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Several of Wall Street’s biggest trading companies have unveiled plans to stake out territory in cryptocurrency markets, opening a new front in their battle to win lucrative business from institutional investors.
Jump Trading, GTS and Jane Street, among the largest players in the US equity market, are stepping up their trading in digital assets after years of secrecy surrounding their early forays into these markets.
They are some of the most competitive trading companies that fight for every trade on global equity, currency and futures markets. Now they are planning a land grab as the bridge between the crypto world and asset managers keen to trade the fast-growing market.
“We started trading crypto in late 2017 by extending the experience we developed from other asset classes, and we’re trading digital assets 24/7 around the world,” said Mina Nguyen, Jane Street’s head of institutional strategy in an interview with the Financial Times.
“We’ve seen institutional interest grow significantly and we are actively sharing our expertise to support more efficient crypto markets.”
High-frequency traders have been in the vanguard for the wave of change that has swept across the US equity market, the world’s largest — over the past two decades. They have used superfast technology and regulatory change to make the market more efficient by squeezing margins and commissions on stocks and taking advantage of the differences in prices for the same asset on different venues. That focus has earned them billions of dollars of revenues.
Many now want to bring that knowhow to the crypto market as institutional investors are drawn by the high returns on offer. The fast-moving prices and extreme tumult stand in stark contrast to the bond, currency and stock markets, where a prolonged period of ultra-low interest rates have damped volatility.
Large high-frequency trading firms first piled into crypto markets in 2017, when bitcoin prices soared. The majority of these companies remained under the radar with their involvement in crypto until recently, quietly building their market share.
JPMorgan analysts estimated that, by late last year, high-frequency traders were responsible for almost 80 per cent of the bitcoin prices sent to exchanges, similar to their share in US government debt. Many of these computer-driven traders target the crypto “basis” trade — the discrepancy between the spot price and the derivatives price.
But many are now also keen to attract off-exchange trades on behalf of institutional investors, and serve as the conduit for trading on decentralised networks in which transactions are not matched on a single venue.
That puts them up against specialist crypto trading firms such as Genesis, B2C2 and Bequant, and potentially other exchanges. On Wednesday US-listed crypto exchange Coinbase said it had applied to become a futures commission merchant, which would allow it to handle futures orders from customers.
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GTS is setting up Radkl, a new business that will start proprietary trading in digital assets, from bitcoin to the fast-growing decentralised finance market, later this year. Steven Cohen, the billionaire hedge fund manager, is also investing in Radkl.
Ari Rubenstein, chief executive of GTS, said that he saw a “need for large-scale sophisticated players who can navigate the regulatory environment”. He said these players would make the market “more efficient” and “attractive for investors”.
Jump Trading is setting up a separate unit of more than 80 people focused on the growth and development of blockchain networks and digital coins. Kanav Kariya, president of the new unit, said Jump had spent decades building high-performance infrastructure. “We’re bringing that muscle to crypto,” he added.