For some time, the big question for many market participants considering crypto trading had been whether they were ready to dip their toes into the water.
Now, the question is shifting: A growing number of institutions are finding the water is just fine, but what they’re asking themselves is where they might want to swim and with whom.
Put another way, as many firms gear up to trade crypto, they are starting to consider broad questions about how they want to participate in the market and what kind of trading infrastructure they will need.
The industry has gained tremendous momentum in the past couple of years. Established exchanges are getting involved and new venues are forming all the time.
Some exchanges such as Gemini and Bitfinex have paved the way of colocation and others might be doing it soon, but they still represent a minority
A raft of service providers has sprung up, offering market data, software, custodial services and more. A crypto ecosystem has formed and, in a sense, it is just like the trading ecosystems for established markets such as foreign exchange.
But with all the growth have come misconceptions, particularly when it comes to trading infrastructure. Despite all the excitement surrounding crypto, it is still at an embryonic stage so applying the same rules as for established markets does not always make sense.
For instance, latency does not yet play the same role it does in mature markets. Colocation is not an option in many cases for the simple reason that a lot of venues don’t have physical centres with matching engines; they operate in the cloud.
Some exchanges such as Gemini and Bitfinex have paved the way of colocation and others might be doing it soon, but they still represent a minority.
In one sense, that will be a relief for firms. They don’t need to worry about major infrastructural spending to facilitate colocated algo trading.
But that doesn’t mean you can’t run algos in the cloud and be faster – or smarter – than the competition. The trick in that respect is to find the right partners to provide the market access and services that will match a firm’s strengths and trading strategies.
Different types of market participants will need different things from their crypto partners. For instance, institutions in particular need to know that security requirements are met.
Meanwhile, market makers and traders need reliable and fast connectivity to clients and venues. And for any firm that is starting to trade crypto assets, the network is critical
The insurance industry has not evolved to the point where many firms will provide crypto asset insurance, so security takes on extra importance for the institutional space. Security in this case involves both software encryption but also HSM (hardware security module) considerations.
Meanwhile, market makers and traders need reliable and fast connectivity to clients and venues. And for any firm that is starting to trade crypto assets, the network is critical.
The crypto market spans the globe, so having access to all of the market can become a critical factor. That means market participants will want to know that a service provider has enough points of presence in its data centre.
Cloud connectivity, security, networking factors – these are among some of the things that can make infrastructure a little bit different when it comes to the crypto industry.
But provided firms have the right partners that can address these issues, they should be ready to dive right in.
Interested in learning more about our crypto connect product? Meet us at Booth #139 at Consensus New York from the 13th -15th May.