‘Bad things could happen’: Turning to tech to tame the crypto jungle

© Reuters. Joel Fruhman, right, and Dan Fruhman, directors of BCB Group pose for a photograph in London © Reuters. Joel Fruhman, right, and Dan Fruhman, directors of BCB Group pose for a photograph in London

By Tom Wilson

LONDON (Reuters) – “Hi guys, could you please show me a firm bid for 100 bitcoin?” a seller texts on Skype.

“One sec. $ 10270.”

Two minutes later: “Sorry guys, that was an old order from Friday when skype wasn’t working.” 

“I really think we should get off skype. Bad things could happen. Someone is going to make an expensive mistake.” 


A messaging exchange over a potential $ 1 million deal, between a European asset manager looking to sell bitcoin and broker Joel Fruhman, illustrates the casual and often chaotic nature of cryptocurrency dealmaking.

Trades involving hundreds of thousands, or millions, of dollars are routinely struck via brief chats on apps like Skype, WhatsApp, WeChat or Zoom, often with scant certainty over the identities of participants or the legal basis of agreements.

“We’d end up in a Zoom call with about five ‘introducers’ – we didn’t really know who any of them were,” said Fruhman, a physicist by training who started a cryptocurrency brokerage business with his brother Dan in their British hometown of Manchester in 2018.

“And who were we? What was our credibility?”

Over-the-counter (OTC) trading – buying and selling through a broker – is now beginning to change, however.

It is moving toward electronic automation as the cryptocurrency sector matures from the province of online enthusiasts to emerging financial assets drawing increasing mainstream interest, Reuters interviews with more than a dozen industry players show.

This is a fundamental shift, as messaging apps have for years been the predominant platforms.

It is a key front in attempts by cryptocurrency enthusiasts with roots in the traditional finance industry to drag into the mainstream a singular, largely unregulated sector born on the web a decade ago as a symbol of rebellion against the establishment and offering users near-anonymity.

OTC trading is favored by big investors like hedge funds because cryptocurrency exchanges often suffer from thin liquidity, and large buy and sell orders can move the market.

But the opaqueness of the messaging process and its impracticality for use on a large scale, plus the glitches that could cause the “expensive mistake” warned of by Fruhman, have left it fraught with risk.

Now, as spreads – the differences between bid and ask prices for immediate orders – tighten as liquidity in crypto markets grows, OTC brokers and market makers are seeking to move away from unsophisticated chats and offer quotes electronically, with automated execution and settlement.

“Things have shifted quite rapidly toward electronic trading,” said George Zarya, CEO of London-based cryptocurrency exchange BeQuant, which also runs an OTC desk and is planning to switch toward automation.

“Anything that is liquid – bitcoin or ethereum – these markets are going to go electronic. That’s a natural path that traditional markets have gone through.”

The changes are likely to appeal to larger investors using algorithms and high-frequency trading for whom split-second timings are important, according to the interviews with cryptocurrency OTC brokers, market makers and investors.

Alameda Research, a crypto trader based in California and Hong Kong, launched an almost entirely automated OTC desk around six months ago that is already seeing flows of $ 20 million-$ 30 million a day, said Ryan Salame, its Asia-Pacific head of OTC.

For Salame, the future of OTC trading is electronic, with prices for all but the smallest coins to be quoted electronically.

“This is just the next step how you stay more competitive. Each desk is trying to be more competitive and making better systems,” he said. “It’s just a by-product of spreads coming in so much that I can’t update in the chat fast enough to give people the pricing they’re expecting.” 


The Fruhman brothers, Joel aged 29 and Dan 28, built a contact book packed with bitcoin miners they met on internet forums and apps as they grew interested in the emerging technology.

Miners use computers to solve complex mathematical puzzles, competing against others and earning rewards in the form of new digital coins. As recently as a few years ago, individual crypto enthusiasts could mine bitcoin from their bedrooms.

But many had a problem, the Fruhmans found: They were producing bitcoin faster than they could convert them to the cash they needed to clear the hefty electricity bills run up by their high-powered computing gear working overtime. 

“We saw something very clear: A bunch of guys with a lot of bitcoin valued in USD, who had no idea how to turn that into money,” said Joel. “It started with one request, which was just one of these guys, our mate, who was like: ‘Can you sell a few mill?'”

Late last year, in an attempt to tap bigger investors and offer more sophisticated back-office services, the brothers swapped their contact book for a stake in a startup run by ex-financiers well-versed in the infrastructure of the financial system, from escrow accounts to settlement systems.     

