Europe's Biggest ETF Trader Starts Market Making on Ethereum and Bitcoin ETNs

The biggest exchange-traded funds (ETF) trader in Europe, handling some $700 billion in ETF trading last year, is buying and selling ethereum and bitcoin ETN listed in Sweden’s Nasdaq by XBT Provider.

Flow Traders NV, the Amsterdam based high frequency trader (HFT), has become the world’s first to publicly reveal they are trading crypto ETNs, which are pretty much identical to ETFs.

Launched by XBT Provider in 2015 for bitcoin and in 2017 for ethereum, COINXBT:SS and COINETH:SS remain the only products of their kind in being effectively a stock anyone can buy, even from pension funds, that tracks the price of bitcoin and ethereum.

They recently announced a 36x growth in 2017, with assets under management reaching $1.06 billion for XBT provider, having peaked mid-December at $1.53 billion.

“People underestimate crypto,” Co-Chief Executive Officer of Flow Trades, Dennis Dijkstra, says in an interview with Bloomberg before adding:

“It’s big, and it is to be regulated very soon. The market participants are much more professional than people think. Institutional investors are interested – we know they are because we get requests.”

As market makers, Flow Traders tends to benefit from the spread in price movement. High frequency trades means they can make money up or down based on the difference between the buy (bid) price and the sell (ask) price.

That adds liquidity to the market and can lower slippage, which in turn can make it more attractive for other participants. Interestingly, they are hedging with futures. Bloomberg says:

“Making markets in crypto has forced its traders to find new ways of hedging. Dijkstra said the new approach had ‘big spillover benefits’ for the company’s nascent foreign-exchange trading business. He didn’t elaborate.

Dijkstra said Flow Traders was hedging its trades of crypto notes with futures contracts run by CME Group Inc. and Cboe Global Markets Inc. He declined to say whether Flow is also using the underlying cryptocurrencies to hedge.”

Futures came under criticism shortly after they launched in bitcoin this December 2017, with some suggesting it is a manipulation tool as shown by Bart formations.

Ethereum, however, doesn’t have wall street futures. So they would have to use actual eth, but how, is unclear because regulated margins do not yet exist so they can not short in a regulated manner or long.

Yet stupendous trading volumes of $15 billion, which do not even account for some crypto futures platforms like BitMex that itself handles more trading volumes than Binance, does suggest big trading firms are not splitting hair over regulated or unregulated.

With it all suggesting institutional investors, and the more established, traditional, wall street type firms, are slowly moving in, if they hadn’t already been playing without courting publicity.