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Understanding a Fragmented Crypto Market

Are you working for a PoP seeking to distribute liquidity to your broker clients? Or maybe a Crypto exchange that wants access to better liquidity?

Liquidity is massively fragmented between 100s of exchanges, market-makers, traditional FX LPs, and boutique offerings and therefore can be very difficult to navigate. Institutional, professional, and retail liquidity often gets mixed-up too, but they are very different. This blog aims to clear up these confusions and help you enter or navigate the Crypto market which is full of opportunities.

 

Interest is growing…

Cryptocurrencies have, to a large degree, established themselves in the world of finance. What was once looked at with extreme scepticism is now being seen as a tremendous opportunity. As the crypto markets developed it has in turn seen increased interest from traditional and institutional investors.

The World of crypto has changed so much in the last 3 years. When the Bitcoin bubble first burst in December of 2017, the doom-sayers did a lot of tutting and teeth sucking, and a great deal of “I told you so” and “remember the tulips”. I knew they would be proved wrong, so we stuck to our guns and carried on developing a Crypto product, addressing the fundamental changes needed in the market.

What happened to change this weird and robust, as we have now seen, market? The institutions secretly started supporting it. Nothing was public as they were worried about the regulators, but personally, I spoke to 4 major banks to advise them on their crypto strategy. Bitcoin is dead! Long live Bitcoin!

 

Sourcing liquidity: Individual vs Professional vs Institution

If I want to buy a pair of shoes, I go to a physical or online shoe shop (if only they were physically open!) or to an online marketplace that compares multiple offerings. In the crypto world, this is not as straight forward. Yes, you can Google “Where can I buy Bitcoin”, but you can’t 100% trust what you get back!

So, what are your options for sourcing liquidity? Well, it depends on who, or rather, what you are.

If you are an individual, then you can go to a reputable exchange, or an FX broker that also offers crypto assets. The prices will probably be horrible, and the customer service even worse. This is OK for a bit of dabbling in the market but is not OK for professionals or institutions.

If you are a professional trader then you can try the professional-focussed exchanges, like Coinbase Pro, which looks and feels more like a proper platform that you would be used to.

But what if you are in the B2B market and are an institutional player? Well, this is not so straight-forward, as there are many “institutional-grade” offerings advertised which are simply not! This is something I forecasted and discussed a few years ago and was the driver behind our Crypto Switch™ 2.0 product development.

Institutional markets have been around since Adam negotiated to buy that infamous apple in his garden and look where that led! They know how to operate efficiently and when something new comes along, they check it out for a while and then, after quite a bit of head-scratching, adapt it to meet their needs. In the FX world, this has resulted in "bank" and now, "non-bank", liquidity providers who curate their liquidity perfectly for their target market. This works incredibly well, and, not surprisingly, is the model that is now thriving in the crypto world.

So, for institutions wanting to trade cryptos themselves, onward-sell liquidity to smaller folks, or offer the crypto asset class to their investment clients, there is a way. This reminds me of the bit in the church in The Blues Brothers when Joliet Jake (John Belushi) realises what he needs to do and cries out “I see the light!”. He needs to put the Band back together and does, sort-of.

We put the band back together when we curated and built what institutions needed; super-high quality, individually curated crypto liquidity, with a host of liquidity providers and market-makers competing for the top of the book.

The crypto market still has many odd things about it, like the “network protocols” used to communicate prices, orders and fills around, but Crypto Switch™ 2.0 takes care of all that, so you don’t have to.

 

Conclusion:

Liquidity is the lifeblood of any market, and now the good stuff is available to those that need it. This market has proved to be robust and reliable so come in and join the party. With dynamism and volatility in spades, what you are waiting for?

 

Want to know more about Gold-i's Crypto Switch™ 2.0?

Contact us today and one of the team would be delighted to answer any of your questions.

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.