Closing Keynote: A Look at Crypto Market Data 2021

Transcript

[Applause] [Music] so my name is almost i'm the ceo of a company called kaiko and we are in the business of providing market data so in order to close this incredible conference a lot of things were discussed and i want to focus on data and look at the markets and it's always great when you look at markets when markets are up so hopefully it will leave everyone here energized and in a good mood so clearly uh all the different discussions we've heard today goes in that direction but the the general crypto finance industry has undergone

unprecedented growth over the past year um a couple of just very recent news uh bitcoin broke another all-time high following the etf launch both bitcoin and ethereum actually reached an all-time high spot volumes have increased over 10 times over the past year order book liquidity i'll show a couple of charts on that this is really important everybody focuses on price but price itself is not as important as the actual liquidity that is placed on markets you can have a great price but if you have no depth of market and you can't trade a hundred thousand dollars then it's kind of a tiny market so order book liquidity is an important metric

and we'll look at that derivatives open interest and trade volumes are near all-time highs as well and generally we'll look at a couple of macro trends but bitcoin is increasingly correlated with commodities and surpassing in returns traditional equities so here you have a nice little chart on the top on the on the right showing how bitcoin and ethereum performed uh over q3 compared to a couple traditional assets quick word on market infrastructure as i mentioned kaico is a data provider so we actually provide the infrastructure for institutions and enterprises to access market data market infrastructure as a whole is not just about data it's about lending it's

about liquidity providing it's about custody market makers brokerage trading execution clearing and all of that market infrastructure has seen record investments over the past year both from just vc deals funding startups and helping them to grow in the crypto space but also from traditional actors from traditional financial markets that are now looking at crypto seriously for two reasons the first one hey crypto is now a two trillion dollar investable asset class we can't ignore this anymore but also just because there is a fundamental value that is inherent to the actual asset class and that is blockchain and the beauty of blockchain and what it means for markets this just i'm gonna pass quickly on that

but this is just to show how traditional exchanges and etp providers have also entered the crypto industry obviously um the recent etf launch was a very big news for the industry and one that was long awaited a little uh mentioned to kaiko as a data provider we obviously help a lot of regulated financial products that need to consume data in order to publish prices and this is part of what we do so i mentioned liquidity early on i always like to talk about liquidity and show data around that because let's say you're a trader and you compare the price of bitcoin dollar on a small exchange and the price of bitcoin dollar on a big exchange you could have a better price on the small one but if you

don't have depth of book you can't trade efficiently and your price is effectively going to be destroyed by what's called the slippage so here we've charted a couple of things to show the liquidity the first thing is volume as i mentioned earlier volumes are now 10 times what they were last year and bitcoin tether is actually the pair that has the largest volume slippage slippage is a very important metric when we look at liquidity the slippage is effectively the impact of on your execution price that is due to the actual order book structure so slippage has fallen over time as you can see we're going from somewhere around around four bips all the way down to about two bips today

this is non-negligible when you trade considerable sizes and market depth around the mid price has increased as well in terms of volumes here what i'm showing is the market depth for bitcoin dollar and ethereum dollar on a couple of leading exchanges uh what we call the market depth here is the sum of all of the bids and asks that are placed on the markets at a two percent range of the actual trading price so that shows basically how much volume you have near the execution price how much you can trade without moving the market uh for bitcoin dollar the total aggregate of all of these exchanges is somewhere around 4 000 bitcoin which is 250 million dollar meaning that you

could potentially execute a 250 million dollar order without significantly impacting the price and this is clearly an efficient market and one that is not as niche as we could say of the crypto markets led only a year ago same thing with ethereum so you look at ethereum dollar across those same exchanges there's about 30k eth actually over almost 40k um each that is placed across markets that is about 130 million dollar so again in a market where you can trade hundred million dollar trades without significantly impacting prices we're talking about liquid going to mature markets and you can see the breakdown for colors

so you can actually see gemini uh sorry i think it's bitfinex has one of the biggest markets and you can see the different the different markets and how they stack all of that is available publicly by the way on our website i can link to that towards the end we publish weekly all of those charts on market liquidity returns correlation etc so blockchain as an opportunity for capital markets i kind of jumped right in and i forgot to introduce myself but i come from the traditional equity derivatives industry i've been a structure for about 10 years in london and what really fascinated me initially when i got into into crypto and when i discovered what bitcoin meant that was

back in 20 first time i heard about bitcoin was in 2012 and what really got me interested was hey i work at a bank and a lot of what a bank does is tell you how much money you have pretty much and for the first time in the history of financial engineering we have a new way of proving to others how much money we have the the decentralized way that does not rely on intermediary to represent the ownership of value and that the notion of creating digital scarcity the fact that now you can prove that when you own something you actually own it and if you transfer that ownership to someone else you don't own it anymore and the other person own it

