A month after the United State’s Securities and Exchange Commission’s decision to deny Bitwise Asset Management’s application for a Bitcoin ETF, the industry is once again faced with the question of what needs to be built in order for institutional capital to move more seriously into the space.
However, there are a growing number of companies that are working to identify what’s missing from crypto and to build the platforms that the industry needs to flourish as an institutional investment class.
Recently, Finance Magnates spoke to Marc Bhargava, co-founder and President of New Jersey-based electronic agency prime brokerage Tagomi, a company that’s been working to create institutional-grade brokerage services within the cryptocurrency industry since January of 2018.
Since its inception, the company has expanded into several cities across the country and in the UK, and has formed partnerships with some major players within the space, including ICE’s Bakkt and Binance. Tagomi was also recently granted a BitLicense from the New York Department of Financial Services.
Marc spoke with us about the history of the young company, as well as plans for the future and predictions of what’s coming next for crypto.
The following is an excerpt. To hear the rest of Finance Magnates’ interview with Marc Bhargava, please visit us on Soundcloud or Youtube.
The making of Tagomi
Despite the fact that Tagomi is less than two years old, the company has already put down roots in several cities across the United States as well as overseas.
“We have 20 people, [and] we’re primarily in New York and New Jersey, but we have offices in Chicago,” where the company’s COO and Director of Engineering are based, as well as an office in San Francisco, where the company’s front-end and design team members are.
Tagomi also has “a few folks out in London as well,” which Marc says is because “we’re now trading 24-7.”
Marc explained that the company was first conceived after in 2017, he began “hearing a lot of folks in the market asking for an institutional platform to trade crypto. Retail investors had their exchanges; they had the Coinbases or Binances or Krakens of the world."
“But someone looking to do larger trades and wanting to do them electronically rather than calling an OTC, wanting to use more advanced algo types, wanting to do things like lending and shorting--and most importantly, wanting it done on an agency basis (meaning wanting someone to execute these trades and then post trade reports and show them how they did it in the best possible way for them--none of [those features] really existed, because it was a really nascent market.”
Co-CEO @GregTusar at the Multicoin Summit explaining the parallels between crypto market structure today and the evolution of other asset classes: https://t.co/fPvYlMib7p
Thanks for a great panel @TusharJain_ @multicoincap
— Tagomi (@tagomisystems) May 20, 2019
Bhargava said that his co-founder, Jennifer Campbell (who was at Union Square Ventures at the time) “were looking for this company for a year--[this company] that could be a more institutional Prime Broker
Prime Broker
Prime brokers are the designation given to individuals handling a package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds which need the ability to borrow securities and cash in order to be able to invest on a netted basis and achieve an absolute return.There are two types of prime brokers - bank and non-bank corporations. Traditionally major global investment banks have been the predominant players in the space, however recent years have proven that there is space for non-bank liquidity providers that sometimes can deliver a better service than traditional financial institutions.Prime brokers are earning on commissions, spreads and overnight margin lending. Brokers which are operating STP flows in sufficient size are the main contenders to have a direct relationship with a prime broker, while smaller firms are relying on prime of primes to access a pool of prime brokers.What Roles Do Prime Brokers Perform?Prime brokers are responsible for a wide range of services, which typically include global custody such as clearing, custody, and asset servicing. Additionally, these individuals are also tasked with securities lending and financing, in a bid to facilitate leverage of client assets.The individuals can also provide hedge fund managers with portfolio reporting needed to effectively manage money as well as operational support. Prime brokers act as a hedge fund's primary operations contact with all other broker dealers.Finally, many prime brokers also look to provide additional value-added services, such as risk management and capital introduction.Of note, larger prime brokerage firms today usually monitor the risk within client portfolios through house-designed risk-based margin methodologies. These are helpful in considering the worst-case loss of a portfolio based on liquidity, concentration, ownership, macroeconomic, investing strategies, and other risks of the portfolio.
