Friday, December 2, 2022

DRW and High Frequency Trading Firms Cash in on Crypto Volatility

DRW and High Frequency Trading Firms Cash in on Crypto Volatility

The cryptocurrency market’s notorious price volatility is attracting big finance’s highest-risk and volume traders. Not wishing to miss an opportunity to make huge profits off those sharp moves, high tech trading companies like DRW of Chicago are taking a keen interest in bitcoin and other digital assets.

Also read: Bitcoin Cash Developers Have Decided on the Algorithm Upgrade for Upcoming Hard Fork

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Wall Street’s Bitcoin Trading Shop

One of the world’s largest proprietary trading firms, DRW now leads the way in buying and selling bitcoin for Wall Street. Since 2014, it has reserved around 12-15 of its employees to buy and sell BTC, under a subsidiary called Cumberland Mining.

Just remember that, next time you hear some Wall Street bigwig slamming Bitcoin and its enthusiasts.

According to FT, other companies that have followed DRW into the crypto rabbit hole include Hehmeyer Trading & Investments, Jump Trading, and DV Trading. Many are turning to cryptos in displeasure at the lack of volatility in other markets.

Gareth See, CEO of DV’s crypto spinoff “DV Chain”, said at an industry conference: “The volatility in asset classes is at all-time historic lows everywhere, except for cryptocurrencies. So there’s obviously a lot of interest in this space.”

(Crypto) Money on the Table

DRW high frequency trading HFT moneyMany financial executives are now comparing stocks and cryptocurrencies in terms of return on investment. Despite the stock market peaking at record highs, it still has a daily movement of just one percent. In contrast, bitcoin, the most popular cryptocurrency, was up to about six percent on 20th October 2017.

To the big high-frequency trading (HFT) players, that’s money on the table — and they’re not going to just let it sit there.

As the market cap of cryptocurrencies rises above $170 billion USD, these HFT firms are running ahead of banks. They’re known to process deals in millionths of seconds, using cutting edge telecommunications hardware. High-frequency trading is commonplace on the world’s major financial markets — however, for cryptocurrencies, the most common tools utilized are email, phones, and Skype.

How Many Large Firms Are Trading Bitcoin?

Many private firms have declined to trade the currency (at least publicly) until it is listed in on official, regulated exchanges. However, that skepticism has not stopped many global investors, hedge funds and family investment funds from investing in bitcoin and other fashionable crypto-assets.

Private firms market digital currencies to potential investors, while also collecting a large share of coins’ inventories for themselves. Don Wilson, DRW Chief Executive Officer said: “The flavor of the counterparties has definitely shifted pretty dramatically in the last year.”

DRW Open but Others Secretive About Crypto Activity

DRW is known to have some long-term holding in cryptocurrencies, making it possible to sell to buyers later on. To be honest, it would be foolish not to — the price growth in currencies like bitcoin and ether alone since 2013 is proof there’s a ton of money to be made.

In 2015, the U.S. government auctioned 27,000 BTC confiscated from darknet marketplace Silk Road. The value of the bitcoins at the time was around $7.6 million. This would now be valued at about $160 million.

Many private firms do not wish to disclose their trading activities. Once such firm is the Jump Trading, which refused to comment on bitcoin trading activities. Chris Hehmeyer of Hehmeyer Trading Company put a job opening for a “crypto trade engineer”. The description read “individual who has the passion for cryptocurrencies and the role they play on global markets.”

Hehmeyer commented: “It’s a rapidly growing set of instruments, unlike anything we have ever seen. There are risks but we are cautiously in.”

Does any of this trading activity surprise you? Let’s hear your thoughts.

Images via Pixabay

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