High Frequency Trading Firms Have 'Highest Bitcoin Affinity', Analyst Argues

Su Zhu, the co-founder of Sensus Markets, a digital asset principal trading firm, has argued that companies focused on high-frequency trading (HFT), small family investment offices, and hedge funds have the “highest Bitcoin affinity.”

Zhu, who is also the CEO of Three Arrows Capital, a foreign exchange (FX) focused hedge fund, posted (via Twitter) a “ranking of Bitcoin affinity in the traditional financial space, from highest to lowest:”

  • “HFT/prop firms”,
  • “Service providers”,
  • “Family offices”,
  • “Hedge funds”,
  • “Stock/futures exchanges”,
  • “Private banks”,
  • “Commercial banks”,
  • “Investment banks”,
  • “Academia.”

The Role Of "Incentives And Philosophy"

According to Zhu, “incentives and philosophy play a big role” in influencing the decisions and overall approach organizations take towards adopting new technologies - including Bitcoin (BTC) and other cryptocurrencies.

In response to Zhu’s comments, Gabor Gurbacs, the digital asset strategist and director at VanEck, a New York-based financial services firm, remarked (via Twitter):

Asset managers are missing from the list. I’d highlight that banks and asset managers would be higher on the list if the regulatory environment was more permissive. Today, the least regulated entities are on the top of the list and most regulated on the bottom.

According to Gurbacs: “Academia is confused which side to support. (traditional vs crypto) Eventually, they will support whoever pays more to the universities. It’s an incentive question to academia, as it has been for too long.”

Top Universities Invest Small Amounts In Crypto

On February 19th, 2019, the University of Michigan announced that it had decided to invest more in cryptoasset-related funds. Backed by leading venture capital firm, Andreessen Horowitz, University of Michigan’s initial $3 million investment in a crypto network fund called CNK Fund I L.P. has now been increased.

Although the University of Michigan may have invested a substantial amount in cryptos, the (total) value of its financial endowment fund is estimated at over $11.9 billion. Clearly, crypto investments still make a very small percentage of the University of Michigan’s total assets. Moreover, Yale University has also invested in Andreessen Horowitz’s $300 million crypto fund. However, cryptos also make up a relatively small percentage of Yale University’s $25.4 billion endowment fund.

On February 24th, Gurbacs recommended to his followers (via Twitter): 

If you are chasing the price of #bitcoin, you are in it for the wrong reason and you probably shouldn’t own any #BTC. I highlight a few attributes of #Bitcoin that are far more important than price. (especially if you have low time preference)


Overstock CEO Sells Shares in His Company to Invest in Blockchain Projects

Patrick Byrne, the chief executive officer of Overstock.com (OSTK), has recently lashed out at investors who questioned his sale of 900,000 of his ‘founders shares’ in the company. Justifying his move, he revealed he needed the funds to invest in blockchain projects.

According to Business Insider, Byrne recently sent a letter to shareholders after the company’s stock prices plunged over 21% this week to their lowest since 2012, after he revealed he sold 500,000 of his shares earlier this week.

On Friday, the CEO revealed he sold an additional 400,000 shares, meaning he sold over 15% of his stake in the company. Although Overstock’s shares recovered on Friday, May 17, Byrne’s letter to shareholders was notable. In it, he wrote:

I simply had to supplement my nominal salary with stock sales in order to fulfill personal commitments to invest personally in blockchain projects such as Medici Land Governance, along with a need to meet charitable pledges.

The CEO added that he doesn’t plan on giving such an explanation again, justifying that he owes shareholders “staying within the law and not making decisions based on inside information, not explanations of my life and projects outside Overstock.”

He noted that the “unanticipated stir” caused by his sale was unexpected, and added “I had no idea that shareholders would demand explanations of why and how I might want to use my cash derived from my labor and my property to pursue my ends in life.”

Byrne is notably Overstock’s largest shareholder, and noted he told investors a year ago he would be making “significant sales” to fund different projects, including those related to blockchain technologies and, presumably, cryptocurrencies.

In fact, the libertarian sold 775,000 of his shares in September of last year, before this week’s sale. The stock’s price has fallen roughly 90% from its record high in January of 2018, when Overstock was benefitting from its cryptocurrency ventures and accompanying the cryptocurrency market’s performance.

In November of last year, Byrne revealed he had plans to sell Overstock’s retail business and go “all-in” on cryptocurrencies and blockchain technology. The CEO’s plan would see the company focus on its fully-owned subsidiary Medici Ventures, which has been invested in blockchain-related startups, after selling its retail business.

Overstock's price performance over the last two yearsSource: Yahoo Finance

Byrne has notably been battling short sellers targeting Overstock, as the firm competes with the likes of eBay and Amazon. Financial analytics firm S3 Partners has estimated short bets against it stand at $157 million, or 50% of its float. This makes it more targeted by short sellers than 99% of companies in the U.S.

Despite the company’s performance on exchanges, Overstock has since launched its tZERO security trading platform, and was one of the first companies to pay a “portion” of its taxes using bitcoin in Ohio.