Ricky Maloney, Asset Management Specialist at Davies, spoke to DerivSource about the challenges of delivering effective risk management in the cryptocurrency market. He explained that expecting a single comprehensive vendor to meet the needs of the entire crypto ecosystem is unrealistic. Instead, successful providers will need to offer platforms that address the diverse challenges across multiple coins and trading environments.
He noted that liquidity plays a critical role in determining the viability of third-party solutions. For managers active in the most liquid coins, it is conceivable that an external vendor could deliver a service that meets their requirements. However, as firms move into smaller-cap, less liquid markets, the lack of data points diminishes the value of such services, making bespoke internal models a more practical alternative.
Risk management remains a particular pain point. He highlighted that third-party coverage in this area is often seen as deficient, largely due to the complexity of valuing assets across numerous exchanges. Prices for the same coin can vary significantly, and there is no clear consensus on valuation methodologies. While some metrics have been proposed—such as mining costs associated with proof-of-work for Bitcoin—these approaches are far from universally accepted.
He stressed that these factors underscore the need for tailored solutions and robust internal frameworks, especially for firms operating in less liquid segments of the market. As crypto continues to evolve, risk management strategies must adapt to address these unique challenges.
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