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Man Vs Machine: Europe’s Largest ETP Trader Moves in on Crypto Market

Europe’s largest, high-speed trading technology and exchange-traded products platform made the jump into crypto despite resistance from regulators.

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Europe’s largest, high-speed trading technology and exchange-traded products platform made the jump into crypto despite resistance from regulators. Flow Traders, an Amsterdam-based speed trader that has traded over $686 billion in ETP value, recently began making markets in the first exchange-traded notes based on Bitcoin and Ethereum.

US-based investors have been waiting for SEC approval of Bitcoin ETFs since Gemini exchange founders, the Winklevoss twins’ Bitcoin ETF application was rejected in March 2017. While US investors wait for a resolution to the SEC’s request for public commentary on a new CBOE Bitcoin ETF application, however, European market participants have been trading Bitcoin ETNs since 2015.

Flow Traders’ entrance into the cryptocurrency market, however, marks the first time a speed trader publicly announced the trading of crypto ETNs, which are almost functionally identical to ETFs.

High-Speed Traders Enter the Crypto Fray

High-speed traders have dramatically disrupted traditional markets from stocks to forex and futures over the last decade, handing transactions over to advanced algorithms and executing trades in time frames measured in microseconds. The low volatility of traditional markets, however, has led high-speed traders to turn to the explosively volatile cryptocurrency market in order to expand their profit margins.

A speed trader openly announcing an entrance into the crypto market hasn’t yet occurred. MIT Sloan School of Management professor of applied economics Roberto Rigobon states that a skewed perspective of the cryptocurrency market from traditional market traders has led to many high-speed trading firms avoiding transparent crypto market participation:

“Given Bitcoin is the unit of account of many illegal activities, there could be a reputational cost to any firms that hold it as part of their business. I understand the opportunities are there. But I think these organizations are not paying attention to the risk.”

The evolving international crypto regulatory framework and growing understanding of crypto assets amongst traditional market participants, however, lead to increasing interest in cryptocurrency exchange-traded notes.

Exchange-traded notes are debt-backed securities that provide investors with exposure to the change in the value of the underlying currency. In the case of XBT Provider ETNs — the crypto ETN’s that Flow Trader announced that they are trading — the price movement of BTC/SEK and BTC/EUR exchange rates are tracked.

Purchasing Bitcoin or Ethereum via ETNs is extremely fast, thus making them highly appealing to speed traders — when a trader makes only 0.028% on a trade, they need to produce a lot of them, fast.

XBT Provider Co-Chief Executive Officer Dennis Dijkstra commented on the growing interest in crypto ETFs as traditional investors a gain greater understanding of the opportunities presented by the crypto market:

“People underestimate crypto. It’s big, and it is to be regulated very soon. The market participants are much more professional than people think. Institutional investors are interested — we know they are, because we get requests.”

Regulators Warn of Abuse

The Dutch Authority for the Financial Markets, however, is less than enthusiastic about the potential of high-speed traders entering the crypto ETP market. AFM spokesperson Nienke Torensma emphasized the incipient nature of the crypto market in statements released to Bloomberg, highlighting the potential for market abuse:

“We discourage activities in cryptos both by consumers and professional license holders. By virtue of its newness and the anonymity it potentially offers, it is very prone to abuse. Given its inability to serve the promised purpose as a currency, we don’t regard it to be an asset class.”

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