Cryptoasset Investment Viewpoints

Two investment conferences opened in Chicago yesterday: Terrapinn’s Trading Show at Chicago’s Navy Pier and Morningstar’s Investment Conference at the McCormick Place convention center. Two sides of the investment business—institutional trading and retail asset management—providing two points of view on the current state of cryptoasset investment.

Judging by the exhibitors, the trading crowd is long on institutional crypto while registered investment advisors are not that interested. From a risk perspective, it’s all as expected and how investments should work.

At the Trading Show, I saw software to cover the complete lifecycle of a trade — front-, middle-, and back-office services — for the major crypto assets traded on the major crypto exchanges. The common themes: “institutional grade,” generally meaning assets that cater to professional traders and funds, and “regulatory compliant,” mostly referring to state trust licenses and New York State’s BitLicense.

Unlike last year, nearly all exhibitors focused on crypto trading technologies. Last year, only a few crypto firms exhibited, long-time Chicago trader and Fintank cofounder David Carman told me, and all “in one corner of the hall,” as one of the exhibitors put it.

It’s a stark contrast to the Morningstar conference, where only one crypto-based fund is exhibiting. The rest are the traditional asset-management fund providers.

Most vendors advertise themselves as “the first” or “the only” in this or that trading process or regulatory regime—you have to look more closely to see how they measure up and to compare on features. Here’s the Cook’s tour:

Bitwise. The lone fund, from the Morningstar conference, is taking the tact of providing research on cryptoasset markets that registered investment advisors and institutional investors can trust. Founded in 2017 in San Francisco, Bitwise provides index funds tracking multiple cryptoassets. Traditionally, cryptoasset investment consists of buying or selling a single token directly on a crypto exchnage through currency pairs. I knew of the firm from its filing with the Securities and Exchange Commission in January for a regulated cryptoasset Exchange Traded Fund (ETF) and the comprehensive research backing the request.

Lukka. The New York firm provides middle- and back-office services for cryptoassets, including fund accounting, books and records, and reporting. They are also providing standardized reference data, another of the traditional securities services that is getting its cryptoasset makeover. The firm started in 2015 as an accounting and tax advisory and pivoted into cryptoasset servicing.

Omniex. Based in San Francisco, the firm showed an “institutional-focused” front-office trading platform that gives aggregated portfolio-based views of assets, transactions, and positions across exchanges, custodians, and banks. The platform includes trade execution and settlement, including algo execution. Founded in 2017, the firm’s platform is live with some 300 customers.

TradeBlock. The New York-based firm emphasized the quality of its research notes and market analyses, along with its experience in bitcoin trading since its founding in 2013. TradeBlock aggregates prices only from the regulated cryptoasset exchanges, listing both live and historical data, with API access.

XTRD. Principals of the New York firm have been in the trading business for more than 30 years. The CTO insisted they were doing nothing new or exciting. The firm is integrating cryptoasset data into traditional bank, hedge-fund, and institutional trading systems using tried-and-true FIX APIs—that’s the Financial Information eXchange (FIX) protocol for real-time electronic trade communications, introduced in 1992. It was kind of a charming, low-hype approach to bringing cryptoassets into the hardcore of front-, middle-, and back-office trading tech.

trueDigital.This New York-based firm, founded in 2018, is focused on regulatory compliance. The firm received certification from the U.S. Commodity Futures Trading Commission (CFTC) to physically deliver bitcoin swaps, a forthcoming service, and built the asset transfer, payment, and settlement technology used by Signature Bank, which won approval from the state of New York to deliver real-time cryptoasset payments.

Paxos. The firm provides a proprietary digital token, backed by your money, that can be used for low-cost, high-speed international payments without the price fluctuation of most cryptocurrencies; it’s designed to be a stable store of value. The New York-based firm, founded in 2012, is a regulated custodian and manages cryptoassets in cold storage. It also operates the itBit exchange.

BitGo. Founded in 2013, the firm focuses on providing licensed custody, insurance, regulatory compliance, and other services to bolster institutional trust in cryptoassets. Secure wallets and key storage, broad cryptoasset coverage, and API integration round out its institutional offerings. The firm received its trust license late last year has some 300 clients with more than $2 billion in accounts.

PrimeTrust.  PrimeX is an API-driven service to transfer any asset between any PrimeTrust account. The Nevada-regulated trust company holds bitcoin and other cryptoassets for institutional investors, crowdfunding firms, and businesses and includes know-your-customer and anti-money laundering (KYC-AML) compliance. It also provides a suite of technology services to the industry.

Bitstamp. The “world’s longest-standing crypto exchange,” based in Luxembourg and founded in Slovenia in 2011, is looking to attract institutional and professional traders with its technology and cryptoasset know-how. The firm recently obtained a New York State BitLicense and established operations in New York City.

Bitsian. A new, New York-based firm, Bitsian’s trading platform aggregates prices, bids, and offers from the major crypto exchanges to provide professional traders with a single trading platform across crypto exchanges. The proprietary traders early into trading cryptoasset likely built these tools for themselves. their own crypto trading, and now trading technology firms are providing them commercially. The platform is not yet live.

Several weeks ago, I had the pleasure of meeting Grant Hummer, who organizes the Ethereum Developer’s Meetup in San Francisco, with more than 5,000 members. He’s the third generation of Chicago’s famed Hummer investment family (the firm is now part of WinTrust). Very few Ethereum developers have left the crypto technology behind after the onset of what is now widely termed “crypto winter,” he told me.

All this activity is indicative of the long-term view that digital, crypto-based assets and currencies are the future of money, within traditionally regulated financial institutions. The speaker ending the first day of Morningstar’s conference emphasized that it’s over the long term, with steady strategies, that most investors do well. The same mindset is forming in cryptoasset development, as trading technologists go long on institutional crypto.