volume. Thanks to ETFs, there is an additional 57.5 billion dollars in AUM across ten ETFs. Clearly, there is institutional demand for Bitcoins, but Ethereum and other cryptocurrencies are following suit. There are a lot of benefits to digital assets being on chain including instantaneous settlements and transparency. Banks’ responsibility here is to provide crypto-related services the safest possible way – and data plays a key role in this. Data can help evaluate the digital technology being used, provide information about the utility of the token (its provenance and trust value), as well as the whole ecosystem that the bank is dealing with. All these aspect help the bank to get a deeper understanding of the digital assets that they have on offer. The regulatory structure for crypto assets is already emerging and Bitcoin seems to be eating into gold’s market share.  

What do people invest in when they buy ETFs? 

Some investors are making a bet that Bitcoin will become a meaningful store of value, while day traders are attracted by its volatility. Digital assets are compelling thanks to three factors – trust in its network and the radical transparency that is not available in traditional financial markets – see Fidelity’s quarterly Digital assets signal report.

The experience of trading with digital assets is now converging to the tier-one bank customer experience. However, there are additional risks In the digital asset scenario, as the asset is stored in a distributed ledger, where access is determined by a long pin pass. If someone gets hold of this pin pass, they will have immediate access to the assets too as there is no bankcard accompanying them. There are two types of custodian services – the first provides the technology to self-custody and the fully-delegated custodians, who also store the keys and must comply with bank-grade regulations and therefore have  KYC and AML processes in place. These custodians leverage techniques such as chain analysis, TRM labs, which enable the blocking of asset transfer if they are to go to sanctioned entities. Decentralised finance type of opportunities such as staking, borrowing and lending are also becoming increasingly available.

Financial institutions offering digital assets can’t afford to make a mistake and therefore must monitor hundreds of venues where they ingest real time data from, as well as keep up with API changes, while the on-chain data and its management is radically different from traditional financial services. Asset managers must understand what’s happening in the distributed database and the application server that’s processing the smart contract and turn that into meaningful insights. Regulators are also accessing this data around the globe. Digital asset managers span the entire spectrum of services – derivatives data, dealer net positions in gamma profiles in centrally traded options, DeFi data from Uniswap, the lending that’s happening with participants and the rates being earned plus liquidations and the minting and burning data of stable coins.  

Panel’s advice 

• Don’t label the crypto market as wild west confusing the lack of rules and regulations with volatility.  
• The more use cases an asset has, the more types of traders will invest in it.  
• 70% of Bitcoin didn’t change hands in the last bear market despite its price falling eighty-odd per cent, which, thanks to the underlying technology,  can be substantiated with data. 
• Wedding online data on blockchain with offline is a game changer. 
• Data can reveal the underlying logic of crypto assets, so that trading becomes less of a coin flipping or arcane exercise. 

For Amberdata digital asset snapshot, click here.