Two Wall Street veterans are preparing to launch a cryptocurrency prime brokerage service in a move that could help legitimise digital asset markets for institutional players, particularly hedge funds.
Digital Gamma claims to be ‘digital back office’ for firms trading cryptocurrencies, bringing a pooled-asset model with access to exchanges and the ability to lend crypto for income or borrow for short positions.
Co-founders Ari Pine and Paul Sacks have extensive experience in capital markets, with particular knowledge of options trading and trading technology engineering. Sacks told The TRADE Crypto that Digital Gamma’s prime brokerage is set to launch next month, with beta-testers comprised of professional traders from traditional financial assets already lined up.
He explained that prime brokerage for cryptocurrencies is vital for the market’s growth, adding that in order to become a legitimate asset class, professional institutions will have to play a role, with prime brokerage being a critical mechanism by which those firms access markets.
“Crypto differs from most of traditional finance in that the trading venues are fragmented,” Sacks said. “Bitcoin is a fungible asset. This basically means that the price on one exchange should not differ (significantly) from the price on another.”
“The space is ripe with inefficiencies and traders need accounts at the various exchanges to take advantage of the discrepancies. Our prime brokerage offering obviates the need to open multiple accounts; just provide the accounts. It is true that there are other solutions, like OTC desks, but on each transaction, the more you lose the more they make. To put it politely – interests are not aligned.”
He added that Digital Gamma is also building out a cryptocurrency repo curve, providing a safe borrow/lend environment that will enable long coin holders to earn interest and professional traders to short and deploy other strategies.
Sacks also argued that crypto is not experiencing a bear market but it’s more range bound, with extreme volatility often putting off institutions from entering the crypto space.
“Institutions would not dedicate resources to building infrastructure for something that might not exist the following day. Now that the market has stabilised a bit, it’s giving institutions time to really do their homework, evaluate the opportunity that the space represents,” he concluded.