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Several of Wall Street’s largest trading firms have unveiled plans to delineate territory in the cryptocurrency markets, opening a new front in their battle to win lucrative business from institutional investors.
Jump Trading, GTS, and Jane Street, among the major players in the US stock market, are stepping up their digital asset trading after years of secrecy surrounding their first forays into these markets.
They are some of the most competitive trading companies fighting for every trade in the global equity, currency and futures markets. They are now planning a land grab as a bridge between the world of cryptocurrencies and asset managers eager to operate in the fast-growing market.
“We started trading cryptocurrencies at the end of 2017 expanding the expertise we developed from other asset classes, and we are trading digital assets 24/7 around the world,” said Mina Nguyen, Jane Street’s head of institutional strategy in an interview with Financial Times.
“We have seen institutional interest grow significantly and we are actively sharing our expertise to support more efficient crypto markets.”
High-frequency traders have been at the forefront of the wave of change that has swept through the US stock market, the world’s largest, for the past two decades. They have used ultra-fast technology and regulatory changes to make the market more efficient by reducing margins and commissions on stocks and taking advantage of differences in prices of the same asset in different places. That approach has earned them billions of dollars in revenue.
Many now want to bring that knowledge to the crypto market, as institutional investors are drawn to the high returns on offer. Fast-moving prices and extreme turmoil are in stark contrast to the bond, currency and equity markets, where a prolonged period of ultra-low interest rates has dampened volatility.
Large high-frequency trading companies first piled up in the crypto markets in 2017, when bitcoin prices soared. Most of these companies remained under the radar with their share of crypto until recently, quietly building their market share.
JPMorgan analysts estimated that, at the end of last year, high-frequency traders were responsible for nearly 80 percent of bitcoin prices sent to exchanges, similar to their share of US government debt. Many of these computer controlled traders are targeting crypto “base” trading – the discrepancy between the spot price and the derivatives price.
But many are now also interested in attracting off-exchange trading on behalf of institutional investors and serving as a conduit for trading on decentralized networks where transactions do not coincide in one place.
That puts them against specialized cryptocurrency trading firms like Genesis, B2C2, and Bequant, and potentially other exchanges. On Wednesday, Coinbase, the US-listed cryptocurrency exchange, said that it had applied to become a futures commission trader, which would allow it to handle clients’ futures orders.
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GTS is creating Radkl, a startup that will begin operating with ownership in digital assets, from bitcoin to the fast-growing decentralized financial market, later this year. Steven Cohen, the billionaire hedge fund manager, is also investing in Radkl.
Ari Rubenstein, CEO of GTS, said he saw a “need for sophisticated large-scale players who can navigate the regulatory environment.” He said these players will make the market “more efficient” and “attractive to investors.”
Jump Trading is setting up a separate unit of over 80 people focused on the growth and development of blockchain networks and digital currencies. Kanav Kariya, president of the new unit, said Jump had spent decades building high-performance infrastructure. “We are bringing that muscle to cryptocurrencies,” he added.