Prime brokers are the designation given to individuals handling a package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds which need the ability to borrow securities and cash in order to be able to invest on a netted basis and achieve an absolute return.There are two types of prime brokers - bank and non-bank corporations. Traditionally major global investment banks have been the predominant players in the space, however recent years have proven that there is space for non-bank liquidity providers that sometimes can deliver a better service than traditional financial institutions.Prime brokers are earning on commissions, spreads and overnight margin lending. Brokers which are operating STP flows in sufficient size are the main contenders to have a direct relationship with a prime broker, while smaller firms are relying on prime of primes to access a pool of prime brokers.What Roles Do Prime Brokers Perform?Prime brokers are responsible for a wide range of services, which typically include global custody such as clearing, custody, and asset servicing. Additionally, these individuals are also tasked with securities lending and financing, in a bid to facilitate leverage of client assets.The individuals can also provide hedge fund managers with portfolio reporting needed to effectively manage money as well as operational support. Prime brokers act as a hedge fund's primary operations contact with all other broker dealers.Finally, many prime brokers also look to provide additional value-added services, such as risk management and capital introduction.Of note, larger prime brokerage firms today usually monitor the risk within client portfolios through house-designed risk-based margin methodologies. These are helpful in considering the worst-case loss of a portfolio based on liquidity, concentration, ownership, macroeconomic, investing strategies, and other risks of the portfolio.
Read this Term service that was both electronic and was agency-based, and we didn’t find anyone that was really compelling. It was only when we found our co-founder Greg Tusar that the three of us decided to team up and start it in January 2018.” Tusar was previously a senior partner of electronic trading at Goldman Sachs for 13 years.
The cryptocurrency industry is open to legislative guidance - Tagomi CEO @jml_campbell sat down with @JeffKauflin from Forbes to discuss:https://t.co/O3e5PrdW3n
— Tagomi (@tagomisystems) August 1, 2019
After Bhargava teamed up with Tuscar and Campbell, the three of them “raised our first round from Peter Thiel’s founders' fund, and in 2018, really built out the team and product.” Tagomi’s services began to go public at the end of that year and throughout the first half of 2019.
What does Tagomi do?
One of Tagomi’s primary product offerings is something that the company calls Best Execution Trading. “What that means is that if you came to us with a million dollars, we would break that up into many small pieces and smart route it across ten market makers and exchanges where Tagomi has accounts.
“So, instead of you having to open up accounts on all of these exchanges and develop market-maker relationships, Tagomi already has that...so you can come just to Tagomi and do that $1 million trade, and it’ll get executed across 14 Liquidity
Liquidity
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock's liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset.
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock's liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset.
Read this Term sources.”
Marc added that Tagomi’s service also results in a better price for users wishing to execute large trades: “we’ll route to wherever the price is best, [and] if it’s a very large trade and it can move the market, it’s also obviously helpful to spread it across [multiple] liquidity sources, and even to use things like [algorithmic trading]--we’ve done some very large orders [that are executed] over hours or even days.”
https://t.co/AZwoBOy3iq Partners With Crypto Brokerage @tagomisystems To Offer Institutional Liquidityhttps://t.co/OqdJbSOiz3 pic.twitter.com/B6Zdak8mVo
— Binance.US (@BinanceAmerica) November 21, 2019
“So, that’s the concept of Best Execution--we’re not the other side of the trade. We’re not holding Bitcoin on our balance sheet to sell to you and mark it up and chat with you over the phone--we are here to use technology to help you do larger trades with better execution, and for every trade, we’ll give you a trade report showing exactly how we did that trade.”
Marc continued to explain that this is something that could potentially be used to build out the cryptocurrency ecosystem more broadly: “folks like Bitwise, for example--they’re working to be an ETF. In the ETF world, it’s a requirement to have best trade execution and that you work with an authorized participant.”
Therefore, he said that this is why companies like Bitwise use Tagomi’s services. “So do the crypto funds, and their limited partners, who get lower fees because they’re using our technology.”
“We’re very focused on being a prime broker”
And Tagomi is committed to staying on the “service” side of the industry rather than offering Bitcoin or other crypto trading options. “We’re very focused on being a prime broker,” Marc said.
In addition to best execution, Marc said that Tagomi also helps clients integrate with custodians. One recent example of this was Tagomi’s presence as one of the first three clients on Bakkt’s custody product. He added that on the custody side of things, Tagomi also works with Coinbase, Bitgo, and Gemini, among others.
The company has also begun offering a service that allows its customers to “lend out” their digital assets and to use margin to buy more of them. “With folks lending and borrowing on the platform to facilitate shorts as well, it’s really the full functionality of prime brokerage.”
Excited to work with this talented team! https://t.co/6g6scIYsxs
— Tagomi (@tagomisystems) November 12, 2019
Marc explained that in this way, Tagomi has been built to be the company that his team believed to be absent from the cryptocurrency industry: “this full prime brokerage function we’ve really seen missing from the space, especially on a more agency basis or a more technology basis.”
“It’s generally bespoke things that people might do over the phone with higher markups and things like that--and we’re looking to really change that and [make crypto] look a lot more like equities.”
Potential in Asia
Marc told FM that Tagomi eventually has plans to expand further into Asian markets.
“A market that is really interesting for us, where we get a lot of inbound interest (and probably haven’t serviced it as well as we should to date) is what’s going on in Asia.”
Specifically, “for us, Hong Kong and Singapore make a lot of sense--you have people from New York or from London that have opened up trading shops there; they have very similar demands as our clients in the west, so they’ve been kind of our ‘sweet spot.’”
“But if you expand outside of that,” Marc continued, “Japan and Korea both have a very strong crypto retail presence, and increasingly in Japan you’re seeing a little more FX to crypto; in Southeast Asia you’re seeing stablecoin adoption growing, and a whole layer of payment providers using stablecoins out there.”
“And then in mainland China, you’ve seen a lot of the mining industry, but also three of the world’s largest exchanges that also run large OTC shops. And, recently, with the president’s comment...there are effects coming out of that as well.”
Institutional capital has hit crypto in several “waves”
We asked Marc about what seems to be the most popular narrative within the cryptocurrency industry surrounding institutional capital--that there’s a “wave” of institutional capital that’s just waiting around the corner for when the industry has built the right products.
Speaking from the perspective of a company that has worked with institutional investors, Marc said that “it’s come in different waves, and certain things have been different from what we expected.”
A number of crypto heavyweights @nic__carter, @fundstrat and Marc from Tagomi in the room on @compoundfinance Thesis II mini conference. pic.twitter.com/F9NyQk93ys
— Arthur (@Arthur_0x) October 28, 2019
“The first wave,” which started in 2017 and grew in 2018, “was crypto funds and index products. So I think you still see a lot of family offices or endowments or others not directly buying Bitcoin, but investing in funds. If you look at a crypto fund like paradigm, it has Sequoia in it, it has Yale’s endowment in it--it has a whole slew of family offices and endowments.”
“And so, you know--you haven’t seen a lot of the direct investing there, but you do see this growing group of crypto funds in addition to Paradigm,” including Paradigm, Multicoin, and Polychain. “Many people are investing through the crypto funds, and I think that’s part of the first wave, [in addition] to the index products like Bitwise.”
“The second wave,” which Marc believes started in 2019, has a lot more to do with “quant funds--the ability to go both go long and go short.” This also includes “lending markets and the ability to borrow.”
Marc has also observed “a lot of market makers enter to provide more liquidity on exchanges--really large market-making shops in Chicago and New York and globally.”
A wave of “big tech” is headed for crypto in 2020
In 2020, Marc predicts that the next rush of institutional capital into crypto will come from a “big tech wave,” which includes Facebook.
“We were expecting maybe Morgan Stanley or Goldman or JPMorgan to be more involved in crypto in 2017 when we were talking about when the institutions [would be] coming. But we’ve seen now some of the world’s largest institutions at least stake a claim and say that they’re coming--Facebook is a huge example of that, but there’s also Square and SoFi, and others as well.”
“So, I think that this next 2020 wave of ‘institutional’ investors is really these large tech firms,” he said. “And I think that down the road, you definitely will see more from the traditional asset managers--right now, we see more of the family offices who have broader discretionary ability to invest in things, or funds that are primarily hedge funds run by a couple parts.”
“The larger asset managers will also eventually come, but to get them involved, you need better infrastructure--and you also need more use cases, and I think you need more scalable protocols and mass adoption.”
“But that’s what’s exciting about this upcoming tech wave,” he said. “I think they have a lot of the distribution mechanisms to really help that.”
This was an excerpt. To hear the rest of Finance Magnates’ interview with Marc Bhargava, please visit us on Soundcloud or Youtube.
A month after the United State’s Securities and Exchange Commission’s decision to deny Bitwise Asset Management’s application for a Bitcoin ETF, the industry is once again faced with the question of what needs to be built in order for institutional capital to move more seriously into the space.
However, there are a growing number of companies that are working to identify what’s missing from crypto and to build the platforms that the industry needs to flourish as an institutional investment class.
Recently, Finance Magnates spoke to Marc Bhargava, co-founder and President of New Jersey-based electronic agency prime brokerage Tagomi, a company that’s been working to create institutional-grade brokerage services within the cryptocurrency industry since January of 2018.
Since its inception, the company has expanded into several cities across the country and in the UK, and has formed partnerships with some major players within the space, including ICE’s Bakkt and Binance. Tagomi was also recently granted a BitLicense from the New York Department of Financial Services.
Marc spoke with us about the history of the young company, as well as plans for the future and predictions of what’s coming next for crypto.
The following is an excerpt. To hear the rest of Finance Magnates’ interview with Marc Bhargava, please visit us on Soundcloud or Youtube.
The making of Tagomi
Despite the fact that Tagomi is less than two years old, the company has already put down roots in several cities across the United States as well as overseas.
“We have 20 people, [and] we’re primarily in New York and New Jersey, but we have offices in Chicago,” where the company’s COO and Director of Engineering are based, as well as an office in San Francisco, where the company’s front-end and design team members are.
Tagomi also has “a few folks out in London as well,” which Marc says is because “we’re now trading 24-7.”
Marc explained that the company was first conceived after in 2017, he began “hearing a lot of folks in the market asking for an institutional platform to trade crypto. Retail investors had their exchanges; they had the Coinbases or Binances or Krakens of the world."
“But someone looking to do larger trades and wanting to do them electronically rather than calling an OTC, wanting to use more advanced algo types, wanting to do things like lending and shorting--and most importantly, wanting it done on an agency basis (meaning wanting someone to execute these trades and then post trade reports and show them how they did it in the best possible way for them--none of [those features] really existed, because it was a really nascent market.”
Co-CEO @GregTusar at the Multicoin Summit explaining the parallels between crypto market structure today and the evolution of other asset classes: https://t.co/fPvYlMib7p
Thanks for a great panel @TusharJain_ @multicoincap
— Tagomi (@tagomisystems) May 20, 2019
Bhargava said that his co-founder, Jennifer Campbell (who was at Union Square Ventures at the time) “were looking for this company for a year--[this company] that could be a more institutional Prime Broker
Prime Broker
Prime brokers are the designation given to individuals handling a package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds which need the ability to borrow securities and cash in order to be able to invest on a netted basis and achieve an absolute return.There are two types of prime brokers - bank and non-bank corporations. Traditionally major global investment banks have been the predominant players in the space, however recent years have proven that there is space for non-bank liquidity providers that sometimes can deliver a better service than traditional financial institutions.Prime brokers are earning on commissions, spreads and overnight margin lending. Brokers which are operating STP flows in sufficient size are the main contenders to have a direct relationship with a prime broker, while smaller firms are relying on prime of primes to access a pool of prime brokers.What Roles Do Prime Brokers Perform?Prime brokers are responsible for a wide range of services, which typically include global custody such as clearing, custody, and asset servicing. Additionally, these individuals are also tasked with securities lending and financing, in a bid to facilitate leverage of client assets.The individuals can also provide hedge fund managers with portfolio reporting needed to effectively manage money as well as operational support. Prime brokers act as a hedge fund's primary operations contact with all other broker dealers.Finally, many prime brokers also look to provide additional value-added services, such as risk management and capital introduction.Of note, larger prime brokerage firms today usually monitor the risk within client portfolios through house-designed risk-based margin methodologies. These are helpful in considering the worst-case loss of a portfolio based on liquidity, concentration, ownership, macroeconomic, investing strategies, and other risks of the portfolio.
Prime brokers are the designation given to individuals handling a package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds which need the ability to borrow securities and cash in order to be able to invest on a netted basis and achieve an absolute return.There are two types of prime brokers - bank and non-bank corporations. Traditionally major global investment banks have been the predominant players in the space, however recent years have proven that there is space for non-bank liquidity providers that sometimes can deliver a better service than traditional financial institutions.Prime brokers are earning on commissions, spreads and overnight margin lending. Brokers which are operating STP flows in sufficient size are the main contenders to have a direct relationship with a prime broker, while smaller firms are relying on prime of primes to access a pool of prime brokers.What Roles Do Prime Brokers Perform?Prime brokers are responsible for a wide range of services, which typically include global custody such as clearing, custody, and asset servicing. Additionally, these individuals are also tasked with securities lending and financing, in a bid to facilitate leverage of client assets.The individuals can also provide hedge fund managers with portfolio reporting needed to effectively manage money as well as operational support. Prime brokers act as a hedge fund's primary operations contact with all other broker dealers.Finally, many prime brokers also look to provide additional value-added services, such as risk management and capital introduction.Of note, larger prime brokerage firms today usually monitor the risk within client portfolios through house-designed risk-based margin methodologies. These are helpful in considering the worst-case loss of a portfolio based on liquidity, concentration, ownership, macroeconomic, investing strategies, and other risks of the portfolio.
Read this Term service that was both electronic and was agency-based, and we didn’t find anyone that was really compelling. It was only when we found our co-founder Greg Tusar that the three of us decided to team up and start it in January 2018.” Tusar was previously a senior partner of electronic trading at Goldman Sachs for 13 years.
The cryptocurrency industry is open to legislative guidance - Tagomi CEO @jml_campbell sat down with @JeffKauflin from Forbes to discuss:https://t.co/O3e5PrdW3n
— Tagomi (@tagomisystems) August 1, 2019
After Bhargava teamed up with Tuscar and Campbell, the three of them “raised our first round from Peter Thiel’s founders' fund, and in 2018, really built out the team and product.” Tagomi’s services began to go public at the end of that year and throughout the first half of 2019.
What does Tagomi do?
One of Tagomi’s primary product offerings is something that the company calls Best Execution Trading. “What that means is that if you came to us with a million dollars, we would break that up into many small pieces and smart route it across ten market makers and exchanges where Tagomi has accounts.
“So, instead of you having to open up accounts on all of these exchanges and develop market-maker relationships, Tagomi already has that...so you can come just to Tagomi and do that $1 million trade, and it’ll get executed across 14 Liquidity
Liquidity
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock's liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset.
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock's liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset.
Read this Term sources.”
Marc added that Tagomi’s service also results in a better price for users wishing to execute large trades: “we’ll route to wherever the price is best, [and] if it’s a very large trade and it can move the market, it’s also obviously helpful to spread it across [multiple] liquidity sources, and even to use things like [algorithmic trading]--we’ve done some very large orders [that are executed] over hours or even days.”
https://t.co/AZwoBOy3iq Partners With Crypto Brokerage @tagomisystems To Offer Institutional Liquidityhttps://t.co/OqdJbSOiz3 pic.twitter.com/B6Zdak8mVo
— Binance.US (@BinanceAmerica) November 21, 2019
“So, that’s the concept of Best Execution--we’re not the other side of the trade. We’re not holding Bitcoin on our balance sheet to sell to you and mark it up and chat with you over the phone--we are here to use technology to help you do larger trades with better execution, and for every trade, we’ll give you a trade report showing exactly how we did that trade.”
Marc continued to explain that this is something that could potentially be used to build out the cryptocurrency ecosystem more broadly: “folks like Bitwise, for example--they’re working to be an ETF. In the ETF world, it’s a requirement to have best trade execution and that you work with an authorized participant.”
Therefore, he said that this is why companies like Bitwise use Tagomi’s services. “So do the crypto funds, and their limited partners, who get lower fees because they’re using our technology.”
“We’re very focused on being a prime broker”
And Tagomi is committed to staying on the “service” side of the industry rather than offering Bitcoin or other crypto trading options. “We’re very focused on being a prime broker,” Marc said.
In addition to best execution, Marc said that Tagomi also helps clients integrate with custodians. One recent example of this was Tagomi’s presence as one of the first three clients on Bakkt’s custody product. He added that on the custody side of things, Tagomi also works with Coinbase, Bitgo, and Gemini, among others.
The company has also begun offering a service that allows its customers to “lend out” their digital assets and to use margin to buy more of them. “With folks lending and borrowing on the platform to facilitate shorts as well, it’s really the full functionality of prime brokerage.”
Excited to work with this talented team! https://t.co/6g6scIYsxs
— Tagomi (@tagomisystems) November 12, 2019
Marc explained that in this way, Tagomi has been built to be the company that his team believed to be absent from the cryptocurrency industry: “this full prime brokerage function we’ve really seen missing from the space, especially on a more agency basis or a more technology basis.”
“It’s generally bespoke things that people might do over the phone with higher markups and things like that--and we’re looking to really change that and [make crypto] look a lot more like equities.”
Potential in Asia
Marc told FM that Tagomi eventually has plans to expand further into Asian markets.
“A market that is really interesting for us, where we get a lot of inbound interest (and probably haven’t serviced it as well as we should to date) is what’s going on in Asia.”
Specifically, “for us, Hong Kong and Singapore make a lot of sense--you have people from New York or from London that have opened up trading shops there; they have very similar demands as our clients in the west, so they’ve been kind of our ‘sweet spot.’”
“But if you expand outside of that,” Marc continued, “Japan and Korea both have a very strong crypto retail presence, and increasingly in Japan you’re seeing a little more FX to crypto; in Southeast Asia you’re seeing stablecoin adoption growing, and a whole layer of payment providers using stablecoins out there.”
“And then in mainland China, you’ve seen a lot of the mining industry, but also three of the world’s largest exchanges that also run large OTC shops. And, recently, with the president’s comment...there are effects coming out of that as well.”
Institutional capital has hit crypto in several “waves”
We asked Marc about what seems to be the most popular narrative within the cryptocurrency industry surrounding institutional capital--that there’s a “wave” of institutional capital that’s just waiting around the corner for when the industry has built the right products.
Speaking from the perspective of a company that has worked with institutional investors, Marc said that “it’s come in different waves, and certain things have been different from what we expected.”
A number of crypto heavyweights @nic__carter, @fundstrat and Marc from Tagomi in the room on @compoundfinance Thesis II mini conference. pic.twitter.com/F9NyQk93ys
— Arthur (@Arthur_0x) October 28, 2019
“The first wave,” which started in 2017 and grew in 2018, “was crypto funds and index products. So I think you still see a lot of family offices or endowments or others not directly buying Bitcoin, but investing in funds. If you look at a crypto fund like paradigm, it has Sequoia in it, it has Yale’s endowment in it--it has a whole slew of family offices and endowments.”
“And so, you know--you haven’t seen a lot of the direct investing there, but you do see this growing group of crypto funds in addition to Paradigm,” including Paradigm, Multicoin, and Polychain. “Many people are investing through the crypto funds, and I think that’s part of the first wave, [in addition] to the index products like Bitwise.”
“The second wave,” which Marc believes started in 2019, has a lot more to do with “quant funds--the ability to go both go long and go short.” This also includes “lending markets and the ability to borrow.”
Marc has also observed “a lot of market makers enter to provide more liquidity on exchanges--really large market-making shops in Chicago and New York and globally.”
A wave of “big tech” is headed for crypto in 2020
In 2020, Marc predicts that the next rush of institutional capital into crypto will come from a “big tech wave,” which includes Facebook.
“We were expecting maybe Morgan Stanley or Goldman or JPMorgan to be more involved in crypto in 2017 when we were talking about when the institutions [would be] coming. But we’ve seen now some of the world’s largest institutions at least stake a claim and say that they’re coming--Facebook is a huge example of that, but there’s also Square and SoFi, and others as well.”
“So, I think that this next 2020 wave of ‘institutional’ investors is really these large tech firms,” he said. “And I think that down the road, you definitely will see more from the traditional asset managers--right now, we see more of the family offices who have broader discretionary ability to invest in things, or funds that are primarily hedge funds run by a couple parts.”
“The larger asset managers will also eventually come, but to get them involved, you need better infrastructure--and you also need more use cases, and I think you need more scalable protocols and mass adoption.”
“But that’s what’s exciting about this upcoming tech wave,” he said. “I think they have a lot of the distribution mechanisms to really help that.”
This was an excerpt. To hear the rest of Finance Magnates’ interview with Marc Bhargava, please visit us on Soundcloud or Youtube.