Trading Giant Virtu Financial Will Make Markets in ‘Physical Bitcoin’ Once It’s More Regulated

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High-frequency trading firm Virtu Financial plans to become a major market maker in the cryptocurrency spot markets once the asset class becomes more regulated, the firm said on Friday.

Virtu CEO Douglas Cifu made this revelation during a question-and-answer session at the end of the company’s first-quarter earnings call.

Responding to a question from a JPMorgan analyst inquiring whether the firm had launched “cyber currency trading,” Cifu clarified that the firm is a market maker in the nascent bitcoin futures markets but does not currently trade actual bitcoins, which are commonly referred to in the industry as “cash bitcoins” or by the even more ironic term “physical bitcoins.”

He said:

“We are a market maker in the CBOE and CME [bitcoin] futures markets. We do not currently make markets in any of the cyber cash markets, primarily because of our concern around risk management. In other words, our m.o. has always been to trade in transparent and regulated exchanges with centralized clearing or clearing through a prime broker. In ‘cash bitcoin’ and other cyber currencies that’s not currently available, so we have concerns around counterparty risk.”

“We’ve dipped a toe in but it’s a very, very small toe,” he added.

However, Cifu also said that, as a market maker, Virtu is agnostic about whether an asset class is “appropriate” and that the firm intends to engage directly in the spot cryptocurrency markets once the industry becomes 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.”

As CCN reported, major US investment bank Goldman Sachs confirmed earlier this week that it will launch a bitcoin trading operation. Initially, the firm will use its own funds to trade non-deliverable forwards — a type of futures contract — linked to the bitcoin price, but it also intends to seek regulatory approval to begin trading “physical bitcoins” as well.

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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.