Wall Street traders like Trey Griggs are finding a new lease on life in the $2.5 trillion crypto Wild West.
After two decades in energy trading, the 51-year-old was lured by a former Goldman Sachs Group Inc. colleague this February into a new world of market-making in digital currencies.
Now he’s in fighting spirits—unleashing old-school finance tricks to exploit the industry’s rampant inefficiencies, volatility and downright weirdness.
“All the fun that used to be had 30 years ago in the commodity markets and is no longer fun—that fun is now in crypto,” says the U.S. chief executive officer at GSR Markets in Houston.
Griggs is among crypto newcomers deploying systematic strategies that are tried-and-tested in conventional asset classes—price arbitrage, futures trading, options writing—in a booming new corner of finance. As more mainstream investors get behind Bitcoin, boutique firms are joining the likes of Mike Novogratz in an ever-broadening crypto rally that keeps breaking records.
For those who can stomach the price swings, the threat of exchange hacks and the byzantine market structure, complex fast-money trades are offering an alternative way to ride the digital mania.
At GSR, the firm’s bread and butter is market-making, where traders pocket the spread between buy and sell orders.
In stocks, that’s a nearly oligarchic business where the likes of Citadel Securities and Virtu Financial operate at lightning speed. In virtual currencies, where hundreds of exchanges offer free access at a slower pace, GSR can capitalize on the big volumes without splurging millions on high-frequency infrastructure.
“Part of the tech we have is just to tell us did we actually trade or not, is this trade good or bad,” says GSR co-founder and former Goldman trader Richard Rosenblum. “We don’t want to be slower than our competitors, but it’s just not quite as much of the driver.”
For every strategy in stocks, bonds or currencies rendered boring by low rates, regulation or market crowding, there’s a lucrative trade in a token lying across the hundreds of exchanges out there. Or so the thinking goes.
While crypto die-hards have made merry like this for years, the relentless rallies across the tokensphere this year are drawing more Wall Street converts seeking riches and new thrills.
Take Mark Treinkman. After a career mostly at proprietary stock-trading shops like Chimera Securities, digital money is renewing his passion for quant trading.
“I’ve been going through some of my old strategies and things that wouldn’t have worked in equities in decades have an edge in crypto still,” he says.
A market-neutral strategy run by his $60 million firm BKCoin Capital gained 71% last year using investing styles that often include arbitraging different prices across exchanges and the gap between the spot and futures market.
For a few minutes during trading on Wednesday, for example, the price of Ethereum Classic jumped well above $100 on the Coinbase exchange. The digital token was trading at less than $80 at other venues, offering an obvious opportunity for investors to make money simply by buying in one place and selling in another.