[ A D V E R T O R I A L ]
The Debate: Where can
crypto learn from FX?
Alexis Atkinson, head of order driven markets at NEX Markets, talks to The
TRADE about the relationship between cryptocurrency and foreign exchange (FX)
markets, and explores the lessons that both markets can learn from each other.
What problems are institutions cur-
rently facing when looking to trade
crypto-assets?
Alexis Atkinson: Bitcoin is a bearer
asset and therefore requires high
standards in terms of custodian-
ship over those digital assets and
robust security. If someone exter-
nally gets control of your private
keys they can transfer the assets
and they are gone – with no re-
course – so security is paramount.
The structure of the crypto
market today is primarily geared
towards retail platforms for OTC
trading. As such, institutions face
a large amount of counterparty
risk as current platforms are acting
as the custodian of the assets, the
matching venue, and in some cases
the provider of credit also. Crypto
platforms have a poor record of
performing custodial duties and
there have been a lot of high-pro-
file hacks, with a high percent-
age of venues having lost digital
assets at some point or another.
This means that customers need
to assess and assume in some
cases large counterparty risk when
deciding which platforms to place
their assets on and trade. Clearly
34 // TheTrade // Autumn 2018
the ability to have insured funds is
desirable and, whilst offerings are
starting to become available in the
space, the market for trusted custo-
dial services with insured funds is
still underserved.
There are a lot of retail platforms
available and a lot of fragmentation,
and there can be significant action
taking place on multiple venues. If
you want to trade efficiently with
best execution, which is a difficult
thing to define for crypto, institu-
tions need to maintain assets on
multiple venues and have the ability
to move it around quickly, which
is capital intensive and requires
non-trivial operational capability
and expense. In spot FX markets,
the Prime Brokerage structure al-
lows for the separation of the roles
of ‘provider of credit and custody’
from ‘execution venue’ and further
developments in crypto should en-
able trading to become more capital
efficient and safer as the market
structure develops.
Many of the current retail trading
platforms are opaque in terms of
their ownership structure and
terms and conditions. There have
been many cases whereby retail
Alexis Atkinson, head of order driven
markets, NEX Markets
platforms act as market makers on
their own venue, effectively trading
against their own customers to
generate liquidity but often with-
out disclosing it.
We should also consider trading
costs. For example, in FX people
generally think about execution
costs in terms of Dollars per million.