The startup, BCB Group, then based in London’s financial district, offered something the Fruhmans lacked: regular access to clients from mainstream finance willing and able to buy the regular supply of digital coin offered by their mining contacts.

“It’s not the stoned 22-year-old that we were dealing with a year and a half ago,” said Joel. “And it’s not the equity traders, the Goldman Sachs (NYSE:). They’re kind of in between – it’s growing from one into the other.”



Global cryptocurrency trading volumes are highly erratic. Over the past year, bitcoin alone – by far the largest coin – has seen daily volumes of between $ 900 million and $ 3 billion, according to research firm Coin Metrics.

Brokers estimate the OTC market typically accounts for 10% to 30% of global volumes on any given day.  

The OTC market blossomed as bitcoin’s value soared during its 2017 bubble. That was when miners, wealthy individual investors, hedge funds and companies earning revenue in crypto grew active in the market.

Now, said the industry players who spoke to Reuters, the market is seeing a new shift as the predominance of messaging apps wanes and the more sophisticated tools used in traditional markets like equities and bonds become increasingly common. 

“Doing stuff over Skype and over these voice chats is not really scalable,” said Kevin Zhou, co-founder of San Francisco-based OTC desk Galois Capital.

The evolution is partly being driven by newer entrants to the sector, many of whom are tooled up with cutting-edge tech. Some, like Chicago-based Jump Trading, are from the traditional proprietary trading worlds. Others, such as Alameda Research, specialize in cryptocurrencies. 

And the changes are popular with big investors.

“I prefer to use electronic because all our algorithms are fully automated,” said Andrea Leccese, president of Bluesky Capital in New York, an investment firm that often runs orders of $ 5 million-$ 10 million through OTC desks. “If we can send our quote electronically to the OTC broker, it’s much better for us.” 

“It’s fair to say more or less half of OTC trading is going through technical innovation like making fully electronic platform, and that’s even better on our side.” 

Cryptocurrency regulation is patchy across the world, with curbs on the illegal use of digital coins the priority, and the implications of increasing automation in OTC trading are unclear. But, some market players say, because the changes are likely to attract more mainstream investment they could be a factor in speeding up the introduction of the kind of securities rules seen in traditional markets.


While increasing automation may be inevitable, many OTC desks are in a bind. Some clients are loath to ditch the personal relationships they have established with their brokers and the apps they use to communicate.

New York-based Genesis Global Trading sees around $ 1 billion a month in volume, CEO Michael Moro said. While that’s down from the $ 2 billion-$ 2.5 billion a month during bitcoin’s 2017 boom, volumes are now rising between 10% and 20% a month.

Genesis uses TradeBlock, a New York firm that provides tools for trading cryptocurrencies, to execute its deals – but can’t completely abandon messaging apps.

“We will give market color over (Skype), but the actual transactions are over TradeBlock,” Moro said. “When your clients that are buying $ 5, $ 10 million say, ‘Hey, let’s just chat on Skype’, to get them to change their behavior and say, ‘No, we don’t do Skype’, you end up creating a friction.”

For the Fruhman brothers, personal relationships will remain key. 

“The plan is to go to an automated platform, where they’ll be able to request quotes on our front-end website,” said Dan. “But the interesting thing is that a lot of people actually like the human-to-human interaction.” 

“It’s not just ‘like’,” said Joel, quickly. “If you’re trading $ 20 million, you’re not clicking a button – you want to push on the price, you want to get a feel, you want to maybe break it up.”

“I think there’ll always be this human OTC component for institutional clients.”

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Let the record 68 pip range in the EURUSD happen. Why? It can only get better next week.

Non trending transitions to trending..

The EURUSD is mired in a 68 pip range this week.  Putting that into perspective, there has not been a more narrow range week since 2004 (there was one other 68 pip range in 2014).   Moreover, the range over the last 3 days is only 50 pips.   

The market is non-trending.

When the market non-trends, it will eventually transition to trend. If you know that, use it to your advantage. Anticipate a trend.  PS trends are where the most money is made and lost. You just have to get the direction right.

How do you get the direction right?

The clues are in the non-trend.  That is the breakout away from the 68 pip range is what you look for, and if you can trade as close to that as possible, you then use your targets – in the direction of the break – to help you stick with it.  

If it breaks out and returns back into the measly 68 pip range, you have to protect against the run the other way (and go with that idea on the failure). The best case scenario is a break and a run away in the direction of the trend. 

We are due for something better

The idea is that we are due for something much better than 68 measly pips.  If you have that mindset at the get-go, you are in better posiition to “think trend”. You are in a better position to think something much better than 68 pips. That allows you to ride the trend.   

