Articles tagged by Digital Assets
As P&L’s resident cryptocurrency enthusiast I'm excited by some of the developments that have occurred in this space over the past few months, because it could signal the start of these digital assets moving towards the financial mainstream.
To help explain why I think this is such an interesting time in the cryptocurrency space, I explain how I first became interested in them after joining Profit & Loss, that I refused to buy bitcoin when it was at $1,000 because "it will never go higher than this" (it's now at $4,300) and why recent regulatory developments could have significant implications for financial services firms looking at trading cryptocurrencies.
At the very start of June, Profit & Loss published an article looking at why demand for cryptocurrencies had spiked in 2017, with the price of bitcoin rising over 200% between January and the latter end of May.
Subsequent to that, demand continued to grow, with the price of bitcoin reaching $4,950 by the start of September. Meanwhile ether – the native cryptocurrency of the Ethereum network – went from $8.29 at the start of the year to $388 by September.
Digital Asset announced that it has raised over $40 million of Series B financing from existing and new investors, led by Jefferson River Capital.
The latest round brings the total funding raised by Digital Asset to over $110 million as the company expands its global presence. Additionally, the firm has expanded its executive team with Clyde Rodriguez, former co-CTO of Two Sigma Investments, joining as chief information officer and CTO of engineering.
“Distributed Ledger Technology has the potential to bring greater transparency, security and efficiency to financial services and beyond. We are in the early stages of an important technological transformation that requires strong engineering discipline to deliver credible and practical solutions,” Rodriguez says. “I am excited to join a world-class team that has the necessary skill and focus required to accelerate these important innovations, while helping our customers embrace the benefits of DLT.”
Despite a growing desire from some mainstream regulated financial services firms to trade bitcoin and other cryptocurrencies that are based off a public blockchain, there doesn’t seem to be many solutions on the horizon for the Know Your Customer (KYC) challenges this presents.
At the Sibos conference being held in Toronto this week, Elisabeth Rochman, financial services chief technologist at Hewlett Packard Enterprise, noted that a lot of the “BigTech” firms – such as Google and Facebook – are behind the curve compared to banks when it comes to looking at use cases for blockchain.
The value of bitcoin (BTC) soared to over $10,000 today, a 900% increase in value from the start of the year.
Despite significant price dips in July, September and November, bitcoin has been on a consistent and stark upward trend since January, when it was valued at $1,000 per bitcoin.
“Bitcoin has sailed past a number of surprising milestones this year, with the $10,000-mark achieved today the most significant so far. With its rising valuation built on the bitcoin buzz more than real worth, it’s likely that we won’t see bitcoin decline in value until it’s more widely accepted,” says Dennis de Jong, managing director at UFX.com.
Nasdaq is planning to launch bitcoin futures next year.
This news comes as the value of bitcoin has been skyrocketing, reaching $10,000 per bitcoin yesterday, but rising to over $11,000 today, before falling back to under $10,000. At the start of 2017, bitcoin was valued at around $1,000.
It also comes after announcements from other major exchanges – CBOE and CME Group – that they are planning to list bitcoin futures before the end of this year.
Profit & Loss understands that one way in which Nasdaq plans to differentiate its bitcoin futures contract is by basing the product on an index that uses pricing sources from more than 50 exchanges worldwide.
The price of bitcoin has dropped significantly following new reports that authorities in South Korea might ban the trading of cryptocurrency exchanges.
As mainstream news outlets started reporting on comments made by the South Korean Minister of Justice, Park Sang-Ki, that a bill is being prepared to ban the trading of cryptocurrencies, the price of bitcoin fell from $14,932 at 12:04am BST on January 11 to $12,884 by 4:20am BST, according to data from CoinDesk.
At the time of writing, 5:55pm BST, the price has recovered to $13,746, which is still a 7.5% decline in the overall value compared to this earlier high.
Not so much a price prediction, more a market structure view, but Colin Lambert believes the nature of trading in Bitcoin will change in 2018.
If you ever wanted to know the financial markets' equivalent of playing Russian Roulette, look no further than attempts to predict the price of bitcoin going forward.
There were not many who saw a decline in bitcoin at the start of last year, but even though there was a consensus that it was going up (and why wouldn't it when you have a limited supply trying to meeting increased demand driven by publicity?), no one remotely nailed the year-end of $16,000. the highest estimate of the price this time last year was probably around $2,000 - and even during the third quarter of the year when it rose past $4,500 no one was thinking a further quadrupling.
Other cryptocurrencies will continue to catch up with bitcoin this year, but this is by no means a bad thing for this nascent industry, says Galen Stops.
"Whether it works out or not, the bitcoin story definitely has further to go. And regardless of its success or failure, it seems increasingly likely that virtual currency, in one form or another, is here to stay" - "Does Bitcoin Have a Future?" (Profit & Loss, December 2013).
