Market manipulation continues to plague the cryptosphere. Even if crypto markets aren’t being manipulated, the threat of manipulation looms like a ghost–the United States SEC rejected a recent application for a Bitcoin ETF in part because of concerns about foul play in the Bitcoin markets. Institutional investors have similarly stayed away from cryptocurrency to avoid becoming embroiled in a manipulation scheme.
However, a growing number of technological solutions are being developed to combat market manipulation within the cryptocurrency space. Finance Magnates recently had the opportunity to speak with Coinfloor Co-founder and Head of Liquidity Mark Lamb about his company’s efforts to reduce the risk of market manipulation and to invite more institutional investors to the crypto space. Coinfloor uses a unique blend of machine learning surveillance technology and physical delivery of futures contracts at their expiry.
Institutional Investors Need Greater Confidence in Security Before They’ll Enter the Crypto Space
“Market manipulation can take many forms,” Mark said. “This makes it an incredibly time-intensive problem to tackle manually, using human judgment alone.”
However, a growing number of tools are being developed to identify this problem at the root: “using the latest technologies to monitor user patterns and spot manipulative behavior will support a safe and secure institutional trading environment, which will be critical to gain the trust of this user base.”
“Our institutional-grade cryptocurrency exchange, CoinfloorEX, will be available to all of Trading Technologies’ users, allowing them to securely and reliably participate in the cryptocurrency markets,” explained Mark. “We will benefit from the exposure to this new user base, which will play a part in helping us create a more liquid market for institutions to buy and sell these in-demand assets.”
— Trading Technologies (@Trading_Tech) July 25, 2018
“Further to this,” he continued, “we will also be implementing Trading Technologies’ TT Score machine learning surveillance technology across our group of exchanges, to give us the edge in protecting our clients against potentially manipulative market behavior.”
“Trading Technologies is the largest trading platform and software provider in the futures industry. Plugging the Trading Technologies platform into CoinfloorEX will allow professional traders in the traditional futures market to easily see CoinfloorEX’s market data, open an account with CoinfloorEX, and then trade our physically delivered bitcoin futures through the Trading Technologies’ software and user interface.”
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Physical Delivery “Increases Confidence and Reduces Uncertainty”
When asked if he believed if physical delivery would slow down the process of futures contracts trading, Mark said that the benefits far outweigh the time taken up by the extra step: “anyone trading futures contracts can benefit from the increased confidence and reduced uncertainty of physically delivered contracts.”
“However, anyone looking to take delivery or make delivery of cryptocurrency, such as a miner looking to hedge future bitcoin revenue and cover their fiat denominated electricity bills, will benefit the most,” he added.
“A market maker entering the cryptocurrency space will also benefit greatly; market making is a low margin, high-precision business, and physical delivery will protect them from the impact of manipulation or liquidity issues. It also allows them to use futures as a hedging venue against business they do in spot, other derivatives, and OTC markets.”
— Coinfloor (@Coinfloor) July 18, 2018
Mark also believes that the concept of a physically-delivered contract will invite new users into the space. “Physically delivered futures should bring institutional levels of liquidity into the space, as well as market making talent and capital flow, helping to tighten spreads and increase book depth,” he said.
This will further benefit the Bitcoin network at large. “Attracting institutional trading volumes into Bitcoin will help reduce price volatility, accelerating its potential for consumer use as a currency and asset – and therefore fulfilling its potential for sustainable societal impact.”
”It Is Only a Matter of Time Before Physically Delivered Cryptocurrency Futures Become the Norm”
“We believe that similar to FX, commodities, treasuries and other traditional futures markets, it is only a matter of time before physically delivered cryptocurrency futures become the norm,” Mark said, confidently.
“As trust builds and institutions become more familiar to with the crypto industry, we expect to see volumes move over, given the increased levels of certainty and reduced trading risk.”