Exclusive interview with Finery Markets CEO about PwC report on Crypto OTC
Finery Markets, a crypto native multi-dealer platform that enables institutions to access liquidity in the OTC market, has been making strides within the trading industry as market participants increasingly look to enter the digital asset space.
Live for over two years, the platform currently serves more than 70 active business entities which have partnered with Finery Markets for its tighter spreads, lower fees, and better quality of the service.
The cryptocurrency market is maturing, leading to ever-decreasing spreads due to deeper liquidity and institutional flows, and to the rise of over-the-counter trading, with more and more OTC desks popping up.
Finance Feeds has spoken with Finery Markets’ chief executive Konstantin Shulga about the new trends within the digital asset space amid the release of a study sponsored by Finery Markets.
Institutional Adoption of Crypto Is Growing. Which Tendencies Can We Observe Now?
Konstantin Shulga, CEO Finery Markets: According to a recent study we conducted with PWC Switzerland and The Alternative Investment Management Association (AIMA), traditional financial institutions are becoming more interested in digital assets and adapting their investment strategies. According to the survey data, the number of participants who entered the market in 2021 was comparable to the total of the previous three years.
Overall, the cryptocurrency market remains fragmented, forcing institutions to trade across 5-10 venues to achieve “best execution” through modern technologies and algorithms. We are also seeing an increase in interest in OTC trading, which is similar to an institutional FX trading model.
According to the survey, more than 65 percent of respondents are dissatisfied with their current setup. What can they do to change this?
Konstantin Shulga, CEO Finery Markets: The cryptocurrency market is quite fragmented. There are around 500 centralized exchanges and decentralized pools, according to Coinmarketcap. To get the best execution, a client must either perform their transaction cost analysis or use third-party software that identifies the best trade execution routes.
However, due to high fragmentation, Smart Order Routers (SORs) can cause significant slippage. Slippage is the difference between the expected price of a trade and the price at which it is executed.
One of the best ways to achieve “best execution” strategies is to work with a multi-dealer execution venue. These venues offer a single point of access to global OTC desks with greater liquidity and tighter spreads across a wide range of coins/fiats.
Finery Markets was the first to introduce a crypto-native multi-dealer execution venue in 2019, with strong liquidity and predictable execution obviating the need for last-look trading.
According to the report, when trading in larger volumes, the OTC desk solution is more effective than centralized exchanges (CEX). What is the reason for this?
Konstantin Shulga, CEO Finery Markets: The size of the trading volume has a lot to do with it. After surveying with our partners from AIMA and PWC, we observed that institutions trade less than $10 million in cryptocurrencies each month. Furthermore, the majority of these transactions take place on centralized exchanges.
Those who trade more than $100 million per month, on the other hand, prefer over-the-counter (OTC) execution. OTC crypto trading reduces market impact, improves execution quality, and allows investors to trade without prefunding.
Over two-thirds of institutional investors look at execution and liquidity quality as their main criteria when choosing an execution venue. Why is that so important?
Konstantin Shulga, CEO Finery Markets: The price of digital assets can change rapidly. In March 2022, for example, geopolitical and regulatory events shook crypto markets, which tracked stock markets. The price of BTC increased from 37,351 on March 3rd to 47,160 on March 31st. Bad execution was penalized, while good execution was rewarded.
Almost 50 percent of all participants trade on five or more venues. Is this by choice or due to a lack of a better solution?
Konstantin Shulga, CEO Finery Markets: It is the reality of the lack of “golden market standards” and absolute technology capable of aggregating all flows and making the market completely transparent. Finery Markets’ technology is the closest to the industry standard in terms of “best execution.”
What can Finery Markets do to improve digital asset trading?
Konstantin Shulga, CEO Finery Markets: Finery Markets is bringing best practices from traditional TradFi into the digital assets space. This enables our institutional and corporate clients to gain access to deep liquidity and best execution across 200 coins and ten fiat currencies in a fully compliant and institutional-grade infrastructure.
Konstantin Shulga has over 13 years of institutional financial markets experience across major asset classes from equities to FX & derivatives. Having had Business Development roles at major brokerage houses to a Moscow Exchange to becoming a Managing Director at Sberbank CIB, the largest Eastern European bank. Nominated by Forbes 30 under 30 in 2020 and joined Finery Markets as a CEO & Co-founder in 2021.