Citadel Securities to Develop Crypto Trading Marketplace

U.S. electronic trading giant Citadel Securities is developing a “cryptocurrency trading ecosystem”, which people with familiar sources have disclosed.

Citadel is building a crypto marketplace to make the overall cryptocurrency market an efficient space for conducting business by working with Virtu Financial, a trading and market-making firm, as well as venture capital firms Sequoia Capital and Paradigm. in developing the ecosystem.

The trading platform will also be joined by other wealth managers, market makers, and other industry leaders that are expected to join the marketplace ahead of the launch. “This marketplace is intended to create more efficient access to deep pools of liquidity for digital assets. So, a group of industry leaders are working closely together to facilitate the safe, clean, compliant and secure trading of digital assets,” the source disclosed.

The current crypto market structure has deficiencies and hinders broader adoption from millions of investors seeking to benefit from digital assets traThe source stated this. This is what the consortium led by Citadel is addrested.

“It’s more of a crypto trading ecosystem or marketplace than an exchange. It’s going to take on the exchanges by building a better mousetrap,” the source elaborated.

The source further revealed that Citadel has been “quietly hiring executives” to develop a crypto trading stack.

The Rise of Cryptocurrencies

Citadel Securities, founded by billionaire Ken Griffin, is one of the biggest market-making firms in the world.

Some market makers – companies that provide market liquidity by streaming, buying and selling quotes for others to trade against – such as Virtu Financial, Jump Trading, and DRW, have embraced the nascent asset class. But Citadel has largely stayed on the sidelines in the past.

Griffin, the CEO and founder of Citadel, is a known crypto sceptic. In the past, he was extremely critical of crypto. He once called cryptocurrency “a jihadist call” against the dollar. He also said crypto was similar to the “tulip bulb mania” of the 1630s, in which the prices of flowers spiked before crashing.

Griffin’s scepticism of cryptocurrency may have influenced his participation in an auction of one of the few remaining original copies of the U.S. Constitution. In November last year, the hedge fund billionaire out bided crypto investors for a rare copy of the U.S. Constitution.

Even though Griffin remains sceptical about the market’s long-term value, he recently stated that his investment company will likely work with cryptocurrencies in the near future.

Last month, Griffin envisioned the firm entering the crypto market as a liquidity provider and an exchange combination. He said that given the institutional increase in interest in crypto, he sees the firm as more involved in the crypto space providing liquidity to institutional and potentially retail investors. Griffin said that at the Milken Institute Global Conference in Los Angeles in early May.

Griffin further mentioned that Citadel Securities will aim to offer liquidity to the crypto market. He said that the firm believes crypto exchange technology is “very important” in helping to bring buyers and sellers together.

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Ethereum price options: All $250M in bearish bets for Friday are underwater

Ether (ETH) has been facing a bearish regression channel since Sept. 1, although it is currently battling to break its resistance.

But despite some headwinds, ETH bulls will likely profit $115 million on Friday’s weekly Ether options expiry. The 21% pump over the past week was just enough to make the entire $250 million worth of neutral-to-bearish put options worthless.

Ether price in USD at Coinbase. Source: TradingView

Regulatory fear limits the upside

Understandably, negative headlines about increasing regulatory scrutiny toward crypto may have subdued prices last month, particularly as China outright banned all cryptocurrency activity in the country. 

Major crypto exchanges, including Binance and Huobi, halted most of their services in mainland China, and a couple of the largest Ethereum mining pools were forced to shut down completely.

The negative press followed. 

Founder of Citadel Securities, one of the world’s biggest market-making firms, said the company does not trade cryptocurrencies due to the sector’s regulatory uncertainties. The Russian State Duma Committee on Financial Markets chairman is also talking about ramping up regulations to protect retail investors; and so on.

Based on the negative newsflow, it is possible to understand why bears placed 86% of their bets at $3,200 or lower. However, the past weeks definitively caused those put (sell) options to lose value quickly.

The Oct. 8 expiry will be a strength test for bears because any price above $3,500 means a bloodbath with the absolute dominance of call (buy) options.

Ether options aggregate open interest for Oct. 8. Source: Bybt

At first sight, the $250-million neutral-to-bearish instruments dominated the weekly expiry by 16% compared to the $210-million call (buy) options.

However, the call-to-put ratio is deceiving because the recent ETH rally will likely wipe out most of their bearish bets if Ether’s price remains above $3,500 at 8:00 am UTC on Friday. There is no value on a right to acquire ETH at $4,000 if it’s trading below that price.

Bears should throw the towel and take the $115 million loss

Notably, 94% of the put options, where the buyer holds a right to sell Ether at a pre-established price, were placed at $3,500 or lower. These neutral-to-bearish instruments will become worthless if ETH trades above that price on Friday morning.

Below are the four likeliest scenarios considering the current price levels, as the imbalance favoring either side represents the potential profit from the expiry.

The data shows how many contracts will be available on Friday, depending on the expiry price.

  • Between $3,100 and $3,300: 14,300 calls vs. 9,800 puts. The net result is somewhat balanced between bulls and bears;
  • Between $3,300 and $3,500: 21,650 calls vs. 1,900 puts. The net result favors bulls by $66 million;
  • Between $3,500 and $3,700: 32,050 calls vs. 0 puts. The net result favors bulls by $115 million;
  • Between $3,700 and $3,900: 43,300 calls vs. 0 puts. Bulls profit increases to $165 million.

This crude estimate considers call (buy) options used in bullish strategies and put (sell) options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.

Related: Bitcoin bears risk getting trapped if BTC price remains above $50K — Here’s why

For example, a trader could have sold a put option, effectively gaining a positive exposure to Ether above a specific price. But, unfortunately, there’s no easy way to estimate this effect.

There’s a $47 million gain from the bear’s perspective by pressuring below $3,500, as the above estimate shows. On the other hand, bulls could increase their advantage by $49 million by taking Friday’s options expiry price above $3,800.

As things currently stand, bulls have absolute control going into the Oct. 8 expiry, and the incentives for both sides to try pushing the price $200 above or below seem balanced. Therefore, bears should throw the towel and regroup for next week’s expiry.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.