Trading Technologies to Offer Professional-Grade Tools for Crypto Trading

From March, Trading Technologies will offer market access to GDAX, the largest cryptocurrency exchange, allowing users to employ its full suite of trading and hedging tools currently utilized in more traditional asset classes.

“GDAX and a lot of these platforms have seen tremendous growth over the past few months and the year, and that’s despite not having institutional-grade, professional-grade tooling in the hands of these very large firms,” says Rick Lane, CEO of Trading Technologies. “These are firms that are used to a certain level of sophistication in their technology, and what we’ve been hearing for the last few months, and really the impetus for us to move forward with this, was that a lot of these firms are essentially sitting on the sidelines or just dipping their toes in the water until they have a platform that lets them trade significant volumes, and do so with confidence.”

Bitcoin, in particular, has emerged as a focus of efforts by exchanges, clearinghouses, trading firms and vendors to bring the market structure around cryptocurrencies to a state where institutional money can begin to interact more fully with the nascent asset class. The Chicago Mercantile Exchange Group and Cboe Global Markets both launched futures contracts on bitcoin in December, while LedgerX received approval from the US Commodity Futures Trading Commission (CFTC) to operate a swap execution facility (SEF) and clearinghouse for bitcoin options earlier in 2017.

The cryptocurrency also enjoyed a remarkable bull run toward the end of 2017 that saw the value of a single bitcoin rise from under $1,000 at the beginning of the year to around $19,000 at a high point. The value of the currency, however, cratered in the New Year, dropping to under $10,000 per coin at points and demonstrating the extreme volatility that, many say, has been part of its attraction as a speculative instrument. It is currently worth just over $10,700, according to data from Coinbase.

Further efforts are under way to create products based on bitcoin. Cboe has taken on an effort to create a bitcoin exchange-traded fund (ETF), and challenged a US Securities and Exchange Commission (SEC) decision not to approve the product it proposed in a rule filing. The SEC subsequently announced it would review the decision after the challenge. Coinbase will also launch a custody service for institutional traders of bitcoin later this year, seen as a vital part of missing market structure.

Despite this, some institutions are still hesitant to fully commit to trading bitcoin. While many futures commission merchants (FCMs) are offering the service to clients, traders are often not allowed to engage in the spot markets. Regulators such as the CFTC have also warned that while they can oversee products such as futures, they have limited authority to intervene in the underlying spot markets, such as GDAX. However, that hasn’t stopped interest from institutional traders reaching a critical mass.

“The inbound requests for TT to do something in this space really started about eight months ago—we started hearing from our customers probably about 12 months ago, but it really increased toward the end of last summer, and that’s when we really tried to get a sense of the lay of the land,” says Lane. “GDAX really rose to the top in terms of being the platform that was the most institutional-trading friendly, and being the ones who took that part of the market incredibly seriously. We decided they would be the best fit for TT.”

These requests came primarily from “early adopters” at first, such as individual traders and proprietary traders, adds Michael Unetich, vice president of cryptocurrencies at Trading Technologies.

“That’s not to say that hedge funds didn’t want to early adopt, but sometimes they’re a little more bound by what their charters say they can do,” Unetich says. “I think that crowd will now emerge from newly formed funds, or maybe funds that are adding crypto as an asset class. Then maybe the institutional will be the third type of customer that will take a little bit longer, both in terms of them receiving approval to trade it, and perhaps seeing proof-of-concept in the market that it really does work and that it’s a completely legitimate market.”