Behind the entry of traditional capital: Does the “US national team” want to take pricing power from native cryptocurrency platforms?

Does the "US national team" seek to take pricing power from native cryptocurrency platforms?

On the evening of yesterday, EDX Markets, supported by Citadel Securities, Fidelity Investments, and Charles Schwab, officially announced the launch of its digital asset market and completed a new round of financing, with participation from Miami International Holdings, DV Crypto, GTS, GSR Markets LTD, and HRT Technology.

As EDX Markets announced the completion of its financing, discussions about the US national team taking over the cryptocurrency market were rampant.

From the discussions in various communities, there is a significant gap in understanding between the Chinese and English communities regarding the news. Although Chinese users are familiar with the names of several institutions, their perception of the brand is still different from that of the US market. This has also led to a lack of in-depth discussion (or speculation) in the community.

The king of liquidity enters the game, can traditional capital take away cryptocurrency pricing power?

Among the investors of EDX Markets, Citadel Securities is the most noteworthy and the closest to the “national team.”

Citadel Securities is well-known in the global financial market. Even in the Chinese world, it is still full of legends. Its nicknames include “the king of hedge funds,” “the invisible giant,” “the secret of Wall Street,” and other amazing titles. Although these names are full of storytelling and rich metaphors, they are enough to demonstrate the company’s reputation.

The last time Citadel Securities caused a direct public opinion tsunami among retail investors was the surge of GameStop.

In the dramatic showdown between “retail investors vs. Wall Street,” the short squeeze trend once fueled the violent rise of GME. When Robinhood stopped trading, retail investors could no longer continue to buy, leading to a dramatic change in the GME trend, causing a large number of retail investors to suffer losses.

Investors later discovered that Melvin Capital suffered heavy losses due to massive short selling of GME. Citadel invested in Melvin to help it avoid bankruptcy. Some people believe that it is precisely because of this reason that Citadel Securities instructed Robinhood to stop trading to save Melvin.

Without a doubt, Citadel Securities is Robinhood’s largest market maker. As much as 40% of Robinhood’s trading revenue comes from Citadel Securities.

Citadel was founded in 1990 by Ken Griffin. At first, Citadel was a small investment company focused on arbitrage trading, headquartered in Chicago, USA. However, with wise decisions, solid research, and excellent risk management, Citadel quickly made a name for itself on Wall Street.

Citadel has stood tall in the murky world of Wall Street for thirty years. As of December 2022, it manages over $62 billion in assets and employs over 2,600 people. The company is headquartered in Miami, Florida, with offices throughout North America, Asia, and Europe.

However, it is not Citadel LLC that is participating in the investment in EDX Markets, but Citadel Securities. The company was founded by Griffin and shares the Citadel brand with Citadel LLC.

Citadel Securities was founded in 2002 and is one of the world’s largest market makers, providing liquidity and efficient trade execution to major financial markets worldwide. With its innovative trading technology and massive trading infrastructure, the company has become one of the world’s largest stock traders.

Before August 2011, Citadel dabbled in investment banking, but then decided to focus on electronic trading and market making. Currently, its business is active in more than 50 countries and regions, specializing in providing liquidity and trade execution services to retail and institutional clients. As of December 2022, Citadel Securities has become the most successful hedge fund in history, with cumulative net income of $65.9 billion since its founding in 1990.

How did Citadel Securities rise to prominence?

In its early days, electronic trading was not yet popular in the market. Citadel Securities was one of the first quant funds in the market. Utilizing a powerful technical background and high-frequency trading systems, Citadel Securities gradually rose to become the most powerful broker in the US capital market. Currently, Citadel Securities is the largest designated market maker on the New York Stock Exchange.

In 2021, a series of questions regarding Citadel Securities’ market dominance were raised during a congressional hearing. Citadel Securities claimed that it handles “about 26% of US stock trading volume” and executes “about 47% of all US stock market retail trading volume.”

Aside from stocks, the company is also a huge player in options, futures, government bonds, and many overseas markets. The company handles 99% of the trading volume in 3,000 US-listed options. SEC Chairman Gary Gensler once questioned the company, “What happens when a company has 40% to 50% of retail order flow, and what does best execution mean in this context?”

