Markets
Crossover Markets Believes in ECN Model for Cryptocurrencies
Crossover Markets was named with the intention of bringing the experience of traditional finance to cryptocurrency and eventually providing the cryptocurrency experience in TradFi, such as 27/7 trading. The company launched CROSSx which it claimed was the first execution-only crypto electronic communications network (ECN) for institutional participants and raised $12 million in funding in June this year.
Brandon Mulvihill, co-founder and CEO of Crossover Markets, told Markets Media: “We were the first ECN in the cryptocurrency industry.”
He described the model of other cryptocurrency exchanges as client-facing brokers with a captive business model, meaning that if investors open an account with an exchange, they must buy and sell through that venue.
Brandon Mulvihill, crossover markets
“That model is very valid in retail and for small to medium-sized institutions, because the customer is looking for simplicity,” Mulvihill added. “When you look under the hood, crypto exchanges are actually involved in selling a bunch of ancillary benefits like custody or staking protocols.”
However, in the institutional space, there is the concept of fungibility, whereby you can buy an asset from counterparty A, sell it to counterparty B, and have a fixed net position, which reduces the cost of trading.
“We can bring best practices from equities and FX to crypto with an ECN,” Mulvihill said. “CROSSx is not a counterparty to trades and does not hold assets or coins.”
The Crossover team has specific expertise in trading micro-market structures. Mulvihill was previously global head of prime FX brokerage at Jefferies and a former executive at FXCM. Vladislav Rysin, co-founder and head of technology at Crossover Markets, has built, operated and sold venues across multiple asset classes, including FastMatch for foreign exchange, which was sold to Euronext for nearly $200 million.
One of the advantages of CROSSx, according to Mulvihill, is that it does not have a central limit order book with a single liquidity pool. Instead, the ECN uses quote-based matching technology, where all maker and taker interactions are customized based on the flow characteristics and unique liquidity needs.
“The complexity increases exponentially and the barrier to entry is extraordinarily high,” he added. “We also remove the conflict of interest from the central limit order model, as we have different specifications for market makers and liquidity takers.”
Mulvihill said CROSSx is in the competition game, every second of every day, for institutional trades based on the cost of trading and the low latency of the venue. CROSSx executes 99% of trades between six and 11 microseconds, which he described as 30 to 50 times faster than most institutional cryptocurrency exchanges.
Investors also need a credit sponsor to access CROSSx, which is currently Hidden Road. Mulvihill acknowledged that the lack of prime brokers and credit intermediation is a problem in cryptocurrency, but argued that the ecosystem is in its infancy.
“Hidden Road has done a great job because they have implemented the FX prime brokerage model, which I think works better than the equity model,” he added.
According to Mulvihill, clients include market makers who use CROSSx to hedge precisely, hedge funds running electronic quantitative strategies, and retail brokers who want to get into the crypto spot market and really care about price.
“We’ve already seen a massive increase in institutional demand this year,” he added. “We’ve onboarded nearly 60 institutional clients and have another 60 in various stages of onboarding, which is ahead of schedule for us.”
Institutional interest has been spurred by the launch of spot bitcoin ETFs in January, particularly from traditional asset managers like BlackRock and trading platform Robinhood Markets, which acquired cryptocurrency exchange Bitstamp.
Crossover Markets said that in the first quarter it executed more than $3.15 billion in notional trading value, 415,450 trades and processed more than $141 billion quotes.
Data provider CCData said in a report that overall digital asset trading volumes declined for the third consecutive month in June.
Source: CCData
“In June, combined spot and derivatives trading volume on CEXs continued to decline; a trend that has been ongoing since March 24, when digital asset volumes hit an all-time high of $9.05 trillion,” CCData said. “Combined trading volume fell 21.8% to $4.22 trillion as major crypto assets including bitcoin and ethereum remained largely range-bound and posted major losses in June.”
Fundraiser
In June this year, Crossover Markets said in a statement that it had raised $12 million in its Series A funding round led by Illuminate Financial, the fintech venture capital firm, and DRW Venture Capital. They join strategic investors that include Flow Traders, Laser Digital, Two Sigma, Wintermute, and retail brokers such as Exness, Gate.io, GMO, Pepperstone, Trademax, and Think Markets.
Mark Beeston, Illuminate Financial
Mark Beeston, founder and managing partner of Illuminate Financial, said in a statement: “Crossover adds best-in-class execution capability to our portfolio, meeting both the immediate and long-term needs of financial institutions looking to trade digital assets with the low-latency, 24/7, future-proof infrastructure that traditional markets are increasingly moving towards.”
Beeston will join Crossover’s board of directors alongside Kevin Wolf, CFO of American Financial Exchange and former CEO of Euronext FX.
Mulvihill said the funds will be used to invest in technology and expand geographically, which will require capital for regulatory licensing.
“We were the first ECN in the cryptocurrency space and we want to increase the distance of our technical capacity compared to our rivals,” he added. “We believe we have come out of the MVP phase and have been able to demonstrate to the market that we are the fastest venue globally.”
CROSSx also intends to introduce advanced order types, such as flash or conditional orders, and increase the use of artificial intelligence.
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