Crypto funds weigh market data options as correlations rise

The tight link between price volatility in US equities and cryptocurrency Digital assets are forcing hedge funds to consider opening up to expensive data from stock exchanges and other traditional markets, in a change from previous years when profits on bitcoin moved without clues from other asset classes for these firms. was possible to obtain.

The influx of traditional trading firms into crypto, which already have such inputs, is increasing the pressure to acquire more data due to intense competition in the digital asset markets.

As a result, according to many hedge fund managers, the market data cost of large crypto trading firms can rise up to $500,000 per month, which is currently almost zero. In addition to the huge market bill, the move further cements the ties between the world of digital assets and Wall Street.

“The headline here is that you need data from traditional markets,” said Jonah Van Bourg, global head of trading at Cumberland, the digital asset trading arm of DRW. “If you are trading bitcoin now, you are effectively trading macro so you need that data to survive and make money.”

As an offshoot of DRW, a Chicago-based trading giant, Cumberland has access to market data across all asset classes. This is a luxury that crypto native companies have been craving.

The cryptocurrency’s price has been in sync with US equities in recent months, causing the correlation between the digital asset and two major indices, the S&P 500 and the Nasdaq, to ​​be the strongest since 2010. The close correlation has turned bitcoin into a version of equity, an asset that rises when investors are feeling optimistic about global financial conditions and sinks when concerns about growth increase.

“Despite bitcoin being a good inflation hedge or whether it was the new gold, the only thing that mattered for prices was the stock,” said Francesco Filia, founding partner at crypto hedge fund Fasanara Capital. “It’s a fairly clear correlation.” For now, Fasanara trades without input from traditional markets.

According to Evgeny Gavoy, chief executive of the London-based crypto market maker, Wintermute is among several companies that are mulling whether to add market data from the futures and equity markets to their inputs.

“With the increasing correlation between the prices of traditional and digital assets, we certainly cannot ignore the traditional data feed, which trades $7 billion worth of digital tokens a day,” Gayvoy said.

Geneva-based digital asset manager Tire Capital also plans to increase the type of financial data it buys. The fund’s chief investment officer Ed Hindi said Tire is gearing up to expand its activities and trade tokenized commodities and oil. At this point, market data will become an important input, especially as Hindi expects these new strategies to form a large part of the fund’s trading strategies.

“Tire Capital will need more market data from the TradeFi world, especially as we begin to actively trade tokenized financial assets in the coming 24 months,” Hindi said. For now, Tire Capital relies only on data from the currency markets.

Pay for data will be a sharp change from previous years when funds and other crypto specialist trading firms could thrive by relying only on free input from the exchanges where bitcoin and its peers are traded. It’s changing now. Unlike the stock and currency markets, crypto exchanges offer trading information to their clients for free, instead of charging thousands of dollars a year for information about prices and liquidity.

The company’s CEO David Mercer said the largest clients of LMX Group’s institutional-only crypto exchange are already subscribing to data feeds from LMX’s other markets, such as FX and metals.

“It is entirely natural as crypto is associated with TradeFi that a wide range of market data would be required for all participating firms,” Mercer said.

The cost of crypto trading firms can also increase as they require more mainstream equipment to execute trades or other related services. Technology companies and fund managers said there is increasing demand for cross-asset trading software such as portfolio or risk management systems.

Chief Executive Anton Katz said that digital asset order management system provider Talos has seen demand for its products, including a data spike, over the past 6 months. He added that sell-side vendors are trying to provide their clients with prices and trade currencies and crypto together to improve performance results. Buy-side crypto traders, such as hedge funds, are looking at new areas where input from other markets is important.

The pressure from the massive increase in costs comes at a time when crypto asset prices have plummeted, affecting the profitability of digital asset experts. Market makers in crypto are facing stiff competition from companies with roots in traditional finance, including big players such as hedge fund Braven Howard and market maker Citadel Securities. These companies already have information and links to equity and commodity trading, potentially providing an edge over companies that do without additional data.

For now, some are hoping they can still linger on the data buying spree.

“If I want CME data it’s a significant lift for me financially,” said Michael Safai, founding partner at crypto trading firm Dexterity Capital. “At the moment it’s not attractive, but in the long run we have to think about it. It’s only going one way.”

This story has been published without modification in text from a wire agency feed.

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