by Cindy Huynh
LMAX Exchange is launching a cryptocurrency exchange called “LMAX Digital Venue” for banks and hedge funds. The UK trading platform will enable institutional investors to purchase and sell cryptocurrencies like bitcoin (BTC), ether (ETH), litecoin (LTC), ripple (XRP), and bitcoin cash (BCH).
Meeting a Growing Demand
“We are furthering the legitimization of the cryptocurrency market by offering institutions a platform on which to acquire, trade, and hold cryptocurrencies securely with high quality, deep liquidity,” said David Mercer, CEO of LMAX Exchange.
According to the Financial Times, the UK foreign exchange currently trades around $4 trillion per year. As also reported by Business Insider, the LMAX Exchange launched in 2010. It was a multilateral trading venue for foreign exchange and has undergone over $10 trillion in transactions of fiat currency since launching.
LMAX Digital Venue was created out of sheer demand for institutional investment in the cryptocurrency scene. The LMAX which is regulated by the Financial Conduct Authority (FCA) is looking to outcompete cryptocurrency startup exchanges whose significant growth has highlighted concerns over their technological reliability, and money laundering controls. Merce continued:
“Digital currencies are, without a doubt, coming of age. Exchanges will play a crucial role in bringing the major cryptocurrencies into wider circulation, helping them to become accepted into conventional funds which in turn will help to support a normalization of value.”
LMAX Exchange believes that they can introduce a more secure market infrastructure for institutional investors like hedge funds, proprietary traders, and wealthy individuals with the potential for banks, sovereign wealth funds, and banks to enter the market. “We believe the banks will come in the next [six to twelve] months and believe they will come on to venues like LMAX because we are a trusted entity,” said Mercer. “We are seeing [names] you would get on other exchanges.”
Institutional Investors Move into the Cryptocurrency Market
According to a report released back in April 2018 by Tabb Group, the capital markets research and consulting firm, institutional investors have been inhibited from cryptocurrency trading due to unclear regulations, data quality, and poor infrastructure.
While the funds are interested they are “waiting for the right conditions to enter the market, and expected to begin happening this year,” said Monica Summerville, head of European Research at Tabb.
The consulting firm estimated that the largest cryptocurrency exchanges produce up to $3 billion through trading fee revenues every day. Institutional investors in the Over-The-Counter (OTC) market could product at least twice that amount. “The rise of institutional trading of cryptocurrencies will be a game-changer for the industry. We believe our new exchange will support the transformation of the crypto market from the fringes to the mainstream,” said Mercer.
Applying Knowledge from Institutional FX Market to LMAX Digital
LMAX will, therefore, undergo cryptocurrency trading on a transparent central order book, an approach commonly used in a variety of markets including equities, futures, and foreign exchange. They will also offer an option to store assets. Mercer concluded:
“We’ve applied everything we’ve learned in the institutional FX market to LMAX Digital, to create a fundamentally improved secure digital exchange based on our proven trading technology, market-leading liquidity and transparent and precise execution.”