So, what’s going on in the crypto and digital asset markets?
As these infant markets develop, how can liquidity be maintained or provided? That’s a question Scott Freeman, co-founder and partner at JST Capital looks to answer daily. Freeman is one of the select few professionals who calls himself a market maker in cryptocurrencies and liquidity providers.
And unlike some equity market markets, Freeman doesn’t earn a rebate from the exchanges he trades on.
Freeman has more than 20 years of experience running systematic trading businesses. He is one of the first market makers in the crypto-asset industry, starting to make markets in crypto in 2014. Prior to co-founding JST, he co-founded and was the Managing Partner of Tachyon Capital Management, a quantitative hedge fund. Previously, Scott was a Managing Director at Bank of America, overseeing the firm’s electronic Foreign Exchange trading business. Earlier in his career he worked as an attorney with the Federal Reserve Bank of New York and worked for several years as a prosecutor with the Manhattan District Attorney’s Office.
Freeman recently sat down with Traders Magazine editor John D’Antona Jr. and discussed the state of the crypto market, making markets in the asset class and pitfalls to avoid.
Traders Magazine: Describe the state of the crypto market.
Scott Freeman: The Crypto market continues to evolve quickly. Clients are more comfortable with digital assets today than they were 3 months ago and will be more comfortable 3 months from now. Many investors did not want to be the first to enter this space. We’ve now seen first movers enter this space with investors now looking to invest in crypto as a diversified, uncorrelated investment. We see a clear increase in the number of investors starting to see crypto as another asset class that should be a part of their portfolios. We see this, in particular, from Macro investors, who look to larger macroeconomic trends to inform their investments, something we see as an encouraging sign of wider institutional adoption. We also see a broader adoption of blockchain technology with more projects coming to production. All these factors will in turn increase adoption and acceptance of crypto assets.
TM: How is being a market maker in crypto different than say, FX or equities?
Freeman: Trading cryptos is very similar to trading in the FX markets. Like FX, there is a robust OTC market where clients trade directly with each other instead of having to trade on exchanges.
TM: Is becoming a crypto market maker difficult – say compared to equities?
Freeman: As compared to equities, there are many challenges trading cryptos, in particular to custody and security. Fortunately, we’ve been operating in the crypto space for over 5 years and have been able to leverage that experience to provide great service to our clients.
TM: What cryptos do you make markets in? Or how many do you make markets in?
Freeman: We actively trade the top six cryptos. We do have the ability to trade other assets when there is demand for it, but an overwhelming majority of our trading takes place in BTC, ETH, and XRP.
TM: On what exchanges do you operate?
Freeman: We don’t disclose this information publicly. We trade on many of the top exchanges and with many OTC providers.
TM: Is one crypto – such as Bitcoin – easier to make a market in than say Litecoin?
Freeman: Not necessarily. We find that all of the cryptos behave in their own unique way, but we wouldn’t say that one is any more difficult than the other.