The battle for supremacy in cryptocurrency trading has intensified as some of the biggest players on Wall Street begin to challenge digital asset professionals who are already handling billions of dollars in transactions every day.
The most active traders and market makers in the nearly $3 trillion digital asset space include Alameda Research, B2C2, Cumberland and Genesis Trading, none of which are well known in the traditional financial markets.
But rapidly increasing valuations this year have now attracted trading houses that already dominate major markets such as stocks, currencies and futures. Relative newcomers to digital assets, Jump Trading, Jane Street, Tower Research and Hudson River Trading are now competing with local crypto firms to be the fastest and the best.
“We know the big guys are coming in but they don’t intimidate me. We started in 2017, so we actually spent a lot of time on it,” said Michael Safay, owner and CEO of London-based Dexterity Capital, which he founded to become “the biggest and worst trading company in the world.” .”.
Dexterity, which specializes in digital assets, trades between $2 billion and $4 billion in cryptocurrencies daily.
Banks and Wall Street trading houses until recently played a minimal role in cryptocurrency trading, which began with retail investors and grew to accommodate companies that were happy to take the other side of the bets made by individual gamblers.
Retail investors trade on hundreds of exchanges where bitcoin – the most popular cryptocurrency – can be bought and sold. The price of digital assets can vary greatly on different exchanges, and traders can take advantage of the differences between prices if they are fast enough and have the ability to bet on several platforms.
This is what prompted Sam Bankman-Fried to create Alameda Research in 2017 – with the goal of taking advantage of the disparity between the price of bitcoin on South Korean exchanges and those in the West. He went on to launch FTX, the stock exchange, in 2019.
Alameda has become one of the major players in providing prices to cryptocurrency traders around the world. The company’s co-CEO Carolyn Ellison told an industry publication that it trades $5 billion in coins daily, across thousands of products.
“As traditional finance-based companies enter the crypto-trading space more and more, it is because they are attracted to the similarly increasing size and opportunity in the space,” Sam Trabuco, co-CEO of Alameda Research, told the Financial Times.
While a lot of companies in the crypto sector got their start four years ago, traditional companies have been a lot slower to dive in. Jump Trading announced the launch of a digital unit in September of last year.
“[Their entry in to the space] It changes the kinds of things that Alameda needs to focus on,” Trabuco said, noting that there is more competition to be the fastest. “But the increased competition so far has not matched the decline in success.”
In traditional markets, inefficiencies such as South Korea’s so-called “premium kimchi” are quickly ironed out. In crypto, this process is less developed but after the arrival of high-frequency trading firms on Wall Street, opportunities to profit easily are becoming more and more scarce.
“Traditional HFTs are becoming more comfortable trading on crypto exchanges and [they] encroach on [opportunities that were] Joshua Lim, Head of Derivatives at Genesis Trading, said it is the bread and butter of crypto support stores.
This is prompting crypto-initiated firms to expand their activities in areas such as lending and over-the-counter trading, and to exploit shortcomings in new areas such as decentralized finance, where profits are still lucrative.
Rob Catalanello, co-CEO of B2C2, backed by Japanese bank SBI, said B2C2’s interest in trading on exchanges has waned as more investors want bilateral deals. Today, 65 percent of its volume is traded on the platforms, down from nearly all trades last year.
Institutional investors are interested in products such as non-deliverable futures contracts, a type of derivative widely used in the foreign exchange markets. The contract owner can trade the cryptocurrency without receiving the physical asset when the deal expires.
As trading on the exchanges declines, Genesis has seen a massive growth in activity at its lending desk, which handled $35.5 billion in crypto loans in the third quarter of the year, an increase of 586 percent over the same three months in 2020.
Derivatives markets also grew strongly. And while the big stores of traditional finance focus on trading at this point, the current rulers of cryptocurrency are expanding their aspirations and setting their sights on major Wall Street banks.
“We are one of the largest, if not the biggest, market makers in the crypto space and we want to be the first digital investment bank,” said Max Bunin, founder of B2C2.