Commodities houses want a slice of a lucrative crypto trade that hedge funds have been piling into this year.
That’s according to London-based trading and brokerage giant TP Icap.
Simon Forster, the co-head of the firm’s digital asset arm, told DL News that he’s seen “significant interest from commodities houses and structured products desks” looking to access the crypto market for arbitrage trades.
It’s the latest sign of traditional finance’s growing love affair with crypto.
Less than a year after the launch of Bitcoin exchange-traded funds, Wall Street is set to surpass Bitcoin creator Satoshi Nakamoto as the largest holder of Bitcoin.
While Wall Street’s embrace has done much to establish crypto as an investment-worthy asset class, commodities houses have so far had little interest in Bitcoin and Ether ETFs, according to Forster.
The so-called basis trade “has been a huge driver of this year’s Bitcoin ETF activity,” he said. The basis trade is a so-called market-neutral strategy, meaning that traders don’t rely on prices going up or down to make a profit.
The trade involves taking advantage of the difference in price between an asset’s spot price and its futures price. Hedge funds have been piling into this trade at an “unprecedented scale,” CF Benchmarks told DL News in June.
“But commodities firms often prefer to trade the underlying physical asset rather than an equity equivalent,” Forster said.
TP Icap on Friday announced it will link its crypto exchange, Fusion Digital Assets, with Standard Chartered’s crypto custody product to better serve these new types of clients.
The partnership will let TP Icap customers access Standard Chartered’s product, and vice versa, the companies said in a statement.
“Broadening our base with Standard Chartered’s geographic footprint and new spot custody offering significantly expands the universe of clients we can serve,” Forster said.
Duncan Trenholme, TP Icap’s global co-Head of digital assets, said in the statement that the partnership enhances “our existing operating model with connectivity to a leading international cross-border bank, and will give clients further assurances to enter and trade in these emerging asset classes.”
Aleks Gilbert is a DeFi correspondent based in New York. He can be reached at aleks@dlnews.com.