- Dexterity Capital is a prop trading store that trades billions of dollars in cryptocurrencies every day.
- Co-founder Michael Safai examines the impact of last week’s crash on retail and institutional traders.
- He also shared an area of the market that could be a safe haven for investors and developers.
When cryptocurrencies plummet, it is natural to think that traders will feel the most pain.
But for players like this Agile Capital, a proprietary cryptocurrency exchange store with a market-neutral strategy that benefits businesses. Dexterity trades $2-4 billion in cryptocurrencies per day, According to the Financial Times.
“For Dexterity, to remain market neutral,
volatility
is what we really live for,” said Michael Safai, co-founder of Dexterity Capital. “So there was a lot of volatility around the LUNA implosion. This largely favors a market-neutral strategy. If you are playing market making or statistical arbitrage strategies, they work very well. “
For retail investors, the situation is different.
“A lot of retail stores were burned,” Safai said. “Our data shows that retail activity is probably less than it was before the crash. That means most of the volume you see, or a larger percentage of the volume you see, is now institutional traders, like us, like Jump or Jane Street, or any big dealer you’ve heard of.”
The cryptocurrency crash was initially caused by
US Federal Reserve
rate hike, then by The collapse of the terra ecosystem,Including Market cap a month ago was $33 billion.
“Throughout the year, we have seen a tilt as institutional volumes have grown,” Safai said.
Retail traffic is the catalyst, Safai said. He added that there are two types of players in the retail industry, “hodlers” who are long-term investors and active traders.
Terra’s implosion is just another negative factor for retail investors on top of an already uncertain environment of geopolitical tensions, soaring inflation, slowing growth and rising interest rates.
“Given what happened last week, there may be some people who are very anxious and worried about getting involved again now,” Safai said.
Safai said the current environment is very uncertain and it is difficult to say what the catalyst for re-engagement in retail will be. Currently, he is monitoring the Fed’s actions.
If the central bank decides to tolerate inflation for a period of time, the use of cryptocurrencies as a hedge against inflation could “revive” retail interest, Safai said.
After last week’s events, one of his biggest fears is losing trust in the ecosystem and “Ethereum killers” such as Nightshade (SOL) and Avalanche (AVAX). He would like to see a shift towards known quantities Ether (ETH) and Bitcoin (BTC).
“People are thinking, ‘Well, that old ethereum thing that we thought was outdated was actually pretty solid and reliable, maybe we should look back, instead of these ethereum killers, [which] There could be flaws or flaws similar to what we saw in terra’,” Safai said.
Many developers turned to other alternative blockchains, dubbed the “Ethereum killer,” because Ethereum struggled to scale, which resulted in high gas fees and slow transaction speeds.
“You now have to weigh the risks of that against what happened to us at terra last week,” Safai said. “So my expectation is that some people who are building projects, whether on terra last week or other layers, are now thinking, ‘Well, should we go back to Ethereum and drop the bells and whistles for security? ‘”
Ethereum is expected to
proof of work
arrive
Proof of Stake
This year’s consensus mechanism, which could be another catalyst for the market. Simon Morris of ConsenSys says the shift will Introducing Prerequisites for Scalability on the Internet.
“Now assuming it does happen this year, I think it’s going to be a good thing because it’s really a game-changer,” Safai said. “It’s exciting new things. And there will be new puzzles to figure out how these new mechanisms work.”
However, Safai said that the retail industry is currently in a difficult position.Institutional players also face challenges after stablecoins Limited Decoupling of Tether.
“Even a small depeg, even if it’s only 10 pips, is not great for shops that do a lot of high-frequency trading, because many of these perpetual swaps are margined with Tether,” Safai said. “And the 10-point difference actually matters to us. So it’s not great.”
“But beyond that, redemption is working,” he added.
In the current range bound situation, market making is doing well for institutions. Safai said they are implementing methods such as volatility strategies with options and overlay strategies.
