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I recently saw an industry article with the theme “how I would be thinking about bitcoin if I were to put my old broker hat on.” This was a very timely perspective as Cboe/CFE and CME are launching their bitcoin offerings within the next couple weeks. As the VP of Cryptocurrencies at Trading Technologies and an avid cryptocurrency participant, I’ve been thinking about the same from a trader’s perspective.  

As a prop firm owner and high-volume trader for multiple years in the 2000s, I was not afraid to take risks, test new automated or quantitative strategies, and trade in products down the road less travelled. I made markets in the back month ten-year note options pit in the 90s and actively traded all 40 futures months in the Eurodollar curve ten years later. I always believed that most of what you learned in this business you only learned one way, and that was by investing in the process as if you were paying a tuition to learn.

If I was still running that prop firm, here’s a brain dump of what I’d be thinking about right now, fast-money-bullet-point style!

  • The window of opportunity is closing a bit every day; vacation times should be limited.  

Crypto trading is very different than any type of trading we have ever encountered; I will only involve traders who are willing to completely adjust their style.

    • The spreads between different cash exchanges are significant, and the more geographically related certain exchanges are, the more likely their prices will be to converge in the shorter term because the more fungible the cryptocoin is.  
    • Just as much money, if not more, will be made in cryptocurrencies other than bitcoin. Just as firms used to have people with specialized product knowledge in the trading pits, I should have a small team who are “experts” in individual coins.
    • Bitcoin futures will take on a mind of their own the next time a potential fork event comes along; be careful not to get too long futures when they inevitably trade at a discount.
    • A core long of multiple cryptos sure makes this stuff easier and more interesting to trade.
    • A core long can now be offset by shorting futures. That makes me sleep better at night, but that doesn’t mean I can’t get hurt on that spread.
    • I could probably in-house-lend the core longs out to my own traders, allowing them to trade as if they are opening shorts. Charging a reasonable lending rate will help me pay for the inevitable costs of holding the core longs paired with futures spread.
    • Automating what I want to do is important, but there’s still a manual trade and art to this that can probably be done well without automating everything.
    • Never assume immediate or guaranteed fills by cash crypto exchanges; they are still trying to digest their growth and improve infrastructure.
    • This new asset class is great for my business growth. CME just raised the price of market data and trading fees; I can and should start shedding futures exchange dependency immediately!
    • I should probably employ a software engineer who will become my “secure storage” expert. I can sleep at night with six figures worth of inventory on individual exchanges, but not seven.
    • Moving inventory around exchanges efficiently and at reasonable costs is key in these early days of crypto. I should probably have someone whose primary role will revolve around that.
    • Like Google, I should encourage “20% time” to anyone in the firm that wants to work on other crypto projects that can become new initiatives or businesses within.   
    • If “markets can remain irrational longer than you can remain solvent,” consider that old adage times ten for cryptomarkets. There’s a very Rumsfeld-esque “known-knowns, known-unknowns, unknown-unknowns” aspect to crypto that is kind of dangerous.
  • Don’t overspend on technology right now; there’s plenty of edge in the marketplace, and allocating capital to trading is key right now.

There’s more. New thoughts come to me every day. I think I’d be more interested in teaching new traders nowadays than I was ten years ago. More than anything else, having been through multiple consecutive years of falling profit margins and volatility, I think I’d be thankful that such a fantastic new market basically appeared out of thin air so quickly.  

I’m more than happy in my role on the service side of the business these days, and I look forward to providing traders—like a hungry (and younger) me—new tools and connections to max their potential in these heady and exciting days in crypto!

Cboe and CME bitcoin futures will be tradable on both the TT® and X_TRADER® platforms at launch.

As the story of bitcoin and cryptocurrencies continues to unfold, come back to Trade Talk for more analysis and commentary on the issues from Mike.