Initially, price declines drove the fickle, long only, casual buyers out of the market – leaving only the more dedicated crypto holders and traders. Now, low volatility in crypto is squeezing volumes even further by hitting hard core traders of the asset class. For those who assume this is a short-term phenomenon (while I hope you are right) let me point out that the FX industry endured ten years of almost continual low volatility from 2012 to 2022 (with a few small bursts of violent activity) until interest rates and inflation bailed out the asset class. So where to find retail crypto volumes as traders bow out of the asset class back to more volatile traditional financial instruments?
As in Retail FX, much of the speculative volume in crypto is traded by automated bots, with hundreds of marketplaces selling thousands of algorithms to customers. Whatever you may think of the robustness of this trend, it’s a fact that automated bots generate significant volume and will continue to do so. In Retail FX this phenomenon has existed for 20 years, growing stronger every year, despite prognostications to the contrary (even by yours truly). Unlike discretionary manual traders, the trader who uses a bot is a much more cost-conscious customer who actively compares commissions, spreads, and fill quality, to determine where his/her bot will perform the best. As the volatility profile of the market changes, many of these systems will need to adapt and be rewritten for the lower volatility environment. This will spotlight costs even more, as lower volatility will demand lower costs of trading for strategies to survive. In both FX and equities, execution costs dropped some 75% to 90% over the past decade or so to accommodate this phenomenon.
The winners of a deep crypto winter will be the ones who survive the longest and manage to run the most competitive operation. This will require the absolute lowest cost of execution. Brokers/exchanges will have to offer not only commission free trading, but also reduced spreads, and a meaningful reduction in slippage.
TraderTools new PriceOn™ market making product is perfectly suited for crypto brokers/exchanges to maximizing yield on flow, by optimizing the internalization of flow, while meaningfully lower customer execution costs to become the low-cost market leader. To learn more, reach out to the TraderTools sales team at sales@tradertools.com , or directly to me at drewn@tradertools.com – The team and I are happy to describe this in greater details and discuss your flow and marketplace opportunities. #cryptomarket #cryptotrading
