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Several major Wall Street trading firms have announced plans to enter the cryptocurrency market, opening a new front in the battle to win lucrative business from institutional investors.
U.S. stock market giants Jump Trading, GTS and Jane Street are ramping up trading of digital assets after years of secrecy surrounding their early forays into those markets.
They are some of the most competitive trading firms vying for every penny of stock, currency and futures trading in the world. Now they plan to take over as a bridge between the crypto world and asset managers eager to trade in the fast-growing market.
“We began trading cryptocurrencies in late 2017, leveraging our experience in other asset classes, and we trade digital assets 24/7, globally,” Mina Nguyen, head of institutional strategy at Jane Street, told the Financial Times in an interview.
“Institutional investor interest has grown significantly and we are eager to share our expertise to support a more efficient cryptocurrency market.”
High-frequency traders have been at the forefront of a wave of change that has swept through the world's largest stock market, the U.S., over the past two decades. They have used lightning-fast technology and regulatory changes to squeeze margins and fees on stocks, exploiting price differences for the same assets in different markets to make the market more efficient. That concentration has raked in billions of dollars in revenue.
Now, many institutional investors are eager to bring that expertise to the cryptocurrency market, where the potential for high returns stands in stark contrast to the bond, currency and stock markets, where long periods of ultra-low interest rates have kept volatility in check.
Large high-frequency trading firms first entered the cryptocurrency market when bitcoin's price skyrocketed in 2017. Most of these firms kept their involvement in crypto under the radar until recently, quietly building market share.
JPMorgan analysts estimate that high-frequency traders accounted for almost 80% of bitcoin value sent to exchanges by the end of last year, roughly the same percentage as high-frequency traders in U.S. Treasury bonds. Many of these computer-driven traders are looking to trade the cryptocurrency's “basis,” the difference between the spot price and the derivative price.
But many exchanges are now also keen to attract off-exchange trading on behalf of institutional investors, acting as intermediaries for transactions in decentralized networks where trades are not matched in a single place.
This puts it in competition with specialist crypto trading firms such as Genesis, B2C2 and Bequant, and possibly other exchanges. U.S.-listed crypto exchange Coinbase said on Wednesday it had applied to become a futures trader, which would allow it to process futures orders from customers.
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GTS is launching Radkl, a new venture later this year that will launch proprietary trading of digital assets ranging from Bitcoin to the burgeoning decentralized finance market. Radkl is also an investor in billionaire hedge fund manager Steven Cohen.
“We need larger, more sophisticated players who can navigate the regulatory environment,” said Ari Rubenstein, chief executive officer of GTS, who said such players would make the market “more efficient” and “more attractive to investors.”
Jump Trading is creating a separate division of more than 80 people focused on the growth and development of blockchain networks and digital coins. Kanaf Kariya, president of the new division, said Jump has spent decades building a high-performance infrastructure. “We're bringing that power to cryptocurrencies,” he added.
