One of our aims is to provide institutional insights for retail investors. Jane Street is such an institutional investor. For the first time, they reveal their crypto investment strategy. Time to watch, analyse and learn!
Let’s begin with the beginning and look at what sort of company Jane Street is.
What about Jane Street?
Jane Street Capital is a trading company and investment firm. They employ about 1.700 employees and trade more than $ 17 trillion in complex securities per day. Therefore they are also seen as a market maker.
What does Jane Street do?
As said, Jane Street invests in complex securities. You can think of ETF’s like the Bitcoin Future ETF, Equities, Bonds, Options, Commodities, Digital Assets, Futures, and Currencies. From their offices: Jane Street London, Amsterdam, Hong Kong and New York, they trade on more than 200 electronic exchanges in more than 40 countries worldwide.
With this reach, the company can trade 24/7 in each time zone. This ability and their enormous trading volume allow the company to act as a market maker.
Is Jane Street a hedge fund?
Technically speaking, Jane Street is not a hedge fund since they only invest their own money while hedge funds invest with funds provided by various third parties.
Does Jane Street invest in crypto?
Yes, we know that Jane Street invests in crypto and crypto-based technology. Their label JCX Jane Street offers a digital assets single dealer platform to provide net settlements for the most actively traded crypto tokens, as it states on their website. However, since they use proprietary models, there wasn’t know too much about their investment strategy. However, for the first time, Jane Street’s trader Thomas Uhm agreed to an interview with Blockworks, a crypto-focused podcast.
In Blockworks Empire Podcast, hosted by Jason Yanowitz, Uhm tells about Jane Street’s crypto investing strategy, compares crypto trading with traditional trading and shares his views on DeFi. When talking about providing institutional insights for retail investors, this is the time to learn.
How to view Jane Street’s crypto and DeFi interview?
Of course, we will share the entire interview with Jane Street’s Thomas Uhm. You can view it right below.
However, the entire interview is 1 hour and 17 minutes. Therefore the discussion is cut up into chapters as follows:
- 00:00 Introduction
- 01:22 What Is Jane Street
- 05:54 Day In The Life Of A Market Maker
- 12:45 Why We Need Efficient Markets
- 18:19 Crypto Market Infrastructure & Innovation
- 37:40 Sam Bankman-Fried’s Days At the company
- 39:12 Jane Street’s Role In Crypto Markets
- 43:38 Paraswap Ad
- 45:08 Jane Street’s Role In DeFi
- 1:02:36 Creating New Financial Markets
To provide further access, we have picked some highlights.
What is market making according to Mr Uhm?
When discussing market-making, Uhm discusses how they see a market maker as a role in closing the gap between buyers and sellers by taking benefits from the different time horizons of investments on both sides.
Comparing crypto trading versus traditional investing
Uhm acknowledges vast differences between traditional investing and investing in crypto. According to him, the three main differences are:
- Cryptomarkets are open 24/7;
- Settlements are done immediately;
- crypto innovations that influence the traditional trading systems.
Of course, he also sees some shortcomings in this new market. For example, one of the main problems for institutional investors is that since trading is constantly ongoing, Trading Cost Analyses (TCA) are hard to make. You can find out more about this part as of 18.19.
What is Jane Street’s role in crypto markets?
As Mr Uhm tells as of 39.12, he tells the company has been trading since 2017. They use mainly over the counter trading partners. They see themselves as a liquidity provider for over the counter market makers. With JCX Jane, they offer price quotes to over the counter traders. In this way, they can access liquidity by doing business with Jane Street.
Furthermore, they use spot markets for trading ETF’s and complicated crypto financing products.
How does Jane Street think about DeFi?
As of 45.08, Mr Uhm tells that the company is active in DeFi, but not to the extent they desire. Therefore he foresees that Jane Street will get more involved in the future.
The main obstacles are:
- the relatively small size of this niche market;
- regulatory demands like Know Your Customer;
- lack of possibility to do due diligence in lending pools.
As a danger, he sees the experimental phase of the DeFi markets. Practices like burning coins and slicing investments in various investment opportunities remind him of the practices in traditional trading markets before the financial crisis. Uhm is afraid that people will react overconfident to the risks, which will lead to losses due to following the wrong market makers.
How does the company think about new financial crypto markets?
When reflecting on future financial markets, Mr Uhm sees that there will be a financial market created around people’s data and providing human attention. Another opportunity is monetising fan communities around sports, athletes and artists.
The trading of these new tokens itself might not be too attractive to institutional investors. However, there is a market to provide liquidity for these token owners. The downside is that people are monetising their reputation and/or popularity. The consequences are that damage to reputation or popularity can inflict more financial damages and, therefore, more risks for investors.
Suppose this article inspired you to deepen your interest in alternative crypto investment opportunities. In that case, you might want to get to know our partner for trading Bitcoin and crypto derivatives, Huobi Exchange.
