Episode 020

Ziglu, ExoAlpha and Flovtec

  • In Conversation With
  • Market Spotlight: Prudential Constructing a Crypto Fund Strategy

This week, host Nisa Amoils spoke with Mark Hipperson, founder and CEO of Ziglu, a fintech that recently scored an electronic money (e-money) institution license from the UK’s Financial Conduct Authority (FCA). He talked about how the license gives the company greater flexibility to operate in the crypto space vs. a full challenger bank license. In the Market Spotlight segment, David Lifchitz, managing partner and CIO at ExoAlpha, and Anton Golub, founder and CEO of flovtec, discussed the dynamics between the traditional markets and crypto markets and why crypto is still the Wild West of trading. 

 

In Conversation With Ziglu 

London-based Challenger-bank Ziglu recently received an electronic money (e-money) institution license from the UK’s FCA. Mark Hipperson, Ziglu founder and CEO and former Starling bank CTO, explained what it enables the company to do, saying:

(13:19) “So being an e-money company means that you’re regulated to safeguard customers’ money. So we have that in a separate safeguarding account, which is a good thing for customers. But it also enables us to be able to deliver some current account banking type features that traditionally only banks could provide. Anyone anywhere…so if you’re a Ziglu customer, you can pay each other in fiat currency/traditional currency, or cryptocurrency. But also you can use UK faster payments as well…And we’ve got a whole lot of other payments coming in due course in terms of European payments. SWIFT and those things in due course. But also that’s enabled us to launch cards as well…We’ve got a MasterCard, a Ziglu MasterCard debit card that we’re testing with right now around London and the UK.”

There are also things that Ziglu can’t do with an e-money license vs. having a full challenger banking license, and that is just fine with Hipperson, who explained:

(14:34) “The flexibility it affords in being able to do crypto, it’s very difficult to do that if you’re a bank. And it enables us to be able to manage our capital adequacy a little differently so we don’t have to put quite as much money with the Bank of England to be able to do the things that we do. The banking license is I guess the toughest and most challenging thing to achieve in the UK and we’re very proud to have done that at Starling Bank as quickly as we did. But I think that there are one or two companies out there that prove that you can be very successful and do many of the things if not all of the things that challenger banks can do.”

Nisa asked Mark when digital assets will appear on the statements of everyone’s bank accounts, in response to which the Ziglu chief said: 

(19:31) “Well they appear on our’s today. So if you have a Ziglu app, your currency transactions no matter what currency they’re in appear in your app and that’s the way that we do it. So your GBP, your bitcoin, your ether, are all there. And every time you do a transaction, no matter what currency it is, whether it’s on a payment or you’re sending some money to a friend, or you’re using your card, all those transactions appear chronologically…They’re in our app now. (20:04) Now, will the other guys catch up? I imagine they will in due course, those that are for crypto. But banking is going to be tough as I said earlier, whether they will be allowed to get into it or they’ll choose to get into it. We’ve all heard the resistance of the banks over the years from Goldman to JPMC saying ‘never never, we won’t touch it’ to ‘actually we realize it’s here to stay now. We realize it’s not a problem.’ And they’re embracing it now.”  

Market Spotlight: Prudently Constructing a Crypto Fund Strategy 

Nisa spoke with David Lifchitz, managing partner and CIO at ExoAlpha, and Anton Golub, founder and CEO of flovtec, about quantitative funds and traders migrating from the traditional markets to crypto markets in recent years. Among the themes they discussed was the strategies that lend themselves to cryptocurrency trading and those that do not, in response to which ExoAlpha’s Lifchitz said, 

(25:20) “The market infrastructure is not ready yet for high frequency trading. And in terms of the behavior of crypto, there are still illiquid vs. traditional assets. So the trends tend to last longer than in the traditional assets. So for all the trend following… strategies tend to do well in that environment for this asset class at the stage that they are right now. But just a few years ago, when they were even less liquid, it was a lot harder for them to track them. But now there are more liquid products, options and futures of these assets. It basically makes it easier to apply essentially CTAs trading strategies and also market neutral and or market making strategies…But we are not yet at the point of what we can find or what we can do with traditional assets especially in terms of execution and high frequency execution.”

flovtec’s  Anton Golub addressed the issue of fake cryptocurrency trading data, which also refers to as ghost volume and says that it has been an ongoing issue in the digital asset space.  

(27:10) “I can kind of share our experience with regard to fake or ghost volume, how we see it. And indeed this has been somewhat of an issue actually with the digital asset space. There is this ongoing theme and discussion around, there is a lot of fake volume, or just nonexistent and the volume numbers that you see being not representative of what’s actually happening. So I have to actually relate to it from an investment manager perspective. The fake volume, actually you can actually identify it quite easily and then you can shy away from the exchanges that do this kind of practice. But then we always wonder how does it reflect when it really matters? And I’m talking about highly volatile situations where the markets move a lot…and then the question is like from all this fake volume that all of a sudden isn’t there, you can’t do anything with it. Then the question is where can you actually go to trade where this highly volatile environment when you realize the fake volume, these fake volumes don’t actually help you at all. And you actually realize there’s only one or two trading venues that when the volt markets are extremely high, that really show solid liquidity.” 

Nisa noted that it’s clearly easier to manipulate smaller market cap coins, asking if there are any tricks that are being deployed that might be considered illegal in more regulated markets. ExoAlpha’s David Lifchitz said they’ve seen a few scams, including one pump and dump scam that involved Dogecoin, adding: 

“What we are seeing I think it was early September, there’s been a sort of flash crash, bitcoin went down 10-15%…in just five minutes…When the markets are nearing technical points…or if you re crypto hitting resistance or very close to a breakout level, and then you can, basically, if you have enough basically size to trade, you can build stealth positions in crypto. So you buy, and then when you have a big enough position… you sell some futures in the same position stealthily. So you won’t basically push the market downward. And then at some point when you are loaded on the short futures, you just drop in a market order, a big chunk of your coin in the spot market, that will put pressure on the order book. And so your order will basically hit the bid/ask… and in this case the bids. And then you basically push down the market. But because you are short the futures, you are basically making money on the move that you were the one that triggered. You knew what it was doing. And then you cover your shorts when you are at the end. And then you basically made a nice profit by manipulating the market. This is very illegal with the traditional markets. As Anton said, there is no policy for crypto markets so far. And so it’s still the Wild, Wild West in crypto trading.”

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