XBTO
XBTO has been growing rapidly from a liquidity provider to a global crypto finance company. It offers the full range of trading and investment solutions aimed at institutional investors, including platform trading, over-the-counter (OTC) trading, asset management, venture capital (VC), and crypto mining.
The ambition to make the crypto industry a more secure and welcoming environment is driving XBTO’s efforts to increase its global presence and further diversify its portfolio of products and services while focusing on the entire vertical of how Bitcoin and digital assets integrate with society, governments, and banks.
The rapid growth of XBTO reflects, to a certain degree, the expansion of the blockchain and digital currency market across all regions and demographics. To meet the growing demand for reliable crypto solutions in an ever-changing industry, XBTO relies on a rigid set of principles and a talented team with extensive experience in trading and finance and has built its reputation over the years by meeting the growing demand for reliable crypto solutions in an ever-changing industry.
Here is the XBTO story – below we briefly outline the past, present, and future of a leader in crypto finance.
How XBTO started
The crypto industry began to emerge about a decade ago, and in the first years, it was all about Bitcoin, which consistently accounted for over 90% of the market up until 2014. Philippe Bekhazi, founder and CEO of XBTO, began studying Bitcoin about two years after the mysterious creator released the whitepaper discussing “a peer-to-peer electronic cash system.”
Bekhazi soon realized that ongoing liquidity was required by the nascent industry in order for the market to maintain some degree of stability. His experience in derivatives trading and traditional banking provided the necessary knowhow to develop a platform that would become a market maker to some of the largest cryptocurrency exchanges, which serve as the main points of contact between crypto buyers and sellers.
Philippe Bekhazi first ideated XBTO in 2013, and the company officially came to life in 2015, with the founding team comprising Bekhazi, Walton Comer, CIO, and Richad Idris, CTO.
Initially, the company was branded “XBT Opps”, named after Bitcoin’s original ticker, XBT, and ‘opportunities’.
Bekhazi had experienced firsthand how the high volatility on crypto exchanges was negatively impacting the adoption of Bitcoin and directly impairing its utility. He found that a large Bitcoin transaction on a crypto exchange would create massive slippage, driving the price significantly higher or lower. XBTO offered a solution to the exchange liquidity issues, and since then it has become one of the most trusted market makers in the industry.
Thus, XBTO started by addressing one specific issue: the lack of liquidity. In the first years of crypto adoption, there was not enough liquidity to make the promise of cryptocurrency possible.
As Bekhazi points out, there are two things that make cryptocurrencies valuable – one is the security of blockchains, and the second one is having sufficient liquidity to provide transaction value. While it is the job of developers to build decentralized networks with resilient consensus mechanisms and error-free codes, XBTO has constantly made sure that the digital currency market has no shortage of counterparty liquidity.
XBTO serves institutional clients but has had a particularly positive impact on retail trading by improving the broader trading ecosystem. Thanks to XBTO’s services, built upon proprietary technologies and unmatched expertise, crypto exchanges have managed to reduce price volatility and offer better spreads to their customers. One of the first clients of XBTO was Coinsetter, which was later acquired by Kraken. The company quickly rose to the position of a leading market maker, providing liquidity to some of the largest exchanges.
The overall liquidity of an emerging market directly impacts its growth potential. Market makers like XBTO have played a major role in making digital assets more accessible worldwide.
Crypto exchanges relying on XBTO’s market-making services have had the edge over competitors thanks to the following benefits:
- Better order book depth and greater liquidity;
- Lower price volatility of Bitcoin and altcoins traded on the exchange;
- Lower bid-ask spreads;
- Fair price discovery;
- Reduced price slippage;
- Timely entry and exits for institutional and retail traders;
XBTO initially focused on spot exchanges. It eventually started to serve futures and options exchanges as well.
XBTO emerges as leader in crypto finance
Six years ago, the team was comprised of only three people and acted exclusively as a market maker. Today, XBTO is an established leader in crypto finance and offers a diversified range of solutions, including platform trading, over-the-counter (OTC) trading, asset management, venture capital (VC), stablecoin operations, crypto mining, and blockchain consulting, among others.
One of the pivotal events in the company’s growth was the appointment of Greg Carson as Head of Corporate Development in 2018. He helped XBTO turn its solid reputation into an entire brand strategy. The company started to add new layers and expand quickly to the point where XBTO is universally recognized as one of the leading players in the crypto industry.
XBTO has become the leader in the almost-elite layer of institutional Bitcoin trading. Although the company is still not as large as some, handling hundreds of billions of dollars in assets, it already plays a major role in the industry, offering a very efficient focus on derivatives, alternative investing, and algorithmic trading.
The end goal of XBTO is the democratization of money. The company has been following this objective by promoting a diverse portfolio of services, which include but are not limited to:
Market making, OTC and block trading – XBTO employs advanced technology and proprietary algorithms to trade cryptocurrencies and crypto derivatives, including futures and options. The company is active in platform trading and over-the-counter (OTC) trading. It has the expertise, technology, and resources to settle trades quickly and efficiently.
