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Maximising Crypto Capital Efficiency Through Trading with Many Parties

“Use me exclusively for your liquidity and you will get the best prices available”  

I bet you have heard this many times when discussing liquidity with your potential liquidity providers. Are they correct? Well, as always, it depends on individual circumstances. If your trading is fairly standard, the volumes are reasonable, the flow is not toxic, and the asset class has deep liquidity, like FX, then I would say, “Yes”, they are correct. 

But if you ask the same questions for Crypto then you could well receive very different answers.  

 

Why should we treat Crypto liquidity differently to FX or CFDs?  

Crypto may behave like FX or CFDs but in fact, it is different in every way:

1. The assets class size is tiny compared to FX (5 billion vs 100 trillion daily trading volume)

2. Volatility is 10-20 times higher and prices wildly fluctuate, making cryptocurrencies a much more unpredictable asset.

3. Crypto liquidity is massively fragmented, and the liquidity distribution systems vary from being awful to pretty good.

4. The Crypto market is open to manipulation, for example, whale dumping. Earlier this year there were reports of whales dumping on BitMEX explaining the downward spiral of the Bitcoin market price.

5. There are massive arbitrage opportunities with trading Crypto. Back in March, Bitcoin prices experienced a vertigo-inducing increase which allowed traders to gain a near-riskless profit, buying Bitcoin on a cheaper exchange and concurrently sell where prices are higher in an arbitrage.

 

Having established that Crypto does not, indeed, behave like FX, we need to find the right way through the liquidity jungle.  

 

So, how do you achieve capital efficiency in Crypto trading?

What is needed is to achieve the “Amazon” effect. The Amazon Market Place is not a single shop, but hundreds of thousands of individual marketplaces all brought together in a commonplace to allow simple price discovery, execution and payment. 

In the Crypto world, our “Amazon” effect is built by plumbing a modern, fast and flexible liquidity management system (Gold-i Crypto Switch™) for price discovery and execution, into a state of the art central settlement system (Zero #) for product delivery and payment (settlement). 

This is a new and very exciting area in B2B Crypto trading and our live clients are seeing excellent pricing and capital efficiency by using this approach. This becomes a virtuous circle as a better liquidity pool attracts more market makers and liquidity providers, further improving the liquidly pool and attracting more takers. 

The B2B Crypto industry has been waiting eagerly for something like this to come along, so come and join the party! 

 

Tom Higgins, CEO

 

About Crypto Switch

Gold-i Crypto Switch™ is an advanced platform allowing brokers, crypto exchanges, liquidity providers and market makers to maximise opportunities from the increasing demand for Cryptocurrency trading. Hedge Crypto flow with multiple leading counterparties and benefit from deeper and tighter liquidity that is centrally settled daily by Zero #.

About the author

Tom Higgins

Tom Higgins

Tom Higgins is the Founder and CEO of Gold-i with experience in financial technology spanning over 25 years. With an in-depth knowledge of the trading technology industry, Tom set up Gold-i in 2008 after spotting a gap in the market to enhance the FX trading process for retail brokers. As the inspiration and driving force behind Gold-i, Tom has played a major role in disrupting the retail FX and Crypto market, giving opportunities to brokers/exchanges across the globe. Now extending the firm’s focus to the institutional market, he uses his market insight to continue to drive innovation.