A group of bitcoin’s biggest traders have teamed up with a small crypto firm to build out two new pricing indices for bitcoin and ether. TrueDigital, the digital currency trading firm led by Wall Street vet Sunil Hirani, the founder of interest rate swaps exchange trueEx, announced the two new reference rates on Thursday.
Those rates, which can serve as a basis for derivative products such as futures or an exchange-traded fund, take in data from market making firms. Some of the firms that partnered with trueDigital on the project include Goldman Sachs-backed Circle and a number of Chicago proprietary trading shops, including DV Trading and Hehmeyer Trading.
Elsewhere on Wall Street, CME Group, the giant exchange group behind one of the US markets for bitcoin futures, has its own reference rate for bitcoin and ether. The former serves as the basis of its bitcoin futures product. Hirani said he would be open to having established bitcoin futures exchanges using trueDigital’s rates. Proponents of trueDigital’s model say it is superior because data sourced from OTC firms can be better trusted than the data coming from crypto exchanges, which are known for their immature market structure and being hacked.
“If you grab the data off an API from a crypto exchange you don’t know where the data from,” Hirani said in a phone interview. “99% of institutions that haven’t got involved will have more confidence in the market with a product like this,” he added. To be sure, many of the proponents are market making firms themselves.
Michael Moro, the head of Genesis Global Trading, a market making firm based in New York that’s providing data for trueDigital’s reference rates, said that the price data from an OTC desk might also be more relevant to Wall Street institutions since that’s where most large firms are trading in bitcoin markets. “While the exchanges dominate volume, the truly institutional guys are trading OTC, and it might be a truer indication of where those institutional trades will get done,” he said in an interview with Business Insider.
To be sure, in an exchange market, you are getting far more data points, Moro said. “Still, the OTC market is going to give you a much better sense of the price on multi-million dollar trades,” he said. “What trueDigital is trying to do is address the more institutional crowd.”
Not every market observer is onboard with the idea. Market structure specialist David Weisberger said there were some potential flaws in the product’s design. “Speaking as a former market maker, I can state that market makers will provide price quotes that are biased based on their own book, which can often be in conflict with either investors or potential investors,” Weisberger said. TrueDigital told Business Insider the indices’ contributors have given the firm the ability to test whether they are consistent with the markets they are making with their counterparties.