Matthew Tweed is a world away from Wall Street traders. The 20-year-old finished high school just two years ago, never went to college and worked out of his bedroom at the family home in Surrey, England.
However, thanks to the new fragmented crypto world, Tweed is creating markets in Bitcoin derivatives through its single operation, which is connected to two of the largest exchanges – along with hedge fund professionals.
After learning how to build low-latency market-making systems from a stranger on Reddit, he’s trying to get rich with cryptocurrencies before more institutional actors enter the industry in droves.
“I very much enjoyed doing it independently — not having to work half a decade as a young analyst in a bank in a 100 hour week,” he said while eating lunch at a café near his home, before starting his work day. “I can do it myself but somewhat on my own terms.”
His ambitions would be near impossible in highly regulated and liquid markets like stocks where wealthy professionals with their high-frequency technology ramp up barriers to entry for young men.
Tweed, who has consolidated his one-man band by the name of Bain Financial, seeks to make money on the spread between bid and ask for bitcoin futures – a unique derivative of speculative bets – whenever they appear profitable.
With a large number of reliable trading opportunities helping to grow returns over time, Tweed says 100% annual gains can reasonably be expected, declining to reveal exact numbers. An executive at an exchange where Tweed operates confirmed that it is a competitive, low-latency market maker.
It is a small player in this industry, which is now generally seeing hundreds of billions of dollars traded every day. Chicago businesses like Jump Trading and Tower Research dove a few years ago, and transplants from the likes of Goldman Sachs, Susquehanna International Group and Jane Street are an increasingly popular presence. Bitcoin has surged about 230 percent over the past year to trade near $38,600 on Thursday.
But cryptocurrency trading remains slow and decentralized — Coinmarketcap.com lists over 300 exchanges — while the data and access is free, making it accessible to Reddit enthusiasts. Instead of relying on advanced mathematics or engineering magic involving fiber optic cables or towers next to data centers, trading the microstructure of cryptocurrencies is a different beast than stocks.
“Everything about space is set up differently,” said David Fauchier, who allocates capital for quantum managers at Nickel Digital’s Factors Fund. “It’s a completely different skill set.”
Modeling and programming skills are important, but a lot of it comes down to a good understanding of the many quirks of the crypto market. For example, in traditional markets, high-frequency companies place their servers near an exchange to increase speed, a move known as co-location.
In crypto, most platforms run on the cloud, so Tweed executed a series of trades to find out the location of a particular exchange’s servers, which is a common strategy that low-latency traders follow.
With high volumes across many currencies, derivatives and exchanges, market making has been a profitable crypto strategy in a bull market. It’s also one of the ways long-term funds use to generate income, according to a report by PricewaterhouseCoopers and Elwood Asset Management.
Other than the bid-ask spread, some exchanges also pay high rebates to liquidity providers, while some token issuers pay traders to trade their assets.
This is not even to mention decentralized finance, where anyone can be a market maker by putting their coins into a liquidity pool that then automates buying and selling using a mathematical equation.
DeFi Pulse data showed that so-called revenue growers held nearly $23 billion worth of tokens on exchanges on Wednesday, up from just $5 billion at the end of 2020. The industry has also attracted more sophisticated market makers like Wintermot, whose founders are affiliated with the company. Dutch Optiver Trading.
Sipping his can of soda in a crimson hoodie, Tweed says it’s time for early adopters to go all out, given the opportunities galore.
“You don’t necessarily know if cryptocurrency will stay the same in a decade,” Tweed said. So you can also use it while you get an advantage.
(Except for the headline, this story has not been edited by the NDTV crew and is published from a syndicated feed.)