Is the range going to be 120 pips for next week? Is it 150 pips? Is it 200 pips?  

I don’t know.   However, we can use targets, in the direction of the break to guage, how the trend is progressing. To map out the route a trend lower or higher will take us.  Knowing that allows us to manage the trend with more clarity.

Non trending transitions to trending..
For example, if the break is lower (below the 1.1343 level, the steps (targets) would be (see hourly chart above):
  1. 200 hour MA and 38.2% at 1.1323- 1.1327
  2. 50% retracement at 1.12962. 
  3. 61.8% at 1.12689
  4. 100 day MA at 1.1259. 

From the current price of 1.1369 to the 100 day MA is 110 pips….. Better than 68 pips but still not great.

A move below the 100 day MA with the trend continuing could see the price target the low from June 18 at 1.11808.  

That would take the range from the current level to 188 pips. Is 188 pips doable?  

The highest ranges for the year in 2019 have been 207 pips, 197 pips, and 190 pips.  So it might be a stretch to get all the way down there on a trend move lower.

How about 1.1242-46 (swing area – see low yellow area), or to 1.1202? A  move to 1.1202  (lows from June 14 and 17) would be 167 pips from the 1.1369 level here..   That is realistic. 

What about a run higher?

On the topside, a move above the 1.13927 would look toward (see the daily chart below and the green numbered circles):
  1. 1.1411 high from June 25.
  2. 1.1447 high from March 20.
  3. 1.1460.- 50% of the move down from the September 2019 high
  4. 1.15137 – High from January 31

At 1.15137, the range from the current level would be 144 pips.  Is that doable? Yes.  

Above that is the 

       5.  61.8% at 1.1544. That would be a 175 pip move from current levels. 

The EURUSD on the daily chart.

Now, for either extension to be reached (lower or higher), it will take a near perfect week. However, after a record non-trend week, I am still going to think/antipate that something better is around the corner. We will do better much better than 68 measly pips. 

I will be thinking trend. I will be targeting levels to give confidence that the trend roadmap is playing out. I will be prepared.

If you think that going into the week the market is due to transition from non-trend to trend, you have a better chance of catching the trend.

So it stinks that 68 pips was all we could do this week (and 50 pips since Wednesday), but better days (and price action) should be just around the corner.  So look for it. Anticipate it.  Who knows, you may catch a nice trend move in the process.

Have a good weekend.  


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Pound Plunge Was Mere Prelude to What May Happen With No Deal

© Bloomberg. A collection of British five pound banknotes sit in this arranged photograph in London, U.K., on Thursday, Oct. 13, 2016. The U.K. currency is getting harder to trade, and to predict, because the nation’s exit from the European Union has changed the rules of engagement. © Bloomberg. A collection of British five pound banknotes sit in this arranged photograph in London, U.K., on Thursday, Oct. 13, 2016. The U.K. currency is getting harder to trade, and to predict, because the nation’s exit from the European Union has changed the rules of engagement.

(Bloomberg) — U.K. politicians got a first view Thursday of the financial market turmoil that may be triggered if they fail to approve the Brexit deal struck with the European Union.

It didn’t look pretty. A drop of almost 2 percent in ; banks, builders and utilities tumbling 5 percent or more; rising credit risks and a debt sale that was pulled — these are the sort of moves that draw comparisons with emerging-market economies. And volatility markets point to the possibility of things getting much worse before they get better.

That rebuke may chasten lawmakers and ultimately force them into action, analysts say.

“The assumption that a Brexit deal will be reached and ratified by all sides has now been called into question,” writes Lena Komileva, an economist in London at G Plus Economics. “For a deal to happen, the threat of a no deal has to become realistic, causing serious financial disruption, and a possible business and consumer confidence shock.”

True, markets may take temporary solace in the leadership of Theresa May: sterling steadied during her defiant press conference on Thursday. If she can hold onto the leadership of the Conservative Party, that may lift its fortunes, at least for a while.

But if lawmakers reject the deal, the currency vigilantes may re-emerge en masse over the low-liquidity Christmas period, ratcheting up pressure on a divided Parliament. Remember the 6 percent flash crash in October 2016 when the pound was pummeled in just one minute in thin Asian trading?

“It will take a brave Parliament to reject the economic security of an unpopular compromise arrangement for the uncertain alternatives that risk a damaging no-deal Brexit,” David Page, a senior economist at Axa Investment Managers, wrote in a note. “Even now speculation mounts that if Parliament rejects a deal in December, a second vote could follow in February once alternative options have been explored and exhausted over the intervening months, that might yet accept such a deal.”

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