TD Ameritrade, Trading Giant Virtu Invest in U.S. Cryptocurrency Exchange

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Retail brokerage giant TD Ameritrade and high-frequency trading firm Virtu Financial have invested in a cryptocurrency exchange that seeks to bridge the gap between Wall Street and the burgeoning cryptoasset ecosystem.

Futures Market Relaunches as Cryptocurrency Exchange

Originally launched as a traditional futures market in 2010, The Wall Street Journal reports that this exchange — ErisX — now intends to not only list cryptocurrency derivatives like bitcoin options and swaps but also the so-called “physical” cryptocurrencies themselves.

Initially, ErisX will list cryptocurrency derivatives, which are regulated financial instruments tied to the prices of the underlying assets. In addition to allowing investors to speculate on the future value of bitcoin and its peers, these products help sophisticated traders as well as cryptocurrency mining firms hedge against future price volatility.

However, the firm plans to launch a spot trading market as early as next year, at which point it will operate as a conventional cryptocurrency exchange and allow traders to directly exchange coins and tokens. Concurrently, ErisX says it will release physically-settled cryptocurrency futures contracts, meaning that — unlike with the bitcoin futures contracts currently available on CME and CBOE — contract owners will receive actual cryptocurrencies when the contracts expire, rather than cash.

“The traditional aspects of our market will create an environment that is open to a wide range of traders and intermediaries,” CEO Thomas Chippas told the publication.

TD Ameritrade, Virtu, & CBOE among Investors

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ErisX isn’t the first cryptocurrency exchange to launch with the explicit mission of luring Wall Street investors. However, its impressive stable of backers could give it a leg up on the competition.

Electronic brokerage giant TD Ameritrade, which currently has more than 11 million customers and $1.1 trillion in client assets, invested in the exchange, stating that the firm desired to provide consumers with the ability to invest in cryptocurrency on a regulated platform.

“We wanted to find something that brings cryptocurrency to customers where they can see it on an actual exchange, something they feel comfortable with in regulated space,” said J.B. Mackenzie, head of futures and foreign exchange trading at TD Ameritrade, in an interview with the publication.

ErisX has also received financial backing from Virtu Financial, one of the world’s largest high-frequency trading and market making firms with an estimated $1.2 billion in annual revenue.

Earlier this year, CCN reported that Virtu Financial CEO Douglas Cifu said during an earnings call that the trading firm would make markets on cryptocurrency exchanges once the asset class was more regulated.

“I don’t have to make a qualitative judgment about whether or not those are appropriate asset classes. It’s a new asset class, we’re excited about it,” he said. “If and when it becomes more regulated and centrally cleared, we’ll put a big toe in and all the little toes will follow and we’ll be a big market maker there.”

It’s not clear whether Virtu will make markets on ErisX.

Reuters reports that other investors include CBOE Global Markets — the operator of the first regulated U.S. exchange to list bitcoin futures contracts — and Digital Currency Group, Barry Silbert’s cryptoasset investment firm.

Even with support from firms such as TD Ameritrade and Virtu, ErisX will face stiff competition as it seeks to carve out market share. In addition to incumbent players such as LedgerX, the platform must contend with Bakkt, the ambitious bitcoin startup created by Intercontinental Exchange (ICE), the owner-operator of the New York Stock Exchange (NYSE). Bakkt, as CCN reported, will provide physical warehousing for cryptocurrency assets, as well as physically-settled bitcoin futures contracts. Over the long-term, ICE believes that Bakkt can help bitcoin potentially become the “first worldwide currency.”

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Josiah is an assistant editor at CCN. A former ancient and medieval literature teacher, he has been reporting on cryptocurrency since 2014. He lives in rural North Carolina with his wife and children. He holds investment positions in bitcoin and other large-cap cryptocurrencies. Follow him on Twitter @Y3llowb1ackbird or email him directly at josiah.wilmoth(at)ccn.com.