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Crypto to Enter ‘Period of Behemoths’

David Mercer, chief executive of LMAX Group, which operates institutional execution venues for foreign currency and cryptocurrency trading, said the largest institutions will soon be entering the crypto sector.

LMAX Digital was launched in 2018 so Mercer told Markets Media that the firm is well into its initial five-year view.

“The first phase was about early adopters but our next five-year view is that it will be the period of behemoths,” he added.

The number of institutions trading with LMAX Digital more than tripled last year according to Mercer but largely consists of smaller banks, bespoke and crypto-native funds, and family offices – rather than the biggest institutions.

 David Mercer, LMAX Group 

Mercer continued that 34 banks trade FX with the group and 10 were taking crypto market data in 2021, which has grown to 14 this year. He expects two of those banks to start trading crypto this year.

“We are also having conversations with some of the biggest asset managers in the world and I would be surprised if they weren’t offering a crypto product this year,” he added.

The price drop in crypto markets at the start of this year has not stopped large institutions making inquiries, or building their crypto strategies, desks, or technology according to Mercer.

“That gives me confidence that institutional money is coming,” said Mercer. “LMAX is here to help build an institutional ecosystem and we view it as a long-term opportunity.”

He said there are several reasons for the continued interest from institutions despite the price drop in crypto markets. The total market cap for the top five cryptocurrencies fell over 20% in January according to digital asset data provider CryptoCompare, with bitcoin declining to a six-month low in January.

However, Mercer noted that the performance of cryptocurrencies and DeFi (decentralized finance) beat other asset classes in 2021 and that institutions need to understand crypto in order to become involved in DeFi. Decentralized finance lets customers recreate some traditional financial services in a decentralized way on a blockchain. In addition, regulators are beginning to provide clarity with the US, for example, holding congressional hearings and certain states accepting crypto as legal tender. In addition a number of central banks are discussing whether to issue their own digital currencies.

Post-trade settlement has been cited as a barrier for institutions in the crypto market. However, Mercer argued that in crypto market settlement is on a delivery-versus-payment basis while in wider capital markets credit intermediaries, such as banks, are needed to fund the delayed settlement cycle. Mercer said: “The credit intermediation layer is required to make post-trade much simpler.”


Other regulated exchanges are entering the crypto space. For example, in the fourth quarter of 2021 Cboe Global Markets announced the acquisition of ErisX which will provide the group with spot trading, data, derivatives, and clearing capabilities for digital assets through its regulated futures exchange and clearing house.

Coinbase, the listed US cryptocurrency exchange, is acquiring regulated derivatives platform FairX while last year FTX, a US-regulated crypto exchange completed its purchase of LedgerX, which has been rebranded as FTX US Derivatives. Through the deal FTX US gained a CFTC-regulated designated contract market, swap execution facility and derivatives clearing organization.

Mercer said he expects competition from other venues to increase and that it is beneficial for institutional customers.

“If I was the only provider you might question the legitimacy of this asset class,” he added. “We welcome competition and  the reason we like capital markets is that there is always choice.”

Despite potential competition, Mercer said he wants LMAX Digital to retain its position as the pre-eminent institutional exchange for crypto.

“We have got to retain our position and part of that is helping to build the ecosystem,” he added. “Volumes rose 450% last year and every week we are opening new accounts for  customers.”

LMAX Digital will also extend its product offering and is looking at derivatives and new coins.

In July 2021 LMAX Group reported record results for the six months ended 30 June 2021. Gross profit more than doubled to $60.5m, total group trading volume was $2.7 trillion and LMAX Digital volumes reached a record lof more than $300bn

Mercer said in the results statement: “The volatility in the crypto markets was good for trading volumes on LMAX Digital, which reached a daily record high of $6.5bn on 19 May 2021. LMAX Digital now has more than 500 institutional investors actively trading and is regarded as the primary price discovery venue in the market.”

In July 2021 LMAX Group also sold a 30% stake in the company to hedge fund J.C. Flowers for $300m, valuing the exchange operator at $1bn.

LMAX Group and J.C. Flowers said at the time that their partnership will accelerate the company’s next phase of growth and innovation, and greater penetration in the FX and crypto currency markets globally, particularly in the U.S. and Asia.

Chris Flowers, chief executive of JC Flowers said in a statement: “The LMAX Group exchange infrastructure offers efficiency and transparency, both of which are in high demand by the growing numbers of institutional participants in foreign exchange and crypto currency trading.”