Bitcoin Roundtable

November 17, 2017 11:43 AM
We brought together an eclectic group of bitcoin specialists who operate bitcoin exchanges, offer service in the space and trade cryptocurrencies, to discuss how it works and how it is traded.

TW: Our market participants represent diverse viewpoints and trading strategies including both long-term and short-term views on the bitcoin market. We have everyone from enthusiasts to established liquidity providers who make markets in equities and derivatives products around the world. We do not facilitate any margin trading or short selling, and all trades are pre-funded, so directional views of bitcoin pricing can only be executed through long-only trading strategies.

LA: As an exchange service provider, we see various types of traders. There are those exhibiting demand for investment within various timeframes, most are long- term investors. Then there are those, who require instant conversion service, which means their business is fiat based, but bitcoin is accepted as a payment. Although we currently do not provide payment processing, we get a lot of demand for it, and plan to offer this service in the near future. And on the other end of the spectrum, there is the supply, or the seller, who typically is a miner or an early investor looking to cash out. There also is the typical trader, who sees arbitrage possibilities across the exchanges. Sometimes these persist for a long time, and arbitrage opportunities certainly exist in bitcoin. 

MT: Can you explain the roll of miners on your exchange?

GS: The mining process does not enter into what we do. However, miners are long bitcoin and are always looking for reliable ways to leverage additional value from their bitcoins. They may or may not be adept as traders, but we provide exposure to a variety of index ETFs that are a simple product they can understand and use to their benefit.

CW: Gemini provides exchange and custody services to bitcoin mining businesses, provided they meet our know your customer/anti-money-laundering requirements and are located in a jurisdiction where we are permitted to accept customers. Mining companies typically utilize Gemini to convert their bitcoin holdings, which they receive through the process of mining into USD, or use Gemini’s custody services to safeguard their digital assets. Some mining companies also engage in more active trading strategies as well, but we believe that is less prevalent.

LA: Miners are a crucial part of the bitcoin network; ensuring transactions get verified and included in the blockchain. On the exchange, miners largely provide liquidity on the supply side. 

MT: Many users were drawn to bitcoin based on its lack of a central marketplace. How important is this to your users?

GS: The power of bitcoin is that it can be traded at multiple levels of centralization based on what suits the consumer, not dictated by the business a vendor is targeting. So, some people may want to exclusively transact business in a decentralized manner and those people can choose from the many peer-to-peer exchanges, though these types of exchanges suffer from liquidity limitations that may not suit everyone. Larger traders are more likely to use a centralized exchange where the benefits of decentralization are lost but there are greater pools of liquidity to trade against.

DM: Most of our clients don’t care much about the “inner workings” of the commodity. They’re either hedging or speculating on price movements.

CW: One of the primary value propositions of bitcoin is its decentralized network (no central governing authority controlling the issuance of bitcoin). In addition, many of our customers view bitcoin as “digital gold” that can serve as an inflation hedge. That being said, it’s impossible to achieve the liquidity, price discovery, and low latency that institutional traders have come to expect without a central marketplace that has a central limit order book.

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About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.