Bitcoin Soars Back From Overnight Plunge As Citadel. Virtu Signal HFT Move To Crypto

So now we know what Plan B was for the giant HFT shops…

Just hours after the SEC leaked plans to The WSJ that the regulator is preparing to propose unprecedented changes to market structure as soon as this fall which would make it virtually impossible to frontrun retail orders, sending shares of Virtu tumbling, Coindesk reports that Citadel and Virtu are building a cryptocurrency trading platform along with retail brokerages Fidelity and Charles Schwab.

According to Coindesk, work on a “cryptocurrency trading ecosystem” is aimed at creating more efficient access to deep pools of liquidity for digital assets, the source told the online publication.

The firms in Citadel Securities’ initial consortium will be joined by additional wealth managers, market makers, and other industry leaders who are expected to join the marketplace before it launches.

Citadel Securities had been “quietly hiring executives” to build out a crypto trading stack, a second source told CoinDesk.

“This marketplace is intended to create more efficient access to deep pools of liquidity for digital assets. So a group of industry leaders are working closely together to facilitate the safe, clean, compliant and secure trading of digital assets,” the source told CoinDesk.

Bloomberg reports that Susan Coburn, a spokeswoman for Fidelity, said the company “supports efforts within the industry that provide optionality to source liquidity for our clients.”

Schwab “has made a minority, passive strategic investment in a new digital asset venture,” spokeswoman Mayura Hooper said in an emailed statement.

“We know there is significant interest in this cryptocurrency space and we will look to invest in firms and technologies working to offer access with a strong regulatory focus and in a secure environment.”

Additionally, earlier in the day, Citadel confirmed its commitment to crypto as it noted that if regulators allow it, the company is willing to make markets in ETFs that hold cryptocurrencies.

“We will be ready if and when those products are approved, but we are taking a measured approach,” Kelly Brennan, head of the firm’s ETF group, said in an interview at Bloomberg’s headquarters in New York, adding that the firm can’t provide liquidity until regulatory issues are resolved.

“We get a huge volume of calls about spot Bitcoin ETFs, but they are all from prospective issuers,” said Cory Laing, head of Delta-One sales at Citadel Securities. “The calls are not coming from clients.”

Customers who want to be in crypto are finding ways, according to Laing.

“They aren’t waiting for a nice packaged product,” he said.

If a spot Bitcoin ETF gets approval, Laing anticipates that demand will follow.

As a reminder, Griffin told Bloomberg earlier this year he had changed his anti-cryptocurrency stance and that it was possible his firm would get into market-making for digital assets.

“Crypto has been one of the great, great stories in finance over the course of roughly the last 15 years and, I’ll be clear, I’ve been in the naysayer camp over that 15-year period.”.

The reaction to this news was self-evident as overnight weakness in Asia was eviscerated with a mirror-image buying-panic…

One reason for this renewed bullishness is self-evident.

Growth in the partnership between the price-makers (Virtu and Citadel) and price-takers (the clients of Schwab and Fidelity) relies on ‘roping in’ more and more retail traders whose orders will be potentially ‘front-run’ (allegedly), since liquidity and trading volumes have collapsed as crypto prices have dropped. And what drags retail kicking-and-screaming back into Bitcoin and Ethereum better than a rip-snorting rally where ‘all your friends’ on Twitter or TikTok are “killing it” again.