High-end graphic cards are installed in a cryptocurrency mining computer at a computer mall in Hong Kong, China January 29, 2018. (Photo: Reuters)
Cryptocurrency exchange Coinbase is planning a revamp of its trading technology and creating a new suite of services to attract more institutional investors, including hedge funds and high-frequency trading firms, it said on Tuesday.
The San Francisco-based startup said it is building a new matching engine that will allow firms to match buy and sell orders for cryptocurrencies like bitcoin in fractions of seconds and is building up a team that will cater exclusively to institutional clients.
New services, such as the ability for trading firms to colocate their servers as close to Coinbase’s operations as possible for faster trading, will be rolled out within the year to help attract more trading participants, Coinbase said. Critics of colocation, a feature of many electronic markets, say it is unfair because it allows firms that can afford it to pay for faster access.
But Coinbase said the move will lead to better results for all traders on its exchange, including retail investors, who currently trade the bulk of cryptocurrency volumes.
“By allowing institutions and individuals to trade on the same platform we get tighter spreads, deeper liquidity and better price discovery,” Adam White, general manager at Coinbase’s GDAX exchange, said in an interview.
Many of the new features, including lending and margin financing to qualified investors, as well as settlement and clearing services, are similar to those that exist in more mainstream markets.
“What’s happening with a lot of crypto exchanges is that they’re doing to some extent a copy-paste from what we’ve learned from other asset classes, specifically stock markets,” said Richard Johnson, a senior analyst at Greenwich Associates.
Cryptocurrency firms gained attention in their early days through promises to revolutionize financial services by rendering established intermediaries and firms obsolete.
Now as hedge funds and proprietary trading shops increasingly trade cryptocurrencies, and some big banks also are setting up trading desks for the nascent asset class, many cryptocurrency firms are investing in traditional financial markets infrastructure.
“Crypto is busy re-intermediating financial services,” said Maya Zehavi, a blockchain entrepreneur.
Coinbase, which counts New York Stock Exchange owner Intercontinental Exchange Inc as an investor, is regulated under the New York Department of Financial Services BitLicense, and has long been courting institutional clients.
As part of its new offering, the firm said it will also introduce a new custodian offering with strict financial controls and secure storage for institutional traders.