They’re here. The flash boys, with their high frequency frontrunning bots, have turned their eyes to bitcoin with one of the biggest trading firm confirming they now bet on the digital currency.
Jane Street Capital says they trade $13 billion everyday across ETFs, Equities, Futures, Commodities, Options, Bonds, Currencies and now bitcoin.
“We traded over $5.6 trillion across all products in 2017,” they say, with the company further confirming “Jane Street trades over 56,000 products globally across a wide variety of asset classes, including bitcoin.”
It’s unclear how exactly they’re trading bitcoin, but it is probable they’re betting on fiat settled futures rather than buying and selling bitcoin itself.
Bitcoin futures volumes have increased this month, handling around 3,000 contracts as opposed to around 1,000 in February:
“Jane Street has always taken a considered approach to trading opportunities and will continue to do so,” they say. “As more cryptocurrency products emerge, we expect to be involved.”
Suggesting they might trade bitcoin ETFs or ethereum futures as well if such options become available, with the company thus seemingly limiting itself to complex products that do not touch the asset itself.
Other trading companies have also joined. Including DV trading, which specializes in futures and was fined $5.7 million by regulators for ‘wash trades’.
Another company is Virtu Financial, a market maker that trades over 19,000 securities. As well as Jump Trading, which has some 500 employees.
They all started trading recently following the launch of bitcoin futures, an event that coincided with a price fall of some 70%. Something dubbed by the mainstream media as the “big short” before futures launched.
Why futures should affect spot price, considering they are in dollars and never touch actual bitcoins, remains somewhat unclear.
One reason could be simply sentiment, especially as the opening of CME bitcoin futures was closely watched, and they opened downwards.
While another reason could be lowering demand for the asset as instead of buying actual bitcoin, they can bet on these dollar based numbers, thus artificially inflate supply.
As futures offer margins, whereby you can borrow from the exchange or other traders 3x or even as high as 500x of your capital, it can be attractive for traders, especially short term traders.
In contrast, the need to constantly bet on the price makes it very unattractive for investors who might want to hold it longer than a month or two.
But that means price discovery might be happening in futures, where there can be much more liquidity and activity, thus potentially indirectly affecting the underlying spot price.