{"id":2845,"date":"2021-04-26T15:09:04","date_gmt":"2021-04-26T15:09:04","guid":{"rendered":"https:\/\/devexperts.com\/blog\/?p=2845"},"modified":"2025-01-27T13:31:26","modified_gmt":"2025-01-27T13:31:26","slug":"the-winning-hand-institutional-crypto-trading-solutions","status":"publish","type":"post","link":"https:\/\/devexperts.com\/blog\/the-winning-hand-institutional-crypto-trading-solutions\/","title":{"rendered":"The Winning Hand: Institutional Crypto Trading Solutions"},"content":{"rendered":"\n
<\/picture><\/figure><\/div>\n\n\n\n

Zombies vs Goblins<\/h2>\n\n\n\n

The beginnings of the crypto market are unlike any other asset class: the first clients weren\u2019t institutions but retail. The initial exchange solutions weren\u2019t built upon financial grade technology, agreed standards, security, testing, and experience gained from other financial markets.<\/p>\n\n\n\n

In fact, one of the most famous original exchanges started out as something completely different. At its peak, it was the world\u2019s largest Bitcoin exchange in terms of market share, handling over 70% of the world\u2019s BTC transactions. A year later, in 2014 the exchange was filling for bankruptcy.<\/p>\n\n\n\n

That exchange was Mt. Gox, but it didn\u2019t start out as a crypto exchange. The name actually stands for \u201cM<\/strong>agic: T<\/strong>he G<\/strong>athering O<\/strong>nline eX<\/strong>change\u2019\u2019. It was originally built by a programmer as an exchange platform for trading fantasy virtual playing cards, like these:<\/p>\n\n\n

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\"Exchange
Source: Magic: The Gathering Arena<\/figcaption><\/figure>\n<\/div>\n\n\n

The fantasy card trading exchange didn\u2019t really take off and was closed down, but the domain was kept. A few years later the developer came across Bitcoin and realised people needed a place where they could exchange the cryptocurrency. He repurposed the website, adapted the exchange software, and stuck with the same name and domain \u2013 Mt. Gox.<\/p>\n\n\n\n

The Mt. Gox exchange became wildly popular, but it was too much for the creator to manage. Ultimately, the exchange was sold to someone who was better equipped to continue expanding its reach.<\/p>\n\n\n\n

The technical and security requirements needed to build an exchange for transacting wizards, zombies, and goblins are much less sophisticated than those needed for trading financial instruments. These discrepancies led to constant issues for Mt. Gox, including database leaks, security breaches, theft, fraud, and transaction delays \u2013 more or less the exact things in which mainstream financial exchanges invest a lot of resources to avoid.<\/p>\n\n\n\n

Despite all these challenges, however, Mt. Gox continued to grow and was processing over 70% of the world\u2019s bitcoin transactions at its peak. That was until 2014 when it was hacked again and \u201clost\u201d 850,000 Bitcoins, which was 7% of all Bitcoins that existed then. That many Bitcoins would be worth over 50 billion USD at the highs we\u2019ve seen so far in 2021. The full story of Mt. Gox is very complex and the bankruptcy case along with the investigations are still ongoing.<\/p>\n\n\n\n

This history of the original technology behind crypto exchanges is similar across some of the other early exchanges. They were built by techies who had successfully created crypto exchanges but didn\u2019t necessarily have experience building robust platforms for financial markets. Key considerations like execution methods, standards, and APIs had been reinvented or in some cases skipped.<\/p>\n\n\n\n

Enter the Wizards<\/h2>\n\n\n\n

The crypto market needed major reform before institutions would be able to take up trading. Even with enormous interest in this new asset class, no sane risk department, at any respectable financial institution, would ever let their trading desks touch crypto without having at least some basic familiarities to the traditional financial markets model.<\/p>\n\n\n\n

When we talk about institutional firms, we broadly cover:<\/p>\n\n\n\n

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  • Investment banks, brokers & FCMs<\/li>\n\n\n\n
  • Market makers and LPs<\/li>\n\n\n\n
  • Mutual, pension and hedge funds<\/li>\n\n\n\n
  • Insurance firms, endowments and other asset managers<\/li>\n\n\n\n
  • Proprietary trading firms, High-frequency trading firms (HFT), algorithmic trading firms, and professional traders<\/li>\n<\/ul>\n\n\n\n

    Technology is just one of the areas that differentiates the market for institutional clients. The lines among the different cryptocurrency industry providers are increasingly blurred between retail and institutional.<\/p>\n\n\n\n

    The Winning Hand<\/h2>\n\n\n\n

    Let\u2019s take a look at the important items for institutions to keep in mind when getting into the crypto space.<\/p>\n\n\n