Back in 2019, XBTO and crypto fund Galaxy Digital carried out the first-ever block trade of a Bitcoin futures contract on Bakkt, the Bitcoin futures platform launched by NYSE parent Intercontinental Exchange (ICE). This was the first instance of physical delivery of a digital asset under existing US commodity futures laws and regulations.
Earlier in 2021, the Chicago Mercantile Exchange (CME) launched its “Micro Bitcoin” futures product in collaboration with XBTO, and at the beginning of May, brokerage firm ED&F Man Capital Markets executed the first block trade of 140 lots for XBTO and Genesis Trading.
Thus, besides providing liquidity to spot exchanges, XBTO has been at the forefront of derivatives trading, doing business with reputable names like Bakkt and CME.
Asset Management – XBTO Capital provides asset management services to institutions and high-net-worth individuals (HNWIs). The investment products are customized to meet their specific needs.
According to the latest World Wealth Report by Capgemini, 72% of surveyed HNWIs have invested in cryptocurrencies. The trend has accelerated amid the central banks’ ongoing ultra-easy monetary policies that intensify inflationary pressures, leading to the devaluation of national currencies.
Venture Capital – XBTO Ventures, LLC is an early-stage investor in blockchain and crypto startups. As a rule, the company makes strategic minority investments in seed and Series A rounds. In parallel, the company has developed XBTO Humla Ventures Fund, which enables accredited investors to get exposure to crypto and blockchain’s most transformative trends.
While XBTO Ventures has used internal capital and partners’ money, more institutions and private investors like family offices and HNWIs showed an increased interest in XBTO’s potential. To meet this demand, the company decided to create Humla, which is taking a lot of what XBTO has done with its corporate venture fund and making it available to investors from anywhere in the world.
Humla is helping investors from traditional finance deploy their money efficiently in the crypto space. Through the new venture fund, XBTO is accompanying investors in their journey of taking opportunities in the promises of blockchain and cryptos. Humla has already invested in crypto projects with disruptive potential, including Deribit, Unocoin, Synthetix, Paradigm, Xmargin, Valkyrie, Lukka to name a few.
Mining – XBTO operates a major crypto mining facility in New York. The company is using renewable energy in the form of hydropower from Niagara Falls.
In addition to the mentioned services, XBTO is a proud supporter of projects like Stablehouse, a stablecoin platform that offers custody, exchange, payment, and earning products. This regulated venture is aimed at institutional investors and offers high yield savings that enable users to earn up to 12% on their stablecoin deposits.
Today, XBTO offers global access to crypto finance through its wide range of services. As fintech entrepreneurs and investors, the team constantly unlocks new opportunities by anticipating the rapidly changing needs of the industry.
Besides its business operations, XBTO puts a great emphasis on promoting digital assets through educational and networking initiatives and encouraging access to accurate information. For example, the company is sponsoring Summer of Bitcoin, is a main sponsor of the Bitcoin Conference, and has partnered with Bitcoin Magazine.
XBTO Tomorrow: Pursuing the Vision of Democratic Money and Accessible Digital Assets
The future of XBTO is bright – the company will continue to play a key role in making the crypto space a better place for investors and consumers.
XBTO has very high standards on operations and how it grows the team. It is constantly refining offerings to maintain its position as the leader in crypto finance. That means the company aims to become the best trader, investor, and asset manager by deploying capital into the most important rails of Bitcoin and blockchain – the things that make digital assets have real utility.
In only six years, XBTO has managed to expand its business at an impressive pace, although this is not unusual by crypto standards. XBTO’s management aims to grow the business proportionally with the sector. Today, XBTO has offices in New York, Paris, Bermuda, and Miami, and it plans to expand its market presence further.
So far, the company doesn’t provide any products to retail investors, but this will change in the coming years, as the team becomes more comfortable protecting them from the inherent risks that still persist in the crypto space.
XBTO is going to have a truly global presence sooner than later, due to its ongoing effort to act as an innovator and expand its already massive amount of assets under management.
By cultivating the team to a high standard of success, XBTO aims to become a dominant force in the crypto industry while preserving the promise of decentralization.
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The full breakdown
In our first article, "Navigating Crypto Volatility: The Advantages of Active Management," we explored how the high volatility and low correlation of digital assets with traditional asset classes create unique opportunities for active managers. We discussed how these characteristics enable active managers to execute tactical trading strategies, capitalizing on short-term price movements and market inefficiencies. Building on that foundation, we now turn our attention to the unique market microstructure of digital assets.
Conducive market microstructure of digital assets
The market microstructure of digital assets - a framework that defines how crypto trades are conducted, including order execution, price formation, and market interactions - sets the stage for active management to thrive. This unique ecosystem, characterized by its continuous trading hours, diverse trading venues, and substantial market liquidity, offers several advantages for active management, providing a fertile ground for sophisticated investment strategies.
