With New Institutional Investors Entering Crypto Space Every Day, ErisX and Bakkt Are Working to Cater to Them
Galaxy Digital’s Mike Novogratz made a comment earlier this year that the cryptocurrency industry will be seeing a “herd of institutional investors” entering soon. With that simple suggestion, many firms decided to start creating products and services that can accommodate these investors, especially at a high volume. The SEC ended up receiving multiple Bitcoin ETF applications as a result, which were ultimately were rejected.
Still, the institutional investors did indeed flood the market in some ways, helping CME’s Bitcoin Futures trading volume reach $572 million in July alone. However, the saturation of investors from this side didn’t quite reach the heights that the industry expected. Even with all the opportunities and services that are offered to institutional investors at the moment, there is a disconnect between the investors of Wall Street and the offers of the crypto community, which have left many to wonder how to break in.
ErisX seems to have found a way in, considering the group of Wall Street firms that decided to back it. Included in that group are some well-known brokerages and trading firms like TD Ameritrade, DRW, Virtu Financial, and Susquehanna International Group. There have also been several VC firms that decided to invest in this new exchange, like Digital Currency Group, Nex Opportunities, and CMT Digital.
The platform is being run by Thomas Chippas, who is the former head of quantitative by Vitigroup. Rather than being completely new to the industry, it is a relaunch of the Eris Exchange, which originally cam into the picture in 2010 but failed. The 25-person team offers benefits to both institutions and investors, which includes the ability to trade both derivatives and digital currencies that have a correlation with digital assets.
Overall, the ultimate goal of ErisX is to offer physically-delivered futures products involving Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. During an interview with Finance Magnates, Mark Lab, the head of liquidity with Coinfloor, said, “Physically delivered futures should bring institutional levels of liquidity into the space, as well as market making talent and capital flow, helping to tighten spreads and increase book depth.”
Chippas agreed to a phone interview with The Block. Though he didn’t reveal how much the platform raised in capital, he said, “In our opinion there is no lack of interest in building out markets for people wishing to trade digital assets and there is plenty of space for people to come in with a regulated exchange and clearing house.”
In an official statement, DRW founder Don Wilson commented on the platform, saying, “ErisX will eliminate many of the impediments to institutional adoption and usher in a new wave of market participants.”
Considering all this attention, it should come as no surprise that there are other platforms that are willing to compete with ErisX, like Bakkt. Their current list of supporters includes some bigger names, like Microsoft and Starbucks, to make cryptocurrency more mainstream. Some analysts believe that the two entities are good competition for each other. One insider told The Block, “I think it’s fair to say that this is shaping up to be Bakkt’s biggest competition…It’s a smart team and it’s smart how they structured it.”
Jeff Koyen, Pressland’s founder and CEO, spoke with Finance Magnates about the work that both exchanges are doing to prove their viability. He said, “There are two battles being waged right now. There’s the race to convince institutional and traditional investors that — from a security, not volatility, perspective — crypto is no less risky than any other asset class.” He continued, “That’s where we see CQG’s ErisX and Bakkt from ICE: known quantities attempting to ‘big-foot’ down on the crypto world,” he said. “On paper, they’re both very appealing products, but it’s too early to name any winners.”
Even though these platforms are in a competition between each other, they are still fighting for the same cause. As Koyen put it, “the other battleground sees the crypto world ‘punching up’ to Wall St’s weight class: Coinbase and their custodial solutions, Gemini’s expansion of services and so forth. Both arenas are critical for crypto’s long-term success. We need conservative money to dip their toes, and we need the crypto community to be more legit.” Summarizing, he added, “All that being said, I won’t be surprised to see a wildcard entrant land in the middle and eat all their lunches. This is crypto, after all.”
Daniel Skowronski, the co-founder of the DX Exchange, contributed his stance on this battle as well, saying, “There is a tremendous opportunity in the cryptocurrency market and we will continue to see more of these types of larger players enter the market. The difference is that it will be through regulation and trusted name brands.” Unfortunately, that stipulation may made it harder for Bakkt and ErisX to thrive. Still, “family office and institutional money will want to trade with a regulated and trusted name,” he said. However, he added, “Both are important.”
Ultimately, even if neither of the firms get their desired response from these types of investors, the response will be factored into the regulations being established in the industry. Skowronski said, “As we know some major jurisdictions (such as the USA) are still unclear exactly how companies can operate, so we need bigger institutions to help pave the way built upon the precedent that has already been established.”
He added, “We must remember that ErisX is just a USA based exchange and most likely will only offer the top 3-5 cryptos. But the cryptocurrency world is much more than just those top pairs and the world is much bigger than just the USA.” Most likely, Skowronski believes that neither of the platforms will be responsible for bringing in these investors.
All the industry will need at that point is the approval of a Bitcoin ETF, and the whole cryptocurrency market could get the jump it needs.