Binance Research: most large Bitcoin and Ethereum investors hold stablecoins, use cold wallets

Binance Research: most large Bitcoin and Ethereum investors hold stablecoins, use cold wallets

The research arm of Binance, the world’s largest crypto exchange by trading volume, has published a report that analyzes the results of a survey completed by institutional digital asset investors. According to the report, Binance surveyed over 100 institutional and VIP clients.

Survey results cannot be generalized due to the small sample size

The Binance team mentioned that the survey results should be interpreted with “extreme caution” and must not be generalized, because of the relatively small sample size of only 41 institutional and VIP clients.

As stated in Binance’s report, over 50 percent of the exchange’s VIP clients hold positions for at least a week. Meanwhile, a third of Binance’s institutional traders take part in high-frequency trading and various other market-making strategies.

Notably, Binance’s survey results indicate that clients with a bigger portfolio tend to trade across several different exchanges, whereas clients with less capital may trade on a single or a select few platforms.

High-frequency traders increasingly engage in cross-platform arbitrage strategies

High-frequency traders, who may hold positions for less than a day, tend to trade on several different exchanges in order to engage in cross-platform arbitrage strategies. This approach allows traders to take advantage of price differentials across multiple platforms, Binance’s report noted.

Binance’s management pointed out that around 90 percent of its clients use USD as the benchmark currency. This, as USD-backed stablecoins and USD-denominated trading platforms dominate the cryptoasset industry, Binance’s report confirmed.

Nearly all institutional clients use stablecoins

The Binance team revealed that almost all survey respondents said they use stablecoins for trading purposes or as a store-of-value (SoV). While USDT remains the dominant stablecoin, PAX and USDC are also used frequently to engage in trading or to hold value, the report mentioned.

Stablecoin usage (%) across institutional and VIP clients (source: Binance)
Stablecoin usage (%) across institutional and VIP clients (source: Binance)

Approximately 20 percent of Binance’s institutional clients that responded to the survey said they use the crypto-backed Dai stablecoin.

Majority of clients use OTC desks

As noted in Binance’s report, 87 percent of survey participants stated that they use over-the-counter (OTC) trading desks such as Huobi OTC, Galaxy Digital, and Binance Trading Desk.

According to Binance’s survey results, most clients have experience working in the financial sector, as only 7 percent of respondents said they had no prior exposure to financial markets before they began trading cryptoassets.

Most clients have been trading crypto for over a year

The majority of Binance’s institutional and VIP clients revealed they had been trading digital assets for at least a year. In fact, only 7 percent of Binance’s survey participants said they had been involved in crypto trading for less than a year.

Current experience in the cryptoasset industry (source: Binance)
Current experience in the cryptoasset industry (source: Binance)

Approximately 50 percent of Binance’s institutional clients had traded in traditional equity markets and around 25 percent said they engage in foreign currency trading.

Notably, 67.5 percent of survey respondents engage in leveraged trading through futures contracts or margin borrowing, Binance’s report noted.

Large investors keep funds mainly in cold storage

Clients with cryptoasset portfolios worth at least $25 million keep most of their holdings in cold storage wallets or use trusted third-party custodial solutions, according to Binance’s survey results.

The report concluded that a certain amount of user funds must be held on centralized exchanges in order to engage in efficient market-making and prop-trading strategies. However, this may change if decentralized exchanges such as Binance DEX begin to attract more users and experience greater trading volumes.

Storing methods for cryptoassets (source: Binance)
Storing methods for cryptoassets (source: Binance)

Interestingly, most institutional investors (two-thirds) do not keep funds in hot (online) wallets such as Binance’s Trust Wallet or the Coinbase Wallet, the report revealed.

DEXs not used frequently due to low liquidity

According to survey respondents, traders do not frequently trade on decentralized exchanges due to regulatory uncertainty. Binance’s institutional clients also mentioned that DEXs usually lack sufficient liquidity, and have a poor or non-intuitive user experience.

Non-custodial crypto platforms not yet popular among large traders

One-third of Binance’s clients that participated in the survey said they use custodial lending and borrowing services such as BlockFi or Nexo. As stated in Binance’s report, the majority of traders that use crypto lending and borrowing platforms have a long-term investment strategy.

Other survey results suggested that non-custodial digital asset borrowing/lending service providers are not yet widely used by institutional clients. This, as only 12 percent of those surveyed by Binance’s research division reported using these platforms.

Major risk factors: technology failures, hacks

Binance also asked its institutional and VIP clients to identify potential risks and growth factors for the digital asset industry. The majority of traders cited concerns about technology failures and security breaches. Survey respondents also noted that changes in regulations across different jurisdictions may pose a significant level of risk to the cryptoasset industry.

Other risk factors, according to survey respondents, included Tether’s legal problems and privacy issues related to cryptocurrency transactions.

ETFs could accelerate crypto ecosystem growth

Crypto industry growth drivers identified by Binance’s institutional traders include the potential introduction of Bitcoin ETFs, established brokers such as Fidelity offering crypto-related services, and the development of options contracts.

Binance’s survey respondents also believe that the launch of stablecoins by Facebook and J.P. Morgan may be seen as a positive development for the crypto space. Physically-settled crypto futures contracts offered by companies such as Bakkt and LedgerX may help accelerate the growth of the blockchain and digital asset sector, survey participants suggested.

Some respondents also said that Samsung’s crypto-related services such as a built-in smartphone wallet could potentially increase digital currency adoption.

Crypto infrastructure development highly undervalued

According to Binance’s institutional survey respondents, blockchain infrastructure development by projects such as ICON, Nebulas, and Zilliqa, is among the most undervalued segments in the crypto space. Store-of-value, payments, and settlements provided by Bitcoin, Monero, and XRP were also identified as undervalued by Binance’s clients.

Only 15 percent of respondents said the decentralized applications (dApps) ecosystem may be undervalued at present.

Many large investors don’t use Binance, results may not be accurate

When asked to predict Bitcoin dominance, which currently stands at around 60%, most survey participants said BTC’s crypto market share would remain roughly the same or go down slightly by December 2019.

While these survey results may be interesting, Binance’s management pointed out that there are still many large crypto industry participants that do not use the exchange’s services. This may suggest that the survey’s findings may not accurately represent the point of view and current trading patterns of large institutional players in the digital asset market.

The full report (PDF) can be downloaded here.

Filed Under: Altcoins, Binance, Bitcoin, Ethereum
Omar Faridi

Omar enjoys writing about all topics related to Bitcoin, blockchain, and cryptocurrency. He is most interested in crypto regulations, quantum resistant blockchains, and Ethereum and Bitcoin Core development. His academic background includes an undergraduate degree in computer science from the University of Nevada and a masters of science in psychology from the University of Phoenix. He works as an application developer for the University of Houston and a data storage specialist for Dell EMC.

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