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April 28, 2021

Crypto RFQ

This week in the markets with BlockFi’s Joe Hickey


Paul Gordon
Editor, Coinscrum Markets
Joe Hickey
Digital Asset Trading, BlockFi

On Crypto RQF this week, Joe Hickey, Global Head of Trading for BlockFi joined host, Paul Gordon to review the last week in the crypto markets and explore how the launch of a US-listed Bitcoin ETF might impact bitcoin in the same way the first Gold ETF did when launched back in 2004.

Profile of Joe Hickey

With a long history on the sell-side, Joe comes from a math-famed actuarial background via Stony Brook University. He then studied quantitative finance at University College Dublin (UCD) before starting his professional career as a quantitative researcher focused on global asset, cross-market trading. Joe later transitioned to a trading role at Merrill Lynch as a founding member of the firm’s Delta One business, run the cash ETF Making making business and broader business at the end of his time there. Most recently, Joe was at CME, the largest derivatives exchange, helping build out new products and distributions. He joins BlockFi to help build something in the marketplace crypto.

Trading Activity in the Past Week

(03:14) Joe shared his insights on trading activity for the past week.
“…there’s more demand in the last week and a half of shorting physical bitcoin and synthetics. Since the liquidity event and the $COIN listing on April 13th we have seen both futures get hit…physical bitcoin and some bitcoin proxies like MicroStrategy and GrayScale fund, seeing those implied products get hit as well,” Joe said about trading activity.

(03:44) The flipside of that is clients finding those proxies and then shorting physical bitcoin, Joe noted.

(03:54) “…during that time we’ve seen implied funding at [inaudible] for example go from 60% applied pay to go along to 20% and then CME got as cheap as 6% yesterday,” Joe added.

(04:12) Amid these shorts, the month has seen increasing interest on the long side of the altcoins. Ether is still up 30% month to date, ripple up 150% month today in bitcoin cash up 63% month to date.

What a Bitcoin EFT Means for the Market

(05:06) There has been an expectation of a Bitcoin ETF in the US for some time now, which is hoped to bump the price of bitcoin again. Some have already emerged in Canada and several Exchange Traded Products have come to market in Europe. The impact is the EFT has been liked to the Gold ETF in 2004. Beyond that, EFTs bring distinct advantages for both the marketplace and institutions.

(06:23) “The great thing about ETFs is that can they trade at a small premier discount, but market makers keep that premier discount relatively tight. And they do that by managing what’s called the creator redeem… at the end of the day based on all the market activity, market makers create the ETFs that they sold or redeem the ETFs that they bought, bringing the market flat at the end of the day. So that’s what makes ETFs a better product for the marketplace because the premium discounts get arbitraged away,” Joe explained.

On the institutional side, ETFs can act as funding vehicles.

The GOLD ETF vs Bitcoin ETF

(07:13) “So before 2004, a lot of people bought physical gold or they traded futures… If you remember the early 2000s, the bank of England was aligning their gold reserves and the Fed was saying Gold is not a good hedge…but we saw open interest and the gold futures at CME and also assets under management for the GLD ETF, basically skyrocket over the next few years,” Joe said about the potential Bitcoin ETF.

Although trade volumes for ETFs are, are a bit lower relative to futures trading, ETFs are less expensive to fund, Joe added.

“… the most important part of this whole conversation is when you create a security, that product can then be funded by large institutions like banks at a less expensive rate than the physical,” Joe explained.

Physical Bitcoins vs EFT

Choosing which asset to trade or invest in, whether physical bitcoin or ETF or ETF, should not be about which one is better but about the advantages, it gives to the particular trader or institution.

(09:27) “I would not say one product versus another. We at BlockFi, you know, we’ll be trading all these products. futures might be the best from a liquidity perspective, ETFs, the best from a funding perspective, and then physical bitcoin, the best from a margin perspective with us, or from a retail perspective, Exchange-Traded Funds can be traded in different accounts than futures. So that’s, that’s another benefit,” Joe added.

CME Launches Micro E-Mini Futures

CME Micro is launching next week and BlockFi is excited about the opportunities it presents both for their retail market and as a hedge that allows it to have a smaller size contract.

“…we are in a space race in crypto, that’s CME is positioning itself ahead of a possible ETF launch and the ability to trade these pairs and use the futures and the ETF as funding vehicles is going to be huge for us on the institutional side. at BlockFi, we’re very active in trading the futures on the, on the bigger contracts and for, for larger institutions. But being able to hedge some of that retail flow as well, it’s going to be great for the future side,” Joe added.

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Paul Gordon
Following a 20+ year career in financial markets, Paul first became interested in Bitcoin in 2011 and helped to establish one of the world's first Bitcoin meetup groups, Coinscrum, in 2012 since when he has grown the community to over 6,500 members, hosting over 250 events and introducing many of the leading projects and thought leaders in the industry.  Paul currently produces the weekly Coinscrum Markets video podcast series and is an active investor and advisor to a number of crypto and blockchain related projects.

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