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Caspian: Introduction to Institutional Investing and the Caspian Institutional Investment Platform

Garnering institutional investor support has long been a milestone for evolving the digital asset class. Caspian helps clear the crypto path for institutions.

Gemini-Caspian- Introduction to Institutional Investing and the Caspian Institutional InvestmentPlatform

Summary

Institutional investing in digital assets is a complex and challenging venture that requires extensive experience, expertise, and a deep understanding of the crypto marketplace. It also requires strong foundational knowledge of the institutional investment processes common in traditional finance. The Caspian crypto trading solution is specifically designed to mitigate unreliable trade execution, lack of reporting and compliance, and poor security — all of which often hamper the success of blockchain-focused institutional investment firms. Caspian nurtures the development of institutional investment in crypto by providing innovative tools that work together to improve the transparency, usability, security, and adaptability of the system.

Common examples of institutional investment enterprises, typically referred to simply as institutional investors, include large market actors such as commercial banks and investment banks, mutual funds, pension funds, hedge funds, and insurance corporations. In contrast to retail investors, institutional investment firms in the U.S. and around the world have a much farther-reaching influence on the businesses they invest in and on the market as a whole. This influence has only increased over time. Consider the ownership stakes institutional investors hold in publicly traded corporate entities. As of 2020, institutional investors own about 80% of the total equity market capitalization of publicly traded entities.

Institutional Investment Overview

Investment in cryptocurrencies and the digital asset industry is becoming more commonplace. Big institutional players are entering the crypto market regularly. In most cases, institutional investors are organizations that pool funds together on behalf of other enterprises or high-net-worth individuals (HNWI). The amount of capital such institutions invest dwarfs the amounts that the average retail investor allocates. As a result, the stakes are raised exponentially. Institutional investors spend vast amounts of money to hire the best professional researchers, traders, and portfolio managers in an effort to hedge risk on their sizable investments and gain an edge in the marketplace.

Because of these high stakes, comprehensive market assessment is vital to such institutions. In the digital asset world specifically, institutional investors place a high priority on conducting thorough risk assessments and implementing comprehensive risk tolerance measures. Cryptocurrencies are the most volatile asset class in the world, and prices can frequently fluctuate by 20-30% (or more) in just a few hours. This potential for such extreme volatility means that specialized order management and exchange integration can be critical for success.

Additionally, asset allocation can be an important consideration — especially when investing large amounts of capital. In other words, institutional investors’ crypto portfolios typically consist of a diversified set of cryptocurrencies and crypto products. These can be defined by overall market capitalization (large caps, medium caps, and micro caps) as well as, potentially, a host of other differentiating characteristics such as utility, management, interoperability, and each cryptocurrency’s market capitalization. What’s more, portfolios will also be segmented into different crypto products such as crypto futures, options, and swaps. Institutional trading and investing in the crypto market predominantly focuses on large and medium cap cryptocurrencies.

When executing a trade to make a short-term profit or simply buying into or selling out of a position for the long term, several challenges related to slippage such as unfavorable bid-ask spreads, poor trading volume, and low liquidity are mitigated through Caspian’s Order and Execution Management System (OEMS). In addition, utilizing the system’s algorithmic Smart Order Router (SOR), which aggregates all exchange volume into a single liquidity pool, enhances the execution performance.

The Caspian Crypto Trading Solution

The institutional digital asset market is susceptible to several problems including: 

  • Poor compliance

  • Lack of reporting

  • Unreliable trade execution

  • Inefficient security

Caspian’s institutional-grade investment and trading management system focuses on providing a solution to these issues via five different components:

  1. Order and Execution Management System (OEMS): The Caspian Order and Execution Management System (OEMS) is a software platform, exchange aggregator, and suite of tools for advanced trading and portfolio management, designed specifically for institutional investors.

  2. Position Management System (PMS): Caspian’s Position Management System (PMS) allows users to manage their trading positions across multiple exchanges and wallets, monitor real-time and historical profit and loss (P&L) data, and access other advanced metrics.

  3. Reporting Mechanisms: The Caspian platform features a reporting engine to create reports and compile other data that helps monitor different aspects of a portfolio’s performance. Reporting mechanisms can be used for long-term and short-term analysis. Specialized reporting tools allow institutional investment firms to analyze P&L data, execution data, position size, entry type, exposure, and more, in various formats such as PDF and Excel.

  4. Algorithmic Trading Capabilities: The Caspian trading system leverages computer software to follow a particularly defined set of mathematical instructions (an algorithm) to place multiple trades simultaneously. Algorithmic trading gives markets more liquidity and potential increased profitability for institutional investors.

  5. Compliance: Caspian’s automated compliance system is built directly into its servers to concurrently audit thousands of trades taking place instantaneously, with only 0.0005 seconds of latency. This system is built as a unique turnkey solution aiming to avoid negative impact on trading workflows or slowing down any other parts of the system. 

As a rule, institutional investors face a number of unique challenges — and this is especially true in a relatively nascent market such as cryptocurrency, which raises questions of unreliable trade execution, lack of reporting, minimal compliance mechanisms, and (at times) insufficient security. Caspian’s platform design integrates its OEMS and PMS solutions into a single system that facilitates compliance, reporting, and algorithmic trading capabilities. The project team’s expertise, attention to detail, and insatiable drive for improvement help make Caspian a leader in the blockchain space.

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Robert Dykes

Author

Robert Dykes

Founder & CEO, Caspian

Robert Dykes is Caspian’s founder and Chief Executive Officer. Prior to Caspian and parent company TORA, Robert spent 11 years in the enterprise software and high-tech industry in Europe, North America, and Asia. Robert has held executive management positions in several start-up and early stage software companies including WebPartner, a software provider of corporate testing applications, and AudioSoft, a software services company providing online music licensing solutions, which was sold to Macrovision Corporation (NASDAQ: MVSN). Robert started his career at Deloitte working in various positions in audit, consulting, and mergers & acquisitions groups. Robert holds a B.A. in Economics with an emphasis in Mathematics from Princeton University.

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