Keith Hill, an advisory board member at Caplin Systems who will be speaking at Profit & Loss’ Latin America event on March 25 in Mexico City, talks about the technological evolution of the crypto markets in relation to traditional FX.
Profit & Loss: People of course associate Caplin with the FX market, what is your interest as a firm in the digit asset space?
Keith Hill: It’s certainly true that Caplin has its origins in the FX market, and that was the first market comprehensively to be traded electronically. Over the years, we have branched out into other asset classes including funds, fixed income and cryptocurrencies and so potentially other digital assets.
Enabling clients to trade electronically in a streamlined, secure and elegant way, no matter what the asset class, lies at the heart of our business. We recently supplied a mobile trading application specifically for cryptocurrencies for one of our clients, and were delighted when it won an award!
P&L: Do you see digital currency trading technology copying from the traditional currency markets? Or are the problems and solutions required in each very different?
KH: From the perspective of an end user’s experience, trading in digital assets as they currently exist, bears many similarities with traditional currency markets. Much of the technological development is asset class agnostic. Yet clearly, the levels of volatility, liquidity, correlation and ability to hedge in these new markets may well create difficulties that we certainly don’t see in mainstream currencies apart from at times of massive stress.
FX as a payments process rather than as a trading activity does fit in with the concept of digital currencies, but more on that later.
P&L: Last year we saw some LPs in the digital asset space launch their own single-dealer platforms. Do you think the same battle will play out here between single– and multi–dealer channels that we’ve seen, and continue to see, in FX?
KH: I think there is going to be a need for both, and transparency is going to be of paramount importance in giving end users confidence in both sorts of platforms. Yet trading in digital assets may not have to go through the same growing pains as FX. A lot depends on the user base, whether it’s professional investors (either institutional or retail) or users that have a need for digital currencies as another form of exchange, like smaller corporates or private individuals. The user experience is very different for these two groups, and designers of platforms are going to have to tailor their product accordingly.
P&L: Do you think that there’s any lessons that the traditional FX markets can learn from the digital asset space?
KH: All participants in any asset class can and should learn from newcomers in every way, whether that be user experience, volatility, pricing methodology, or use of algorithms. Equally, new asset classes can learn from past mistakes in traditional markets, especially when it comes to following codes of conduct or behaviour of participants. As digital assets gather more mainstream momentum, and the entry point is clearly 100% electronic, I feel that it’s really going to shine a light on traditional trading practices in some markets. Disruptors will always drive changes in behaviour.
Countries with underbanked societies and increasing access to mobile technology are going to witness a huge shakeup in traditional banking services, not just for retail clients, but for institutional ones too. That’s why central banks have taken such a keen interest in the development of digital currencies. The firms that understand this, and adapt to and embrace change are going to be the winners here. I think this is a really key point for countries like Mexico.
P&L: I’d be interested in how your conversations with various market participants – either in crypto or FX – have evolved on this topic in the past couple of years…
KH: It’s significant that we are speaking to so many more clients in the bank space now about FX as a payments process, distinct from FX as a trading activity. I think the success of fintech disruptors has served as a huge wake-up call. The focus on good design, on user experience, on the need to get clients to self-serve, reduce errors and cut costs has never been greater. The good news is that, with advances in technology, it’s never been easier or cheaper for banks or liquidity providers in any asset class, to deliver a system to their clients that helps create that all-important stickiness.
Want to learn more about the latest developments in the crypto space and how they might impact your business?
Hill will be joined by an all-star line-up including Daniel Vogel, CEO of Bitso, Josu San Martin, a founding partner at Sixtant and Carlos Mosquera Benatuil, CEO of Solidus Group, on the panel session ‘Is The Future Digital?’ at the Profit & Loss Latin America event on March 25 in Mexico City.