As market volatility spikes amid growing concerns on the impact of the Covid-19 pandemic, SRP spoke with David Wills (pictured), chief executive officer of cryptocurrency linked structured products platform, Kenetic Trading.

He told SRP about differing crypto trends between the US and Apac, the firm’s competitive position and activity as well as benefiting from current market conditions.

The Hong Kong-based firm is at the epicentre of Asia’s proprietary trading industry, covering all major digital assets and exchange venues aiming to capture value from market inefficiencies and pricing dislocations. Kenetic Trading has developed trading technology to execute its own systematic cryptocurrency trading strategies and also offers cryptocurrency based structured products to professional investors.

What would you highlight from the current market conditions?

David Wills: The current market environment is actually the most optimal for our firm and strategies. We primarily trade arbitrage strategies so while the market remains dislocated and volatile our strategies will perform really well. With the uncertainty that has come about due to Covid-19, we expect this market setup to remain in place for most of 2020.

How does a crypto-based structured product limit crypto trading losses?

David WillsIt really depends on what the investor’s existing positions and goals are. Collars and overwrites can be very effective structures. Given current elevated levels of volatility, any structure that takes advantage of selling volatility at these levels will almost certainly be a winning strategy over a six-month period if history is any guide.

We have seen a big pick-up in activity recently with the big spike in volatility

How much activity is going through the platform?

David WillsWe have seen a big pick-up in activity recently with the big spike in volatility as most investors are looking to take advantage of the higher yields one can generate from selling volatility such as call overwrites or selling puts. The demand is mainly coming from high net worth and family office-style investors. Bitcoin remains the most popular underlying, but we also see demand in Ether, Bitcoin Cash and Ripple as well.

How are US crypto markets dealing with Covid-19?

David WillsThe market microstructure in the crypto market is still immature which can lead to increased levels of dislocation and volatility in times of distress. For example, with no circuit breakers in place, it can mean there are very large drawdowns like we witnessed last week as leveraged client positions on derivative exchanges all got liquidated at the same time. The block processing times on the Bitcoin blockchain are often not fast enough for a client that has hit a margin call to post more Bitcoin to the exchange.

The US crypto-based structured products market is more geared towards an institutional client base

This means that a position can be liquidated before the margin call is met. If one doesn’t know how to manage these market microstructure issues well, they can get caught on the wrong side of a trade very quickly and lose a lot of money. Thankfully our battle-hardened trading experience puts us in a better position to manage such situations better than most.

What trends do you see in the US crypto-based structured products market? Do they differ to those in the APAC market?

David WillsThe US crypto-based structured products market is more geared towards an institutional client base. As the number of crypto hedge funds based in the US far exceeds the rest of the world, they represent a large proportion of structured products flow. In Apac, yield seeking medium to high net worth investors along with miners who are looking to forward hedge their mined coins, are typically the largest user base of structured products.

Where do you see yourselves in relation to your direct competitors?

David WillsThe addressable market in Asia is very broad-based so I think ourselves and each of our competitors have each managed to create our own respective niches in the market. It is still a maturing market and client loyalty is a big thing if they are serviced professionally and fairly. Our edge is most likely in our tight pricing due to our advanced systems and experienced traders.