ErisX burst onto the scene today across every and all financial publications – with the news first being broke by Frank Chaparro at The Block via his Twitter feed early this AM. The story and the news is significant as it adds competition to the institutional crypto space and the race to offer serious and legitimate custody and warehousing services to financial firms of scale.
And there is more from several different angles to this announcement and the firms involved. Stay with us here as it moves quickly – much like crypto at large. Grand scale architecture is being built at a rapid pace, it seems, and all of us are just trying to keep up.
We quickly reached out to several sources who are intimately familiar with the ErisX project and how it came about, beyond what exists in the articles we’ve read so far. One particular detail sticks out:
ErisX and its scale and scope has been driven by DRW (and their crypto team is largely based in Chicago – as is the larger percentage of most of the firm) and in the works since January of 2018. The firm has been working closely with leadership at ErisX to provide a solution that taps into the trading opportunities inherent in the crypto asset class while also checking the regulatory boxes associated with custody and warehousing that seemed to have been laid out via the CFTC; (**the chairman of the CFTC, Christopher Giancarlo, just yesterday on CNBC made the claim that cryptocurrencies are ‘here to stay’).
ErisX has been able to land an important and specific client/partner list that denotes the ambition behind the project: TD Ameritrade, DRW, Virtu Financial, and Susquehanna International Group are named in numerous media reports as early trading partners signed on to use the architecture built by ErisX. A serious and well-capitalized core group of firms that have their sights set on generating trading profits via digital assets.
Via the WSJ:
“ErisX hopes to bring digital currencies closer to traditional asset classes by appealing to brokers, including some used by millions of small retail investors.”
“We wanted to find something that brings cryptocurrency to customers where they can see it on an actual exchange, something they feel comfortable with in regulated space,” said J.B. Mackenzie, head of futures and foreign exchange trading at TD Ameritrade, which has more than 11 million funded retail accounts.”
“CME Group Inc., the world’s largest exchange group, and its smaller rival Cboe Global Markets Inc. both introduced bitcoin futures in December. Such contracts let traders bet on whether the price of bitcoin will rise or fall, without having to hold the digital currency.”
“Next year, ErisX aims to launch direct or “spot” trading of digital coins, as well as futures contracts that would enable investors to receive coins at a future date—a contrast to CME and Cboe bitcoin futures that pay out cash based on a calculation of bitcoin’s price. ErisX plans to require trades to be fully funded, a move that will limit the ability of investors to place risky bets in an already volatile market.”
**KEEP YOUR EYES ON THE TERM ‘SPOT TRADING’. That particular term takes the trading of digital assets significantly beyond the warehousing and futures version of crypto trading as it is being set up via Bakkt and ErisX currently. That is much more akin to futures trading that equals nearly $5 trillion traded DAILY. Get your mind around that kind of volume for a minute. When Bakkt and ErisX allow spot trading as the standard, the volume explosion could cause massive waves to push through the digital asset ecosystem.
Pushing a little deeper into sources we spoke to about ErisX and what it may offer that will differ from Bakkt this is what we picked up:
One crypto hedge fund source in Chicago, “Obviously the inclusion of several other digital assets other than Bitcoin will be a differentiator, and they are using that as a clear selling point for institutions. But it is also a risk. They are probably betting on the current administrations (US) soft hand in the financial markets and the approval of their chosen cryptos to be able to be designated as commodities. If so, they are off to the races and are legitimate competitors for Bakkt. This also may give some color to the PR push Bakkt has put on over the past two months – knowing that competition wasn’t too far behind.”
Another source: “This is a legit project and a competitor to Bakkt. One thing to make clear, neither of these initiatives have actually launched so no way you can declare a winner or loser in any way. We will see how it plays out, but some serious muscle behind both projects. Time will tell.”
That is the key there. Time will tell. Bakkt is set to launch in November and ErisX as early as possible in 2019, presumably January. The crypto space is about to get very, very interesting again. Our ‘not financial advice’…you might want to consider accumulating your digital asset of choice over the last quarter of 2018. Food for thought.