To all the crypto-enthusiasts out there, what has been your experience trading crypto? Just as with any new innovation, there have been many trailblazers making crypto more accessible to the masses. But as the market matures, a lot of the flaws and weaknesses with the current exchange ecosystem are becoming apparent, especially to anyone who’s ever actively traded stocks, futures, ETFs, options, or any other financial asset.
First of all, there are more than one hundred different exchanges. The prices are often different, the fees vary dramatically (and are really high!), so it’s hard to know whether or not you’re getting ripped off. For the most part, the exchanges have rudimentary websites for users to buy and sell, with none of the analytics, tools, and algos that traders have come to rely on in other markets. Several of the exchanges offer “professional” platforms, which often just implies some combination of visible order book, perhaps slightly less egregious fees, and a chart. But they’re pretty basic and leave a lot to be desired.
Enter, Cove Markets. We are a team of fintech experts who have built world-class trading systems in traditional financial markets over the past 15+ years. We took one look at the crypto market and knew we could help make things better. Though the exchanges are all printing money, we want to lower the bar for traders to turn a profit. We believe the crypto market is ripe for disruption and that active traders deserve to pay less and get more. In 2018, we rolled up our sleeves and got to work trying to code up solutions to the problems we saw.
But let me pause for a moment and share my own personal experience. I was formerly a managing director at IMC Trading, one of the largest traders in the world of complex financial derivatives. I’ve traded in the US, Europe, and Asia in just about every asset class and on just about every major global exchange. We had an army of developers and quants building the most sophisticated and successful trading systems in the world. By 2016, I thought the global financial trading eco-system had financially reached full maturity. Then in early 2017 I took a closer look at crypto and saw an opportunity. Not just an opportunity to get involved in a once-in-a-generation disruptive technology, but a chance to apply my experience and expertise, and leverage my network, in order to make it even easier and cheaper for people to actively trade.
In order to understand where crypto is headed, it can be helpful to take a look at how other financial markets have evolved. Way back in the day, exchanges like the NYSE were formed in order to get buyers and sellers to all meet in one place for price discovery, meaning that the most aggressive sellers and the most eager buyers could find one another immediately and trade at a mutually agreed, fair, and transparent price. Unfortunately, over the subsequent generations, this small and exclusive network found ways to enrich themselves at the expense of investors outside the circle. The regulators stepped in and opened the market up to competition, which ultimately led to what’s referred to as market “fragmentation”. No longer was one dependent on an archaic insider’s club, but you now had a choice. However, people soon noticed that brokers were still sending their customer orders to the incumbent NYSE where they had existing relationships and perhaps some kick-backs. They would let customer orders trade “through” the market at inferior prices, even though newly formed electronic exchanges were offering better price. Fortunately, the regulators stepped in and demanded best price execution. And now the US equity markets are the fairest and cheapest in the world for investors and active traders. Customers can only trade at the best available price no matter where their order gets sent. Brokers have also been forced to be more transparent and publish execution quality reports on their websites. Regulatory crackdown, however, should be a last resort. As long as you have an open and competitive markets, allowing more transparency for the consumer should ultimately lead to better trading decisions and outcomes.
Now let’s pivot back to crypto. From the early days, competition has not been a problem. There are lots of competing exchanges each with distinguishing features and push for innovation. So that’s good. However, there is very little transparency and visibility across the marketplace as a whole. Exchanges do not need to compete on price, in fact, we even have seen exchanges raising trading fees. What we’re missing is the real liquidity you get when buyers and sellers are all in one place and customers can see the best price. People sometimes trade at crazy prices without knowing that there’s a better price at an away market. And because this is a global market that spans multiple regulatory bodies, there is no hope for a best execution mandate.
And what’s truly unique about crypto is that the exchanges fees are magnitudes larger than the tradable price increment. For example, you can trade BTC-USD in $0.01 increments on Coinbase, but the trading fee is 0.5%, which equates to $40.00 (assuming BTC-USD = $8000). Now imagine that you can buy BTC on Kraken for $8020 or on Coinbase for $8000. Well, your fee on Kraken is probably 0.26%, or $20.85, meaning your net price is $8040.85. On Coinbase you’d pay $8050 after fees. So knowing to route to Kraken and pay $20 more on the screen actually saves you nearly $10 after fees.
Cove Markets was created to make sense out of this complexity and to help customers save money and gain more control over their trading activity. We recently launched CoveTrader, where you will see all buyers and sellers from our supported exchanges in one consolidated order book and trade list. The user can even view the orders from buyers and sellers (i.e. “bids” and “offers”) with fees reflected.
CoveTrader is an open platform that anyone can use in order to gain visibility over the consolidated market in one browser window. We are regularly adding features and functionality and listening to what our users want. We are currently preparing to go live with trading in Q1. Users will be able to easily connect API keys from their existing exchange accounts and get best price execution. We don’t touch your assets and don’t charge a subscription fee. Only pay a percentage of any price savings achieved.
Using our proprietary algos, we’ll send your order algorithmically to the exchange with the best net price. Don’t overpay or sell too cheaply anymore. And leverage the scale from our aggregated customer base to also pay less in trading fees.
It’s everything you’ve come to expect when you trade, but never had at your fingertips until now. Please visit covemarkets.com today and have a look for yourself!