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Wall Street Investment Firms Can’t Resist Bitcoin

Last Updated March 4, 2021 4:43 PM
Lester Coleman
Last Updated March 4, 2021 4:43 PM

Wall Street trading firms are a cautious lot, but they can’t keep their eyes off of bitcoin. Big trading and investment houses don’t want to miss out on possible profit opportunities as bitcoin continues to grow.

More of the big proprietary trading firms are dipping their feet into bitcoin, thanks to the profit opportunity it can offer and its ability to streamline transactions, according to an article  in The Wall Street Journal. The growing interest of Wall Street trading and investment firms serves to raise Bitcoin’s profile in the investment community and the economy at large.

“Their involvement could help reduce the volatility in the market for bitcoin, which has struggled to gain legitimacy in part because of concerns about wild swings in its price.”

More trading and investment firms are using bitcoin for trades.

More traders enter the fray

DRW Holdings LLC, a Chicago-based trading firm, is a founding investor in Digital Asset Holdings that launched last month.

Cumberland Mining & Materials LLC, a DRW subsidiary, has begun to experiment with cryptocurrency trading.

Citadel Securities LLC in Chicago and KCG Holdings Inc. in Jersey City, N.J. were among the firms that offered to buy shares of the Bitcoin Investment Trust (BIT) which listed last month on OTC Markets. OTC Markets serves as a trading platform for companies that are less regulated than stocks listed on stock exchanges. BIT holds bitcoin in a fund that issues shares to SEC-accredited investors.

Wedbush Industries, a Los Angeles-based investment bank, also sought shares in BIT, which it sees as a good place to get started with bitcoin, a company spokesperson said.

Some traders await regulatory input

Global Trading Systems Inc. in New York is looking at trading bitcoin but is waiting for input from regulators. Ari Rubinstein, the co-founder, said the company is still weighing the risks of being active with bitcoin.

SecondMarket Inc., a New York broker/dealer, has traded alternative securities and launched BIT in 2013. The company has traded almost 800,000 bitcoins valued at more than $300 million since its inception.

Bitcoin is accepted by an estimated 100,000 merchants worldwide. In addition, investment in bitcoin and digital currency-based businesses has increased in recent months, reflecting interest by venture capitalists and other investors in non-currency uses for the technology that underlies bitcoin.

Some of the recent bitcoin investment activity is designed to remove middlemen from the financial system and enhance record-keeping and transparency in the broader economy.

Traders face challenges

Bitcoin can be challenging to trade due to the low number of buyers and sellers at exchanges. Some executives at the exchanges have sought to persuade high-frequency trading firms to establish markets in bitcoin.

In market trading, a firm offers both bids and offers for assets, so investors have a willing party to trade with. The trading firm tries to capture the spread between the bids and offers.

For trading firms to be more active trading bitcoins directly on a large scale, the bitcoin landscape will need to evolve. Charles Cascarilla, CEO of ItBit Pte. Ltd., a bitcoin exchange, said regulatory certainty will help.

Images from Shutterstock.