this sounds obvious today to us but actually it was something that was never sold for until the emergence of blockchain as a technology it's what we call the double spend issue right how do you create money if in a digital world where if i have a picture and i send my picture to all of you here in the room well we all have the picture and i still have it so how do you create value and scarcity blockchain has solved this scarcity thing and the fact that you could in a decentralized way and in a censorship-resistant way prove that you own something that something was bitcoin but i thought it's an incredible strength and an incredible opportunity also for capital markets to reinvent the way they work at core as in how do they how do they build their databases how do

they represent ownership and transfer of ownership so long story short that was my beginnings of my interest for bitcoin then in 2014 ethereum came along and i was like wow now you also have a way to contractualize your ownership and you can do that also in a way that is censorship resistant decentralized et cetera so i drew a parallel quite quickly between what a smart contract on ethereum meant and what a derivatives is that base contract on an equity meant and how without wanting to change necessarily the regulation around security tokens around securitization and the general regulation about the issuance on primary markets of securities but rather

how do you improve the secondary life cycle of traditional asset classes and traditional securities and so that's kind of where i believe that blockchain as a technology offers an incredible platform for digitizing finance through that representation of ownership and the contractualization of that ownership so obviously we talk a lot about defy defy is fascinating and why it's fascinating because it proves that blockchain as a technology works in order to create financial applications we have money markets we have lending and borrowing protocols we have decentralized exchanges there's you know the the core functions of the capital markets industry could actually live on blockchains now it's

about scalability and it's about how do we put process and regulation around that but i'm not necessarily thinking of blockchain and defy as something that lives behind the traditional capital markets i think there's an opportunity for banks and institutions to leverage the technology in order to do more on public blockchains so this is a slide that also i use for when i pitch our company i i don't see kaiko only as a kind of crypto data provider like i don't think will be for eternity selling the price of bitcoin dollar i actually believe that we're going to see the emergence of a flurry of traditional capital markets assets that will be created and issued on blockchains and thereby

investors will need to know the price of that asset on a blockchain and how it compares to the price of the same asset on another platform for me blockchain is going to be a wrapper and a different investment vehicle to trade securities so that is how i i see this infrastructure around around traditional capital markets evolving so just a few words about kaiko and i think it also explains a bit of the pain point of the industry today there's two major pain points for institutional participants in the crypto industry the first one is the technical complexity markets are extremely fragmented there's over 120 different exchanges there's the traditional quote-unquote traditional

centralized exchanges such as coinbase and kraken and binance those have apis where you can actually connect and get data but if you start thinking about decentralized exchanges there's no api you have to run ethereum nodes you have to extract data yourself so it's actually hard it's time consuming and expensive to access the financial information of the crypto markets the historical data is very rarely available at centralized exchanges and there's no standards and there's no analytics that's the first problem it's just hard the second problem is actually that large institutions and especially regulated institutions are not allowed because of data requirement rules to fix it themselves like they

can't engineer the data infrastructure in-house because they need a third-party solution that will serve as a source of truth for market data input and i'll give an example if you're building an etf you can't just figure out the price of the bitcoin that you're going to use in your etf yourself you actually have to rely on an independent third party that provides you with a continuous field of data that is transparent and that is regulated as a data provider when you're an investor you have to calculate a daily nav you have to calculate your risk there's many use cases that are more about post trade where you actually need to have regulated data so actually not only it's a hard problem it's actually a problem that generally regulated institutions are not even

allowed to solve for themselves and that's pretty much what we provide we're connected to all the different trading venues globally we collect the data we standardize it we create analytics and we expose it to the industry through a couple of data mechanisms one thing about our clients uh we work with um broken the format broke a bit sorry but we work with all the b2b segment in crypto so asset managers institutions custodians audit companies regulators and they use this for a couple of use cases which is pre-trade stuff carrying out research understanding the markets understanding the history how did the assets behave in the past

then everything that is real-time trading everything that is post-trade valuation and then everything that is more around display there are a lot of products and services that actually require market data inputs if you want to display a chart or if you want to display commentary and news and portfolio evaluations you actually need the data feed in the background so i i think i'll skip those things if you're interested feel free to reach out but this is more about kind of what we provide our data and this goes back to what i said about the maturity of the ecosystem in the in the opening we are now connected on the on the ice global network where our data is made available on pretty much any data centers globally and what we've seen is that has been driven by demand obviously

we now have clients that need to have crypto data in a data center in frankfurt and this is a proof that the industry is maturing and that people are treating this as a as almost as a traditional asset class one last thing that i think is an important signal for the institutionalization and the development of the industry this is something we announced recently with bloomberg and it's on the establishment of data standards so how do you actually uniquely identify crypto instruments how do you differentiate bitcoin dollar on kraken for from bitcoin dollar on coinbase knowing that they have different market order books and different prices so we've worked on that for a couple of years this was issued very recently and

we've now attributed unique identifiers figgy is an open data standard that was started by bloomberg in 2009 and it's something that is solving data management issues at the institutional level how do you uniquely identify different instruments be it loan derivatives equities sort of any kind of of security this is done now it's live they're published on bloomberg's api and on kyko's api and if you're an institution trading crypto and you need to solve for that problem i'd love to talk to you about it um