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The Secretive Wall Street Firm Betting On Bitcoin

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A little-known Wall Street firm facilitating $13 billion in equity trading a day is embracing cryptocurrency trades, though no one knows exactly how much Bitcoin is passing through the trading giant’s hands.

Multiple reports have emerged over the past few days of a “secretive” Wall Street company called Jane Street Capital, that’s been braving bitcoin since 2017, and loves the volatility.

According to Business Insider, Jane Street was founded in 2000 and began trading cryptocurrencies last year, reporting a total of $5.6 trillion traded across all products in 2017.

Jane Street confirmed the news this week, explaining that it “trades over 56,000 products globally across a wide variety of asset classes, including bitcoin.”

The New York Times calls Jane Street traders “coders with Ph.Ds.” for their focus on high-tech stocks.

It’s all about is arbitrage trades, and this is where Jane Street excels.

And it’s also where cryptocurrencies are attracting major attention.

The spreads in cryptocurrencies on different trading platforms can be huge—and much as 10 percent--and so can the arbitrage opportunities.  

"There is sometimes 10% exchange arbitrage," Toby Allen of trading firm Akuna Capital previously told Business Insider. "As a trader it is such an amazingly fun space to be in compared to traditional assets because of the spreads and technology gaps."

Related: Tesla Tumbles As Investors Lose Patience

Crypto arbitrage even has its own dedicated page:

(Click to enlarge)

But in some cases the spread can be even bigger. Bitcoin prices in South Korea, for instance, can be over 40 percent higher than in the U.S. thanks to the “Kimchi Premium”, providing a major opportunity to profit on the spread, but this kind of cross-country arbitrage is tough to play due to a fragmented crypto ecosystem and uncertainty over regulations.

Bloomberg described one trader’s strategy as “buying ether in Korea, transferring it to an offshore venue, exchanging it for bitcoin, transferring the bitcoin back to Korea, and cashing out.”

So who else is doing hitting up the arbitrage opportunities? A handful of high-frequency traders who thrive on volatility, including Chicago-based DRW’s Cumberland, DV Trading, Hehmeyer Trading, Virtu Financial and Jump Trading, according to Business Insider.

Earlier this year, Goldman Sachs’ Lloyd Blankfein said the broker was “clearing futures in bitcoins” for some of its clients.

CMC Markets Plc (LON:CMCX) also just announced it will launch CFD and spread betting on the original bitcoin and ethereum cryptocurrencies paired against the U.S. dollar—but only to ‘professional clients’.

Playing the spread and the volatility is enough to spark major interest in cryptos that goes far beyond the individual, and works to keep crypto alive while some take their time to get used to the idea that it’s here to stay.

In the meantime, trillion-dollar funds are going to be making a lot of money, and they’ll be ready to jump on any new crypto opportunities that offer the right set-up.

By Jan Bauer for Safehaven.com

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