A lot has changed in the intervening years since Profit & Loss published the above statement in conclusion to its first ever feature length article on bitcoin.
At a recent buy side event hosted by Profit & Loss and CME Group in New York, a panel of cryptocurrency experts discussed how institutional investors and traders should think about these assets within a portfolio.
Interest in cryptocurrencies has skyrocketed amongst investors and trading firms over the past year, as the market capitalisation for this nascent asset class has increased dramatically and volatile price action has offered the potential for outsized returns compared to many traditional asset classes.
Yet some firms still consider cryptocurrencies to be too risky to include in their portfolio, a position that Ari Paul, managing partner and CIO of the hedge fund BlockTower Capital, took issue with on the panel.
Hehmeyer Trading + Investments, a proprietary trading firm based in Chicago, has launched a new fund aimed at providing certain qualified investors access to the cryptocurrency market.
The fund aims to track the performance of the proprietary Hehmeyer Cryptocurrency Index (HCI).
Launching as a commodity pool for qualified eligible persons and accredited investors, the fund will be managed by Hehmeyer Capital Management, LLC, a commodity pool operator registered with the Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA).
Uncertainty about regulations, a lack of trusted custodians and concerns about security are key factors that continue to deter many large financial institutions from trading cryptoassets, says Kevin Beardsley, a managing partner at B2C2.
Amongst these three factors, Beardsley cited the lack of regulatory clarity around cryptoassets as the biggest issue for these firms right now, pointing out that no major bank wants to clash with their regulators for trading in what is, relatively speaking, still a small marketplace.
“The large institutions are all waiting for the regulations to become clear, which is a very rational approach,” he says.
There is one question regarding cryptocurrencies, and Bitcoin in particular, that has continued to baffle many, and has caused some skepticism amongst market commentators, namely what is the fundamental value of these assets?
Bitcoin, still by far the largest cryptocurrency that exists, is not a good store of value because the price of a bitcoin is so volatile. As a result, it functions poorly as a currency, after all, no one wants to buy something worth $100 with bitcoins if those same bitcoins are going to be worth $200 a few months later and no one wants to sell an item worth $100 for bitcoins, because those coins could be worth $50 shortly after the transaction.
ErisX is making a bet on crypto-assets with plans announced last week that it will launch a derivatives exchange (DCM) and clearing organisation (DCO) that will include fully regulated digital asset futures and spot contracts on one platform. The new venture is already backed by an impressive group of investors spanning the traditional capital markets and digital asset markets, including DRW Venture Capital, Valor Equity Partners, TD Ameritrade, Virtu Financial, NEX Opportunities, Cboe Global Markets, CTC Group Investments, Digital Currency Group, Nico Trading, Pantera Capital and Third Stone Partners. It has additional support from CMT Digital, Susquehanna International Group, XR Trading, C2 Capital Management and ED&F NMan Capital Markets Inc, which also participated in the investment round.
Fidelity Investments, one of the world’s largest financial services providers with more than $7.2 trillion in client assets, has announced the launch of a new company, Fidelity Digital Asset Services, which will offer enterprise-quality custody and trade execution services for cryptocurrencies to sophisticated institutional investors such as hedge funds, family offices and market intermediaries.
The launch culminates a more than four year programme by Fidelity that started with initial research conducted in February 2014. The firm says it believes that distributed ledger technologies can enable entirely new business models, lead to the creation of frictionless capital markets and improve existing financial market infrastructure.
The recently launched platform for digital asset trading, ErisX, has hired Kelly Brown as chief commercial officer, Liz James as head of clearing and Michael Piracci as senior counsel.
Brown will be tasked with developing an “intermediary-friendly approach” to developing a safe and liquid digital asset market on the platform. Before joining ErisX, Brown was most recently managing director and head of intermediary, bank and membership segments at CME Group. Brown also held roles in institutional sales at Bank of America and Cargill Investor Services.
FX industry veteran and Profit & Loss 2012 Hall of Fame inductee, David Ogg, reflected in a recent video interview on how the rapidly evolving crypto markets resemble the FX markets of the past.
“It’s like FX in the 1980s,” said Ogg, who is currently the head of FX and trading venues at OTCXN, before adding, “The front-end technology is pretty primitive.”
By contrast, he said that OTCXN has developed “cutting edge” technology in terms of how it displays liquidity, offering visual tickers that enable traders to get a visual representation of what is happening in the market with just a glance.
At the start of 2018, the total market capitalisation of cryptocurrencies was above $828 billion, with many predicting that it would only rise further. Now, that market capitalisation is below $130 billion and continues to fall. Meanwhile, the price of bitcoin is down to $3,688, a 42% month-on-month drop and 65% year-on-year.
