Crypto Long & Short: When capital can’t move fast enough, markets pay the price

Hi readers,

Welcome to our institutional newsletter, Crypto Long & Short. This week:

• Markets rarely break because capital is scarce, but rather when it is trapped in the wrong place, writes Jenna Wright of LMAX Group.
• Top headlines institutions should pay attention to by Francisco Rodrigues
• “ENA’s funding sensitivity has structurally faded ” in Chart of the Week

Thanks for joining us!

– Kim Klembella

When capital can’t move fast enough, markets pay the price

by Jenna Wright, managing director, digital assets, LMAX Group

Markets rarely break down because there is too little capital in circulation. More often, they come under strain because capital is in the wrong place at the wrong time. Recent volatility driven by geopolitical tensions has reinforced that lesson. Institutions had money, collateral and balance-sheet capacity available, but too much of it was trapped in systems still governed by batch processing, cut-off times and settlement cycles. Risk was repricing by the minute; collateral was not.

This mismatch is no longer a back-office inconvenience; it is a market-structure problem. When institutions cannot mobilise collateral quickly enough to support their positions, liquidity thins, spreads widen and price moves become unnecessarily sharp. The problem is not volatility alone, but market infrastructure that has failed to keep pace with the markets it serves.

Markets are always on — infrastructure is not

The shift is already visible. Digital assets trade around the clock. FX and derivatives markets are moving steadily towards more continuous activity. Investors increasingly want instant access and an instant response. Yet much of the infrastructure that supports institutional trading was designed for a world of fixed market hours and end-of-day processes.

That gap matters most when markets are under stress. Collateral is still split across venues, custodians, asset classes and jurisdictions. Companies still pre-position capital because settlement may take one or two days. They still manage exposure around operational cut-offs that make little sense in markets that move continuously.

We saw the consequences in January. LMAX Group processed more than $300 billion in total volume in a single week, including $60 billion in gold products alone. Across the wider market, some institutions were forced out of positions overnight because they could not move assets out of equity or bond portfolios quickly enough to fund their gold or energy exposure. The collateral was there. It simply could not move fast enough.

That is the flaw volatility exposes. Markets have become faster, more global and more interconnected, while capital movement remains slow and fragmented. Closing that gap requires a different way of thinking about cash, collateral and settlement.

Stablecoins are no longer peripheral

Settlement remains one of the weakest links in capital markets. Institutions can execute trades globally in milliseconds, but the transfer of value that supports those trades can still take days. That delay creates funding pressure, operational risk and unnecessary capital drag.

This is where stablecoins become relevant to institutional markets. Strip away the noise and the use case is straightforward: they allow cash-like value to move with the speed and programmability of digital assets. For firms still working around T+1 or T+2 settlement, nostro and vostro accounts, and hard cut-off times, that is not a marginal improvement. It changes what is operationally possible.

The market has already moved beyond theory. Stablecoin market capitalisation is now around $320 billion, and recent industry data points to record levels of on-chain transfer activity. The more important point, however, is not the headline number. It is that regulated institutions are beginning to treat stablecoins and tokenised cash as settlement infrastructure rather than crypto-market curiosity.

That distinction matters. A stablecoin does not need to replace the financial system to be useful. Its role is more practical: to allow money to move at the same speed as the risk it is supporting. In continuous markets, that ability will become table stakes. Any institution that cannot settle, fund or rebalance in real-time will be carrying a disadvantage before the trade even begins.

Tokenisation is the other half of the equation

Stablecoins address the movement of cash. Tokenisation addresses the movement of assets – and in the January example, it was the inability to move assets quickly that forced institutions out of positions. By representing securities and other assets as programmable units of value, tokenisation makes collateral more portable. Assets that would otherwise sit inside delayed settlement cycles can be pledged, transferred or released more quickly. Trapped capital can be put back to work.

This is why tokenisation should not be dismissed as another efficiency project. It changes the way trust, settlement and risk management are organised. When cash, securities and collateral can all exist on programmable rails, the old separation between asset classes starts to look less like a necessity and more like a constraint.

The hard part is not the concept, it is the build

The direction is clear. The difficulty is execution. Today’s market infrastructure still reflects a chain of separate processes: execution, clearing, settlement and custody. Each hand-off adds delay. Each boundary creates another point where capital can become stuck. That model is increasingly out of step with markets that expect exposure, funding and settlement to be managed continuously.

These are operational and engineering challenges, not abstract debates about market philosophy. They require infrastructure that can be upgraded without downtime, risk models that work intraday rather than at the end of the day and settlement mechanisms that can support institutional scale. The firms that solve this will not simply become more efficient. They will set a competitive standard for markets over the next decade.

The cost of waiting is rising

Every major shift in market structure looks slow until it suddenly does not. Electronic trading, central clearing and shorter settlement cycles all followed that pattern. Adoption begins unevenly, then accelerates once the advantages become impossible to ignore.

Technology is available and the use case is clear. What remains is the willingness to modernise the infrastructure that determines whether capital can be used when markets need it most. Until that happens, markets will continue to pay for a simple but costly flaw: capital may be abundant, but abundance means little if it cannot move efficiently.

Headlines of the Week

By Francisco Rodrigues

This week’s headlines show institutional crypto shifting further into regulated financial infrastructure. Coinbase and Wintermute kept securing regulatory victories, while Wells Fargo joined a major race in the sector.

• Wells Fargo joins the race to tokenize Wall Street’s settlement rails: The bank will introduce tokenized deposits this fall for select corporate and commercial clients, starting with round-the-clock U.S. dollar-to-British pound transactions and expanding to more clients, countries and currencies in 2027.
• Wintermute lands U.S. broker-dealer status in Wall Street push: The market maker’s U.S. arm registered with the SEC and joined FINRA, allowing it to trade stocks and options, provide ETF liquidity and act as an authorized participant for crypto-linked funds.
• Coinbase picks Abu Dhabi for its global tokenized-asset push: The exchange secured permission from Abu Dhabi Global Market’s regulator to arrange investment deals and custody tokenized securities, with plans to issue digital securities backed by shares.
• Senate starts Clarity Act floor process ahead of September test: Majority Leader John Thune filed a motion to proceed, positioning the bill for an initial vote after the August recess, but it still needs 60 votes and agreements on ethics, enforcement and stablecoin rewards.
• U.K. FCA drafts tokenized-gold rules for wholesale markets: The regulator is consulting financial institutions on using tokenized bullion as wholesale collateral as London defends a market accounting for 70% of global notional gold trading volume.

Chart of the Week

Average BTC/ETH funding has crept back to ~5% annualized, now above the 3 million T-bill (~3.8%) — yet Ethena (ENA) has barely reacted. The disconnect is structural: crypto basis is down to ~1.5% of ENA’s backing, so the token’s funding sensitivity has all but faded.