Bobby Cho is the Global Head of Trading at Cumberland, the cryptocurrency trading arm of Chicago firm DRW.
Previously he was Director of Trading at itBit and Vice-President of Trading at Digital Currency Group, a New York venture capital company formerly known as SecondMarket.
In this interview with host Aaron Fifield of Chat With Traders, Cho discusses a turbulent few months in the Crypto space, touching on Bitcoin's recent travails, the influence of Blockchain and what the future might hold. Read excerpts below, or listen to the interview in full here...
Never assume anything in this market and validate everything that you’re doing over and over again. You just have to adapt with what’s happening around youBobby Cho
On Bitcoin futures
We were there day one of the CME and CBOE launch. We’ve seen those markets continue to grow over time, I think you’re seeing more volume going into the CME market. I think mainly because it’s access and reach to the broader future market, but I think it gave an opportunity for those who wanted to participate in the market... without actually having to hold the underlying side of the trade. I think it’s all net positive but at the same time I think there are more and more infrastructure providers out there that may be better in the future but that’s where we are today.
On Bitcoin's run to $20k
Along with working in an environment where the land around you continues to shift whether it’s because of different movements on the regulation or infrastructure side of things then you add on the kind of volatility of the market. So every day was an adventure for us, we got a lot smarter at what we’re doing. It helped make us realise how we can scale better as a business and also just how we can manage risk better as well. Obviously, those were very volatile times and so I think we’re in a much more sustainable kind of pattern in the industry right now.
I definitely think it puts you to the test, it tests your ability to manage risk, it tests your ability to provide markets and be accurate on everything that you’re doing. Prices were all over the place, it makes you super efficient on how you are managing your coins and cash, making sure you’re getting the return that you’d like on every single dollar that’s on the exchange or every single coin you’re trading. It makes you much more mindful about every part of your business and you need to have a pulse on everything that’s going on. It definitely stress tests your own operations internally.
On whether it felt like a bubble
I think very early on we said that the markets had bubble-like characteristics. I think the broader community recognised that the velocity was not sustainable. So really when you start to see prices come off in later Q1 and subsequent months, I think that actually it gave the industry the opportunity to take everything they have learnt from previous quarters in terms of stress testing their operations (we’re no different) and gave them the opportunity to build scalable solutions for the market place. That’s where you’re seeing a number of different infrastructure providers come out, I think that really helped the industry with where they were at and how things could end up going down the line.
On the crypto markets since 2013
I would just say that the biggest take away, is in this market, especially as its still growing and it’s still very new and infrastructure is still being built out, never assume anything. Always do the work. That comes down to the addresses that you’re sending coins to, in terms of checking that, just never assume anything in this market and validate everything that you’re doing over and over again. You just have to adapt with what’s happening around you.
On Bitcoin's effect on the alt coin space
I think you’re seeing in the numbers, a few months ago in the articles, it said 60% of ICOs have gone away and are not relevant anymore. Going back to the point that ICOs need to have more sound business models today, I think the alt coin market volumes have definitely dried up. Things have become very illiquid, even more illiquid than some of the other cryptos out there and there’s been sort of this ‘flight to quality’ or ‘flight to safety’, it’s kind of gone back to Bitcoin a little bit. The interesting dynamic we’ve seen out of Asia is more than 10% of the transactions that we do during the Asian session are actually Ethereum based, more than the US hours. That was an interesting dynamic for us mainly because it gave us an idea of what the folks that are trading with us in Asia are doing and transacting in and excited about.
On the value and purpose of Bitcoin
So I think the bottom line, to level set everything, is that it’s still very early on. So what you have is a number of entrepreneurs whether in Bitcoin or other crypto assets or new tokens, everybody in that space is still to figure out the kill app or killer use case for cryptocurrencies. But when I look at whether you want to put a value on Bitcoin… if you were really to take a poll all around the world and ask what’s Bitcoin good for, you are going to get an array of different answers out there, mainly because it’s going to mean something different to different people.
What I mean by that is, just by our counterparty base in general, people look at Bitcoin almost like a store of value, especially with pricing being where it is. Gold 2.0, the critics of that case said Bitcoin is too volatile, it can’t be a store of value, well now Bitcoin is less volatile, so maybe if you’re now considering it could be a store of value, that’s one way you can look at it. Other people look at it as a way of payment. We deal with corporates every single day that use Bitcoin for their service, where they get paid in Bitcoin because its quicker and easier than traditional channels, so that’s another use case. So people are interacting with Bitcoin indirectly in different ways than the next person, so that’s where the difference come about in how people are looking at this space.
On real-world applications of Blockchain
Well there’s this whole concept of private blockchains vs public blockchains, but I think on the private blockchain side I think that’s kind of going full steam ahead, there are a lot of enterprises out there that are building products for a number of different institutions out there, whether that’s financial institutions side or anything like that. And on the crypto side where we have a need of token travelling within these blockchains, that’s still being built out. Obviously Bitcoin is the one everyone knows about but I still think people are very excited about what this can do.
The way I look at it is, there is this public ledger that gets reconciled every ten minutes (Bitcoin), just the sheer possible applications of that, you’re seeing in the market, entrepreneurs trying to build medical records on top of blockchain, to build real estate transactions on top of blockchain, they’re trying to figure out ways they can leverage this technology and again it’s still early days where people are throwing things against the wall and trying to figure out what sticks. Because I think they realise that if they’re able to leverage a different market along with crypto that could be the killer use case out there, but I actually don’t see it as one killer use case to trump them all, I think there is going to be a number of different ways people interact with it.
On opportunities for self-backed traders
I’d say definitely on the major exchanges and coins out there, that the opportunity is not there. You’ve had a number of entrants into the market where spreads have come in and markets have tightened and any opportunities that may have presented themselves a year prior, they’re getting taken up and getting a bit more crowded there. But in terms of other opportunities that may be other people can be looking at, I think one of the interesting things and developments of this year is decentralised exchanges, although we don’t participate on any of the decentralised exchanges I can see that being an interesting arbitrage opportunity for different folk who can. Granted those markets are mainly focussed on retail-sized transactions and they have their own nuances, but they definitely have their own interesting development as more and more of this decentralised exchanges come about. A decentralised exchange is almost a peer-to-peer exchange where people are trading with one another, on a kind of singular network that allows them to transfer and trade different assets for one another.
On when and how the crypto market will be institutionalised
I think you’re already seeing it play out in two ways this year (2018). I think there’s been this infrastructure play that I’ve mentioned before, you’ve got more custodians today than last year, more traditional venues that have announced that they’re going to get involved in the crypto asset space. You have existing crypto exchanges that are trying to bolster their businesses and make things better on their side. So all of that to me that the framework is being built, because last year that framework didn’t even exist.It is helpful for institutions to get more comfortable with the space.