But does the price action of cryptos tell the whole story in this space right now? And what are the implications of this bear market on liquidity?
After all, the Intercontinental Exchange (ICE) and Nasdaq both plan to launch new crypto trading platforms next year, while Fidelity is also set to launch an asset custody service in 2019. Trading volumes on the CME and CBOE bitcoin futures have ticked up even as (because?) the market price has trended down and there are still ETF proposals sitting on US regulators’ desks that could still be approved.
OTCXN, a blockchain-powered capital markets infrastructure company, announced that OSL, an OTC digital asset brokerage company in Asia-Pacific, has joined its network as a liquidity provider. “We are extremely pleased to have OSL join our network as a core liquidity provider. Having a major market participant like OSL providing liquidity on our network is a testament to the strength of our core value proposition – eliminating trading counterparty and settlement risk. The presence of key market participants like OSL accelerates market adoption and expansion of the OTCXN network to reduce risks and efficiently scale crypto trading across the entire ecosystem. We look forward to working closely with OSL to serve our mutual clients,” says Rosario Ingargiola, CEO and founder of OTCXN.
OTCXN, a blockchain-powered capital markets infrastructure company today announced that Fractal Wealth, a proprietary algorithmic trading firm that trades digital assets, has joined its network.This news comes just days after OTCXN revealed that OSL, an OTC digital asset brokerage company in Asia-Pacific, has also joined its network.“We are pleased to have Fractal Wealth join the OTCXN network. They represent a unique source of liquidity for our rapidly growing and diverse institutional client base. As an algorithmic trading firm, they will benefit from the ability to trade programmatically on OTCXN’s ECN, LiquiMatch. OTCXN’s aggregated liquidity spans both native, resting dark and lit orders, executable quote streams from major liquidity providers, plus institutional, as well as retail exchanges that have joined the network.
Securitize, a Digital Security Offering (DSO) primary issuance and compliance platform and protocol, has announced a new strategic relationship with OTCXN, a blockchain-powered capital markets infrastructure company.OTCXN’s technology incorporates key blockchain functionality, providing cryptographically provable ownership of assets on custodial blockchain ledgers and pre-trade risk checks, with the aim of reducing risk over the traditional centralised systems based on post-trade settlement. As part of the new partnership announced today, the OTCXN platform will be available for integration with Securitize’s compliance platform for customers issuing digital securities.
Bcause, which operates a digital mining facility, and a cryptoasset spot market, derivatives exchange and clearing house, has announced that its markets will operate on Nasdaq’s matching engine, clearing and market surveillance technology.The technology is expected to go live in the first half of this year with the launch of the new Bcause spot cryptocurrency market.In addition, Bcause has filed with the US Commodity Futures Trading Commission to become a designated contract market (DCM) and to establish a derivatives clearing organisation (DCO).
The San Juan Mercantile Exchange (SJMX) and its affiliate, the San Juan Mercantile Bank & Trust International (SJMBT), have announced three key strategic partnerships aimed at paving the way for the launch of a new digital asset exchange and banking solution.They have partnered with CQG, an electronic interface provider, Elysium Technology Group, which offers post trade technology for the FX and futures markets, and Mercury Digital Assets, a digital asset trading platform.“Together, these partnerships create a seamless and sophisticated technology backbone to support institutional investors and professional traders seeking to safely and efficiently transact in the digital asset space,” say SJMX and SJMBT in a release issued today.
Galen Stops takes a look at the new launch from Elwood Asset Management that is targeting institutional investors wanting exposure to digital assets – without holding cryptocurrencies.London-based Elwood Asset Management, which is backed by Brevan Howard co-founder, Alan Howard, has partnered with Invesco to launch its first product aimed at investors looking for exposure to digital assets, the Invesco Elwood Global Blockchain UCITS ETF.The central problem identified by staff at Elwood prior to this launch is that currently there is a distinct lack of ways for institutional investors to gain exposure to digital assets. Right now, these firms can either buy cryptocurrencies – such as bitcoin – or invest in a venture capital fund, both of which can be problematic for institutional investors given the liquidity and regulatory issues surrounding cryptocurrencies and the limitations dictated by firms’ investment mandates
Harpal Sandhu, CEO of Integral, talks to Profit & Loss about the launch of his new cryptocurrency exchange, and how he sees the crypto markets evolving in the future.Profit & Loss: What was the genesis of Mint Exchange?Harpal Sandhu: A lot of people don’t realise that the derivatives markets in cryptoassets is actually quite a lot larger than the physical market. Because of this, we were speaking to a lot of FX brokers, people who were trading large amounts of crypto and CFDs, and they were having problems trying to hedge those positions because, unlike FX they can’t go to prime brokers or prime-of-primes in order to access liquidity, so there’s very few places that these firms can go in order to hedge their crypto exposures.