Published: April 2nd, 2021
Two digital asset platforms have partnered to launch a new trading platform designed for institutions. Prometheum and Anchorage have joined forces to create what the two companies call an ‘alternative trading system’ or ATS.
Once it gets the nod from financial regulators, the new system; PEATS (for Prometheum Ember ATS); will be a registered broker-dealer trading venue that matches buyers and sellers. Services of this type are currently restricted to institutional and other accredited investors. PEATS, the two companies say, will be available to a broader public. It still needs SEC and FINRA approval.
The thinking behind PEATS is to capitalise on demand for more efficient order matching and better price discovery, offering smaller spreads on price and streamlined participation for every investor, the two companies said in a statement.
Once it goes live, Anchorage will provide PEATS investors with custody services and on-chain settlement.
If it receives regulatory approval, PEATS will be an SEC-registered broker-dealer in the US. However, Prometheum and Anchorage say the trading system won’t be regulated like an exchange.
In practice, that means PEATS will be a venue for matching buy and sell orders, but the way trade execution is handled won’t require formal SEC approval to operate as an exchange. The company says digital asset trades need a broker-dealer intermediary to optimise how virtual securities are bought and sold, but PEATS won’t be a full-blown exchange.
The two companies have effectively invented a new category, the ‘alternative trading system' (ATS), which is more than a broker but less than an exchange. By doing so, it hopes to add something that’s missing from the digital-asset value chain.
Given that the SEC is dealing with something new, the two companies say they don’t know precisely when regulatory approval will land. Still, the signals from executives suggest they expect to receive an OK to operate soon.
Industry watchers say the SEC is savvier about digital assets than it was even a few years ago and less likely to be over-cautious. Executives at Anchorage and Prometheum have told the press that their meetings with regulators have been very positive.
SEC regulators have expressed interest and even excitement about digital innovations, they say, even extending to developments in cryptocurrencies. Financial oversight agencies have struggled in the past to get to grips with the rise of crypto.
Initial reactions were driven by concerns about digital assets' legitimacy and trust, plus confusion about how to categorise them. Cryptocurrencies like Bitcoin and Ethereum can be both a form of payment and part of an asset class. And different coins can have different technical characteristics and distinct use cases. Regulators are only now clarifying rules that can bridge all these issues to protect investors.
The natural customer for the kind of service PEATS will provide is big investors and accredited names in traditional finance. While the system is being described as 'public', at the outset, that will mean large investors. Digital currency news in 2021 months has been full of announcements by institutional investors who have (finally) got the crypto bug and taken on significant crypto positions, mainly Bitcoin.
With each new announcement, several smaller investors have piled in. Industry watchers are calling it the long-awaited arrival of big finance into the crypto space. It’s behind BTC’s current push toward USD 60,000 and what’s been the most extensive crypto bull run since 2017.
By launching PEATS, Anchorage and Prometheum are staking out a stronger position to take advantage of growing interest by large firms, the biggest of which have hoovered up hundreds of millions USD worth of BTC.
Asset management firm Coinshares said inflows to crypto investment funds touched USD 1.3 billion in January, as firms like 3iQ, Grayscale, 21Shares, and others poured money into crypto funds or bought cryptos directly.
BTC’s performance in the first quarter of 2021 drove 96 per cent of the USD 1.4 billion that flowed into Bitcoin-based investment products. Coinshares report also noted that investment-grade funds and related products and services only represent the tip of a ‘very large iceberg’ when measuring the total Bitcoin trading volume that’s happened since the bull run began.
Despite the record inflows, ‘crypto investment vehicles still haven’t unleashed all the underlying liquidity Bitcoin represents,’ said Coinshares analysts. As a percentage of all trading turnover in BTC, investment products have so far represented between six and seven per cent of what’s out there. Overall, Bitcoin trading volumes have reached several new highs since January, touching above USD 12 billion a day on average, versus about USD 2 billion a day in 2020.
Price action also has an influence. After reaching a new record high above USD 40,000 in February, BTC’s price briefly stabilised, then started a fresh upward climb towards USD 60,000, its current resistance.
As Bitcoin continues heading skyward, PEATS will hope to attract some of the crypto super hoarders that have established themselves over the last few months. These companies either own large amounts of crypto and hold them as reserve assets or hold cryptocurrencies in funds on behalf of investors: