Cryptocurrency price variations across different exchanges have significantly dropped in the last few months. The increased stability, according to one firm, is beneficial to the ecosystem and can be linked to institutional investors.
According to data from cryptocurrency trading technology firm SFOX, published by Business Insider, the drop-off in price variations across cryptocurrency exchanges is related to Wall Street firms entering the market. Danny Kim, head of growth at the firm, stated:
Before institutional firms were actively trading crypto or heavily involved (before 2018) bitcoin price differences between exchanges varied as high as 4.5%
Kim noted that prices differences are now of no more than one-tenth of one percent, a dramatic decrease. Per SFOX, this type of stability is crucial as it means more merchants will be comfortable accepting cryptocurrency payments, which would lead to wider adoption.
A number of Wall Street firms have in fact been entering the market. Earlier this month Goldman Sachs became the latest investment bank to explore a cryptocurrency custody service. The ICE, owner of the NYSE, partnered with Microsoft to launch a crypto platform called Bakkt.
Bakkt, as CryptoGlobe covered, is set to offer physically-settled bitcoin futures contracts and help merchants accept cryptocurrency payments. Its CEO, Kelly Loeffler, revealed the “buying and selling of bitcoin” will be “fully collateralized or pre-funded” on the platform.
According to a report published by Grayscale Investments, a subsidiary of Barry Silbert’s Digital Currency Group, there was a steady growth of net inflows into its funds in the first half of this year. Over half of these inflows, Business Insider noted, came from institutional investors.
Their entrance into the market, the news outlet added, has been facilitated by developments in trading technology. These help high-frequency trading firms (HFTs) improve their cryptocurrency-related efforts.
Per Kim, various HFT firms have been trading cryptocurrencies since 2014, but were limited by the existing infrastructure. He said:
Most if not all HFT firms require a FIX connection (an advanced type of connection to an exchange) at an exchange in order to trade efficiently. Crypto exchanges haven't offered FIX connectivity until recently.
The stabilizing effect Wall Street firms have on the market could be even bigger, according to SFOX, as cryptocurrency exchanges recently started offering traders colocation last year. Colocation, as Business Insider notes, is allowing traders to house their computers in the same building as the exchanges’ matching engines.
If the trend continues, Kim added, the effects could go beyond price spreads and involve cryptocurrency price fluctuations. He added:
Eventually, it could even come to the point where Bitcoin could come to resemble the stable coins people are looking to for payments and is used for Satoshi Nakamoto's original vision: a "Peer-to-Peer Electronic Cash System.
As CryptoGlobe covered, various analysts believe the cryptocurrency could be the future of money. Mark Yusko, a well-known hedge fund manager, recently slammed its critics and noted cryptos will be the “biggest asset” within the next decade.