Professional trading firms and asset managers are placing greater emphasis on regulated banking, custody, settlement and treasury capabilities as they prepare for larger allocations to digital assets, according to Scott Gralnick, Global Head of Institutional Growth at IRACE Digital.

“The single biggest shift is that ‘institutional grade’ has stopped being a marketing phrase and become a checklist,” Gralnick said.

Gralnick said institutional firms are no longer focused on simply gaining exposure to digital assets. Instead, they are paying closer attention to the infrastructure supporting those investments, including who holds the assets, how they are safeguarded and the legal and operational frameworks governing them, he said.

“The crypto question has moved from ‘can I own it’ to ‘who is protecting it,’” he said.

According to Gralnick, institutional expectations for digital asset providers are increasingly resembling those traditionally placed on prime brokers and custodian banks. He said firms are looking for asset segregation, governance, resilient operations and settlement discipline as standard requirements.

He also said institutions increasingly want digital assets integrated into their existing operational frameworks rather than managed through separate systems.

“It is collapsing the wall between your crypto stack and your real stack,” Gralnick said.

“The expectation now is that digital assets behave like any other asset class inside the existing workflow: same treasury function, same settlement discipline, same governance,” he added.

Gralnick said institutions do not want separate banking relationships for traditional and digital assets.

“Institutions do not want a crypto bank and a real bank. They want one bank that does not flinch when the asset is digital,” he said.

He said one of the biggest operational challenges institutions continue to face is the banking infrastructure supporting digital asset markets, particularly when moving fiat currency for settlement outside traditional banking hours.

“The honest answer is that the hardest problems left are not crypto problems. They are plumbing problems,” Gralnick said.

“The technology works. The banking layer underneath it is what still fails people,” he commented.

Gralnick said discussions with institutional clients have also been shaped by the banking disruptions of 2023, with firms now placing greater emphasis on liquidity resilience, balance-sheet structure and asset segregation.

“The greatest need for improvement is structural, not technological,” he said.

Another trend Gralnick highlighted is growing demand for providers that support both traditional and digital assets through a single operating framework.

He said institutions are seeking consistency across banking, custody, treasury, settlement and execution while operating under appropriate regulatory frameworks.

“The winning question is no longer ‘traditional or digital. It is ‘why would I run two of everything,’” Gralnick said.

He added that regulatory developments have significantly changed conversations with institutional clients.

“Regulatory clarity changed the room. Two years ago the first question in an institutional meeting was existential: is this even allowed. Now the conversation starts at implementation,” he said.

According to Gralnick, institutions entering the market today are focused on governance, operational controls and implementation rather than seeking confirmation that participation is permitted.

“Clarity did not just open the door. It changed who walks through it, and now they walk in asking about controls, not permission,” he said.

Looking ahead, Gralnick identified three developments that he believes will have the greatest impact on institutional market infrastructure: the expansion of always-on regulated trading, the continued growth of tokenization and the maturation of banking and custody services supporting digital assets.

He said around-the-clock markets will require institutions to rethink treasury operations, liquidity management and settlement processes as trading increasingly extends beyond traditional banking hours.

“The next few years will be won not by the fastest venue but by the safest place to settle,” Gralnick said.

He also said the continued development of banking and custody infrastructure will be critical as digital assets become more integrated into institutional markets.

“Everything above depends on where the cash and the assets actually sit,” he said.