24/7/365 market access
One of the defining characteristics of digital asset markets is their continuous, round-the-clock operation.
Unlike traditional financial markets that operate within specific hours, cryptocurrency markets are open 24 hours a day, seven days a week, all year round. This continuous trading capability is particularly advantageous for active managers for several reasons:
- Immediate response to market events: Unlike traditional markets that close after regular trading hours, digital asset markets allow managers to react immediately to breaking news or events that could impact asset prices. For instance, if a significant economic policy change occurs over the weekend, managers can adjust their positions in real-time without waiting for markets to open.
- Managing volatility: Continuous trading provides more opportunities to capitalize on price movements and volatility. Active managers can take advantage of this by implementing strategies such as short-term trading or hedging to mitigate risks and lock in gains whenever market conditions change. For instance, if there’s a sudden drop in the price of Bitcoin, managers can quickly sell their holdings to minimize losses or buy in to capitalize on the lower prices.
Variety of trading venues
The proliferation and variety of trading venues is another crucial element of the digital asset market structure. The extensive landscape of over 200 centralized exchanges (CEX) and more than 500 decentralized exchanges (DEX) offers a wide array of platforms for cryptocurrency trading. This diversity is beneficial for active managers in several ways:
- Risk management and diversification: By spreading trades across various exchanges, active managers can mitigate counterparty risk associated with any single platform. Additionally, the ability to trade on both CEX and DEX platforms allows managers to diversify their strategies, incorporating different levels of decentralization, regulatory environments, and security features.
- Arbitrage opportunities: Different venues often exhibit price discrepancies, presenting arbitrage opportunities. For example, managers can buy an asset on one exchange at a lower price and sell it on another where the price is higher, thus generating risk-free profits.
- Access to diverse liquidity pools: Multiple trading venues provide access to diverse liquidity pools, ensuring that managers can execute large trades without significantly impacting the market price.
Spot and derivatives markets (Variety of instruments)
The seamless integration of spot and derivatives markets within the digital asset space presents a considerable advantage for active managers. With substantial liquidity in both markets, they can implement sophisticated trading strategies and manage risk more effectively.
For instance, as of August 8 2024, Bitcoin (BTC) boasts a daily spot trading volume of $40.44 billion and an open interest in futures of $27.75 billion. Additionally, derivatives such as futures, options, and perpetual contracts enable managers to hedge positions, leverage trades, and employ complex strategies that can amplify returns.
Overall, the benefits for active managers include:
- Hedging and risk management: Derivatives offer a powerful tool for hedging against unfavorable price movements, enabling more efficient risk management. For instance, a manager holding a substantial amount of Bitcoin in the spot market can use Bitcoin futures contracts to safeguard against potential price drops, thereby enhancing risk control.
- Access to leverage: Managers can use derivatives to leverage their positions, amplifying potential returns while maintaining control over risk exposure. For instance, by employing options, a manager can gain exposure to an underlying asset with only a fraction of the capital needed for a direct spot purchase, thereby enabling more capital-efficient investment strategies.
- Strategic flexibility: By integrating spot and derivatives markets, managers can implement sophisticated strategies designed to capitalize on diverse market conditions. For instance, they may engage in volatility selling, where options are sold to generate income from market volatility, regardless of price direction. Additionally, managers can leverage favorable funding rates in perpetual futures markets to enhance yield generation. Basis trading, another strategy, involves taking offsetting positions in spot and futures markets to profit from price differentials, enabling returns that are independent of market movements.
Exploiting market inefficiencies
Digital asset markets, being relatively nascent, are less efficient compared to traditional financial markets. These inefficiencies arise from various factors, including regulatory differences, market segmentation, and varying levels of market maturity. For example:
- Pricing anomalies: Phenomena like the "Kimchi premium," where cryptocurrency prices in South Korea trade at a premium compared to other markets, create arbitrage opportunities. Managers can exploit these by buying assets in one market and selling them in another at a higher price.
- Exploiting mispricings: Active managers can identify and capitalize on mispricings caused by market inefficiencies, using strategies such as statistical arbitrage and mean reversion.
The unique aspects of the digital asset market structure create an exceptionally conducive environment for active management. Continuous trading hours and diverse venues provide the flexibility to react quickly to market changes, ensuring timely execution of trades. The availability of both spot and derivatives markets supports a wide range of sophisticated trading strategies, from hedging to leveraging positions. Market inefficiencies and pricing anomalies offer numerous opportunities for generating alpha, making active management particularly effective in the digital asset space. Furthermore, the ability to hedge and manage risk through derivatives, along with exploiting uncorrelated performance, enhances portfolio resilience and stability.
In our next article, we'll delve into the various techniques active managers employ in the digital asset markets, showcasing real-world use cases.
