Bloomberg

Wall Street uses old tricks in $ 2.4 trillion crypto jungle

(Bloomberg) – Wall Street traders like Trey Griggs are finding new life in the $ 2.4 trillion crypto Wild West After two decades in energy trading, the 51-year-old has been drawn to a former colleague of Goldman Sachs Group Inc. in February in a new world of market creation in digital currencies. Now he’s fighting the spirits – unleashing old-fashioned financial tricks to exploit the industry’s rampant inefficiencies, volatility, and outright weirdness. Griggs is one of the newcomers to the crypto field who deploy proven systematic strategies in conventional assets, ”says the US CEO of GSR Markets in Houston. classes – price arbitrage, futures trading, option writing – in a new and booming corner of finance. As more mainstream investors back Bitcoin, boutique companies join Mike Novogratz in an ever-larger, record-breaking crypto rally. For those who can handle the price swings, the threat of exchange hacks and the Byzantine market structure, complex Quick money transactions offer an alternative way to overcome digital mania.A GSR, the bread and butter of business is the creation of the market, where traders pocket the gap between buy and sell orders. of Citadel Securities and Virtu Financial are operating at lightning speed. In virtual currencies, where hundreds of exchanges offer free access at a slower pace, GSR can capitalize on large volumes without spending millions on high frequency infrastructure. , is this trade good or bad, ”says GSR co-founder and former Goldman trader Richard Rosenblum. “We don’t want to be slower than our competition, but it’s not quite so much the engine.” For every stock, bond, or currency strategy made boring by low rates, regulation, or market overcrowding, there is lucrative trade. a token lying across the hundreds of exchanges out there. Read more: Veterans of the Wildest Days of FX Love Bitcoin’s Volatility While crypto die-hards have been having fun like this for years, the relentless rallies across the token sphere this year are attracting more converts from Wall Street in search of riches and new thrills. Take Mark Treinkman. After a career primarily in proprietary stock trading stores like Chimera Securities, Digital Money is renewing its passion for quantitative trading. “I’ve been through some of my old strategies and things that wouldn’t have worked in stocks for decades have a market neutral strategy led by his $ 60 million company BKCoin Capital gained 71% the last year using investment styles that often include different price arbitrage between exchanges and the spread between the spot market and the futures market. Within minutes of trading on Wednesday, for example, the price of Ethereum Classic jumped well above $ 100 on the Coinbase exchange. The digital token was trading for under $ 80 on other sites, providing a clear opportunity for investors to make money just by buying in one place and selling in another. like Alameda Research, a crypto trading company filled with former high-frequency store traders. A famous example is the kimchi premium, Bitcoin’s tendency to trade higher in South Korea thanks to high demand, and the difficulty of moving money to take advantage of the spread. Across all sites, traders like Treinkman face many challenges in their attempt to arbitrage price gaps, but say the rewards are commensurate. For example, when longer-term futures in just about all asset classes are higher than the spot price – known as the contango – the former almost always converges to the latter as the contracts expire. When Bitcoin last peaked in mid-April, December contracts were nearly 4% higher than in August, which in turn was around 2% higher than the benchmark spot rate, speculators having launched bets on rising prices. In contrast, December’s oil contracts traded below August’s on the same day, according to data compiled by Bloomberg. “The crypto market is still dominated by retail investors who use excessive leverage and offer the premiums for futures,” said Nikita Fadeev, a $ 60 million fund manager from one unit. Crypto at quantitative firm Fasanara Capital. Common transactions in the industry also include short-term dynamics and a form of statistical arbitrage, which bets on spreads between various tokens eventually closing like when Ethereum rises, but Bitcoin is not ” As assets grew, the fund recently appointed Laurent Marquis, former co-head of derivatives at Citadel Securities, as chief risk officer, and Steve Mobbs, co-founder of the fund quantit Oxford Asset Management, as Senior Advisor. In Zug, Switzerland, St. Gotthard Fund Management has grown from a former family-run school of Swiss stock options to a digital evangelist in its income strategy to achieve an 8% return per annum. . Much like in stocks, the investing style sells derivatives to take advantage of the high demand to hedge price fluctuations – which causes options volatility to be higher than what is likely to occur. the premiums are much juicier, although they also carry a higher risk of having to pay, like an insurer during an earthquake. “The major difference at the end of the day is the amount of premium retail investors are willing to pay.” says Daniel Egger, chief investment officer. “On the other hand, of course, we wrote calls that we wished we hadn’t had in these moves.” And for those who choose the systematic route, competition increases.For example, to gain an edge in its market-building strategy, BKCoin recently installed servers in Asian crypto exchanges, a move known as co-location. in high frequency. world of stocks. This is a sign that the industry is growing rapidly. “In all emerging markets, we’ve seen these inefficiencies decrease over time,” said George Zarya, founder of Bequant, a crypto prime brokerage that caters to systematic traders. “There are more professional actors coming in.” (Updates the first graph and market value in the first paragraph. An earlier version corrected the seventh paragraph under the second graph to show that Fasanara does not engage in dynamic and stat-arb trades but says they do. are For more articles like this please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news.