FLASH FRIDAY: Tipping Point for Crypto?

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.

This week was possibly the most active week ever in terms of capital markets firms adding or expanding crypto capabilities. 

And these aren’t dinky little firms nobody has heard of. Interactive Brokers introduced crypto trading. Jump Trading Group launched Jump Crypto. Partners of GTS launched a digital asset prop trading firm, backed by Point72’s Steve Cohen. Broctagon started a crypto liquidity network. 

Also this week, DTCC said its Project Ion initiative, an alternative settlement platform that leverages distributed ledger technology (DLT), will move into a development phase. The market infrastructure provider isn’t the flashiest organization in the industry, but it is positioning itself for an evolved market ecosystem.  

“Cryptocurrency, digitized assets, DLT and other innovations increasingly are integral parts of the evolving financial services industry, and we are excited about the future opportunity in each of these areas,” stated Murray Pozmanter, Head of Clearing Agency Services and Global Business Operations at DTCC.

Of course, Gary Gensler also made an appearance in the news, with the SEC’s de rigueur warning about the nascent digital asset class. Bo-ring! No but seriously, the SEC is doing a fine job, and the regulator is interested in what market participants are interested in, so just the fact that crypto is so prominent on its radar is a bullish sign.  

A tipping point is defined as the point at which a series of small changes or incidents becomes significant enough to cause a larger, more important change. Is this week’s news a tipping point that will catch the eye of larger capital markets infrastructure providers to get involved? 

There’s also the network effect, where increased numbers of participants improve the value and quality, ie liquidity, of a market. And of course there’s FOMO, a very technical term that suggests that recent headlines may prompt rivals of firms such as IAB, Jump and GTS to toss their hats in the ring.

Terminology aside, four months ago we posited that it was an open question whether crypto trading will be in the same league as equity and fixed income in five or ten years’ time, or if at some point it will “correct” and become the stuff of shuttered trading desks, illiquid contracts and shattered dreams. 

It remains an open question, but this past week has those with skin in the game feeling better about the future.