14th September 2022 > > Fidelity and others.

tl;dr

Investment firm giants are moving into cryptos en masse.

Market Snap

Market Wrap

Yesterday’s inflation numbers out of the US caused some consternation yesterday afternoon for risk assets. 2-year treasuries at 3.77% are at a 15-year high and a 34bps inversion to 10s.

That sell-off liquidated a lot of leveraged longs, as can be seen in the large reduction in open interest and the short base in perpetual futures funding rates.

Curious Cryptos’ Commentary – Investment giants launch a new crypto exchange

A few hours after the CCC reported yesterday that Fidelity is looking at providing execution and custodial services for its large retail client base, the Wall Street Journal confirmed that this was indeed going to happen.

Shortly afterwards, Charles Schwab and Fidelity Digital Assets announced the launch of a new cryptocurrency exchange (https://www.businesswire.com/news/home/20220913005367/en/).

It is true that the world is awash with such organisations, but some are scams, and plenty of them are unreliable, or untrustworthy, or charge sky-high fees both for execution and for withdrawing cryptos to self-custody wallets.

Indeed, to date, the only centralised crypto exchanges that meet the exacting standards of the CCC and have therefore been bestowed with the much vaunted and highly sought after CCC seal of approval are Binance and Coinbase.

This new exchange, EDX Markets, is currently backed by Charles Schwab, Citadel Securities, Fidelity Digital Assets℠, Paradigm, Sequoia Capital and Virtu Financial. Other participants are expected to join forces.

A Fidelity spokesman explained:

“The intention of the industry consortium is to build market infrastructure that contributes to increased optionality for liquidity to facilitate a more efficient, secure and cost-effective process for trading digital assets.”

The key benefits that are likely to accrue to this new venture are two-fold.

Firstly, “EDXM will enable a highly liquid cryptocurrency ecosystem that aggregates liquidity from multiple market makers to reduce spreads and improve transparency”. One of the CCC’s criticisms of the commonly accepted methodology for the pricing of BTC is that it is almost entirely based on small and frequent retail trades with no insight into the large, over-the-counter (OTC) block trades that are a better indication of the real price for BTC. By incorporating the trading desks of banks and other financial institutions into this new exchange, pricing will improve.

Secondly, the new firm will “leverage a network of select digital custodians to safeguard assets”, a core requirement to drive further crypto adoption by retail clients and institutions.

…

The list of centralised cryptocurrency exchanges that have the CCC seal of approval is likely to increase by 50% in the relatively near future.