- The company is the first traditional trading behemoth to enter the field.
- Institutional interest in yield-generating options is increasing, according to the analyst.
- DRW Holdings LLC claims to be the first significant trading firm to sell over-the-counter bilateral crypto options, allowing more institutional investors to enter the cryptocurrency market.
Cumberland, the Chicago-based firm’s crypto subsidiary, has become a liquidity provider for so-called customized options, aimed at significant crypto holders such as Bitcoin miners and investors looking to hedge risks or produce returns. Traders will be able to customize the expiry date, striking price, and underlying coins for each trade.
“We believe the market is headed in that direction.” We’re seeing the growth and interest, so we’re devoting a lot of resources to ensuring that we’re the best provider of that product,” said Rob Strebel, DRW’s head of relationship management.
Don Wilson created DRW, a proprietary trading firm, in 1992. It is noted for its derivatives trading in the traditional financial market. Its crypto section, which began mining in 2014, has grown to become one of the top cryptocurrency traders. It is a major liquidity source for CME Group Inc.’s Bitcoin futures, and it was responsible for Goldman Sachs Group Inc.’s first-ever block trade in cryptocurrency last year.
Crypto-native firms such as Genesis Global Trading Inc. and Galaxy Digital Holdings Ltd. have dominated the market for OTC bilateral crypto options, which is still in its infancy. Cumberland, on the other hand, will be one of the first to join the space with a traditional finance background, with a large balance sheet and proven creditworthiness. While there is no publicly available data on the size of the bilateral options market, industry participants say it is a significant and growing part of the overall crypto options market, which is dominated by exchanges like Deribit and CME.
According to Nate Conrad, global head of asset management at NYDIG, a Cumberland counterparty, adding a liquidity provider like Cumberland is “simply one more advancement for it to make it easy for institutions.”
“The more traditional manner of creating yields within the option market appears a lot more palpable to investors,” said Strebel, as crypto borrowing and lending comes under more scrutiny from US regulators. When Bitcoin goes sideways, for example, selling call options and receiving premiums can allow investors to still profit from their holdings.
Wall Street banks that have shied away from crypto may be interested in customized products once they gain confidence in the technology, according to Strebel. In a panel discussion last December, Andrei Kazantsev, Goldman’s global head of crypto trading, said that there is a lot of desire for more derivative-type hedging, and that the creation of an options market will be the next significant step for institutional adoption.
In recent years, the trend of more established businesses entering the crypto industry has accelerated. Jump Trading, Jane Street, and Hudson River Trading, all DRW counterparts, are involved in crypto trading. Ken Griffin, a former sceptic of cryptocurrencies, has recently intimated that Citadel Securities LLC may become a cryptocurrency market maker.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.