Traditional finance firms are quietly moving into crypto and that shift could hollow out standalone crypto exchanges unless those platforms adapt fast. A new nine-country study from Tiger Research warns that banks and securities firms offering crypto services through familiar apps will siphon off users. Asian markets look especially vulnerable as regulators and big lenders prepare to roll out mainstream products like Bitcoin spot ETFs. Crypto exchanges now face pressure to offer something banks cannot and to make decentralized finance and altcoins accessible to regular investors.
Across multiple markets, the appeal of crypto ETFs is already reshaping where people park money. Institutional and retail dollars flow into ETF wrappers that sit inside bank and brokerage ecosystems, while some independent exchanges are trimming staff and watching volumes slip. That contrast is creating a clear pathway for tradfi players to capture customers who prefer one-stop financial apps over niche trading platforms.
“Traditional financial institutions are entering the market by leveraging familiar-seeming investment products like Bitcoin spot ETFs,” the report’s authors wrote. “Ahead of the next bull market, exchanges will only be able to survive if they prove to investors [that they can provide services] that traditional finance cannot.” These lines underline a harsh choice for exchanges: either compete on convenience through partnerships, or double down on unique crypto-native services.
Investors are shifting capital into regulated, bank-friendly products even as some crypto-native venues face operational pain and sagging share prices. That migration is not just noise — it changes liquidity patterns, fee structures, and the kind of user experience that dominates the market. For retail customers who value trust and simplicity, a brokerage app that lists Bitcoin or major altcoins looks a lot more comforting than a specialist exchange with a steep learning curve.
The pressure is most visible in parts of Asia, where local conditions amplify the threat. South Korea, with a large and active retail base, is already seeing consolidation as established securities houses move to buy into crypto trading. A takeover in Seoul shows how traditional players can acquire market access and brand trust overnight, leaving smaller tech-born exchanges scrambling for differentiation.
Up to 16 million South Koreans have traded crypto on domestic platforms, yet daily volumes and local currency deposits are softening. “Investors are moving to the stock market or overseas exchanges in pursuit of better returns,” the report’s authors said. That outward flow hurts native exchange order books and makes it easier for bank-led offerings to look like the safer, simpler option.
Japan and Hong Kong illustrate other pressures. In Japan, high tax rates have damped fresh inflows and will likely limit growth until policy changes arrive. In Hong Kong, tight rules mean only professional or high-net-worth accounts can freely access many services, which narrows on-ramps for casual investors and favors regulated financial institutions that already serve those clients.
On user experience, traditional finance has a natural edge: familiarity. “What traditional finance provides is not new information, but a familiar experience,” said Tiger Research. When buying crypto feels like another trade inside your broker app, many people will choose comfort over experimentation, and that familiarity becomes a decisive competitive weapon for banks and securities firms.
That doesn’t mean exchanges are doomed. Their advantage lies in broader crypto access, including decentralised finance tools and long-tail tokens that aren’t offered by mainstream brokerages. But those technical features are only valuable if platforms explain them clearly and lower the barrier to entry for average users.
“But these services are “meaningless” unless exchanges take steps to demystify the world of DeFi and altcoins for people who only have a passing interest in crypto, the authors concluded. Without focused education and smoother onboarding, many potential users will stick with the simpler, familiar routes that banks provide.
Regulatory moves in other countries add a second layer of risk for exchanges. Some jurisdictions are preparing rules that could route retail trading through licensed banks or block foreign platforms, effectively steering users into tradfi-controlled marketplaces. “Banks are going to get fully into the crypto industry,” David Sacks, the US government’s AI and crypto czar, told CNBC in January. “We’re not going to have a separate banking industry and crypto industry. It’s going to be one digital assets industry.”