Fast forward to the present day in 2023, and the same question still stands: What kind of impact will Citadel Securities, which holds nearly the largest liquidity in the US capital market, have on the asset pricing of cryptocurrency assets in the cryptocurrency market that it dominates and operates?

From the information disclosed by EDX Markets, the CEO of EDX will be former global business development chief Jamil Nazarali of Citadel Securities. Without a doubt, this quantitative giant and market maker giant will provide liquidity for the cryptocurrency market in the future.

Will native cryptocurrency companies lose their dominant pricing power in cryptocurrency assets? All of this is still unknown.

More “regular” than “regular,” the 10 trillion-level asset management regular army

Fidelity Investments is a Boston-based multinational financial services company with over 70,000 employees. The company was founded in 1946 and has stood strong for over half a century. It is currently one of the largest asset management companies in the world, with total assets under management of $11.1 trillion as of December 2022, including $4.2 trillion in disposable assets.

Fidelity is large and diversified, with investment products covering various asset classes and risk preferences. Its business covers various fields of the financial industry, including brokerage services, mutual funds, insurance, fund distribution, retirement services, index funds, and more. As a company with a long history and excellent reputation, Fidelity Investments plays an important role in the financial industry.

It is well known that various national pension funds have always been institutional investors with considerable influence and funds on the capital market. Those who manage pension funds have high threshold requirements.

Currently, Fidelity is the largest provider of 401(k) retirement plan services. Its pension management business is well-known and manages multiple pensions around the world. To some extent, Fidelity’s management business has gained the trust of multiple jurisdictions, and the fund is more “compliant” than “compliant.”

Another investor in this EDX, Charles Schwab, is also in a similar position to Fidelity.

Charles Schwab, established in 1971, provides banking, commercial banking, and investment services to retail and institutional clients. As of December 31, 2022, it has $7.05 trillion in client assets. The company has 2.4 million enterprise retirement plan participants, 33.8 million active brokerage accounts, and 1.7 million bank accounts.

As an active liquidity provider and a large-scale asset management group, their entry has caused different opinions in the cryptocurrency community.

US Own

At the time of this news fermentation, many English-language media used an interesting phrase: “cryptocurrency exchanges owned by the United States.”

Many community users believe that the timing of EDX Markets’ actions is worth paying attention to.

As early as September last year, early investors in EDX Markets jointly announced the launch of this cryptocurrency exchange project, but it did not cause much shock in the market at the time.

However, the entry of the “regular army” this time coincides with the SEC’s regulation of Binance and Coinbase, and the community’s questioning of its “changing birds” is a reasonable guess. Shortly after the news was released, CZ expressed in a tweet, “impeccable timing.” But shortly afterwards, this tweet was deleted by CZ.

The new exchange was launched under the strong support of traditional capital in the United States, and the model adopted by this exchange happened to avoid SEC’s regulation of securities in the face of significant regulatory pressure and uncertainty.

Moreover, in addition to exchanges, all traditional capital is actively entering the cryptocurrency market. On the one hand, native institutions such as Binance and Coinbase are facing fierce attacks from regulatory agencies such as the SEC, while on the other hand, the traditional financial world seems to be accelerating its entry into the market. BlackRock was the first to apply for a BTC spot ETF, followed by rumors that Fidelity is considering acquiring Grayscale.

Traditional financial giants have been taking intensive actions recently, as if the regulatory storm had never existed. This positive attitude and negative attitude of regulation combine to create a scene of ice and fire.

For the above reasons, it is natural that the community has no trust in Gensler, SEC, and traditional capital. Even within the regulatory agency, Gensler’s leadership in cryptocurrency regulation has not been fully recognized. Not long ago, Majority Whip Tom Emmer and Representative Warren Davidson proposed the SEC Stability Act, which aims to impeach Gensler as SEC chairman and reform the SEC.

Although SEC has dealt a heavy blow to the cryptocurrency industry, traditional financial participants seem to be preparing to re-enter the market. Regardless of the ultimate direction of the cryptocurrency market, the confrontation between Crypto Native and Old Money behind EDX may have quietly begun.