In a new report from The Block, this media outlet decided to examine the downward trend of the cryptocurrency market in volatility. After reaching a two-year low, there are many high-frequency trading firms (HFTs) that are working to modify their approach.
As Bitcoin came close to $20,000 last year, the markets grew in volatility. Money managers and investors found it hard to establish a place during this time, but it opened the door for trading firms to get involved. However, as 2018 has progressed, it seems that low volume and low volatility is commanding something new of HFTs. Michael Moro, the CEO for Genesis Trading, was quoted by The Block, saying, “If trading volumes are lower and spreads are lower, then naturally trading-commission businesses are lower.”
Trading firms thrives on volatility, considering the way that it can buy assets at a low price, but sell back to the market at a highest one. The chance to get a bigger profit comes to any market when price swings become more frequent. Based on The Block’s article, “the price differences between exchanges trading crypto reached as high as $1,000 during this period.”
The Block decided to interview Max Boonen, who is the CEO of B2C2. He said, “When the markets are wild and going left and right, it is not difficult to make money.” However, that’s not the situation that the market is presently in, considering that it has reached the lowest level of volatility since December of 2016.
As such, trading firms are starting to feel the push to make some changes. Boonen commented, “Any strategy in market making or prop shop is heavily correlated with market volatility. The profit profile is the volatility in the market.” Boonen’s firm ran into trouble this year and was actually looking to sell. However, as they company changed their algorithms, they no longer had to do so.
Firms and investors alike should see how volatility goes in a cycle. However, that means that it will rise again, and it will be necessary for the different firms and other businesses in the crypto space to be prepared or fail.
Garrett See, the CEO for DV Trading, chimed in on this topic as well, adding, “I don’t expect volatility to stay low for long. This is the calm before an explosive breakout.” To prepare themselves, there are several firms looking for support in new hires, like DRW, Akuna Capital, and Geneva Trading.
For now, there’s new opportunities for businesses to check out. According to Moro, some firms are moving away from buying low on one exchange and are opting for four- and five-prong strategies. As an example, he explained,
“Selling bitcoin for yen and then buying Ethereum with that and then selling it into Litecoin. The arbitrage opportunities are far more complicated. You have to have access to the exchanges. And bank accounts and FX brokerages to access those markets to get in and out very quickly.”
The Block says it best – “The days of simply ‘buying on Bitstamp to then sell on Bitfinex’ are over.” Genesis Trading’s decision to modify their loan business helped to save them from the damage of trading, bringing ing $553 million in loans.
Going forward, both Boonen and Moro agree that consolidation and layoffs are most likely, much like the experience that the equities market has gone through in the last two years. Moro noted, “The name of the game right now is survival and literally just being there.”