In this episode of The Crypto Traders podcast, host Jacob Canfield is joined by guest Sam Bankman-Fried, CEO and co-founder of Alameda Research that manages and trades digital assets and their derivatives. Sam is also the founder of FTX, an up and coming cryptocurrency derivatives exchange with a lot of cool financial products.
Topic #1 A Bit of Introduction
Sam introduced a little bit of himself. As a background, he started his career as a trader on Jane Street Capital’s International ETF desk. He traded ETFs, futures, derivatives, and equities, and designed their automatic OTC trading system. He worked there for three years until he left in 2017 before jumping into cryptocurrency. He founded Alameda Research as a cryptocurrency quantitative trading firm. Recently, he started up FTX, a new crypto derivatives exchange.
Topic #2 Why The Shift
Sam divulged his reasons for shifting from Jane Street and International ETFs to the volatile crypto market. Sam observed that bitcoin was gaining a ton of publicity and acclaim; bitcoin was the hottest thing in late 2017. But none of the Wall Street firms seemed to trade them; there was not a lot of professional equity involved. Sam said that crypto is a very immature industry, but one that is also blazing hot. He checked various resources and inferred that this market is very crazy, rash, volatile. He said that either there is nothing in the market and it’s all fake, or it is where opportunities for trade lie. Upon ascertaining enough, he built and pioneered Alameda.
Topic #3 How Alameda Was Birthed
Alameda prides themselves on their trading and engineering talent with ample experience from firms like Jane Street and Google. Sam iterates how this project of his started. With the little money he saved up from his previous job and a credit line from his peers, he started the research company. During that time, the margins were entirely off the roof, so you did not need that much capital to make it far. It snowballed on and on while they found ways of delivering value and increasing their bottom line, and through the years it has built up into this research institute of repute.
Topic #4 Market Makers and Liquidity Providers
Traditional market makers are market-neutral entities that provide bids and asks in a financial instrument or commodity held in inventory, hoping to make a turn a profit on the bid-offer spread. They are held in this negative light because of what they do. In crypto, however, market maker translates to a liquidity provider. They incentivize trading and liquidity by providing for two sides of a market and staying hedged. In crypto, market makers reduce price volatility and assist with fair price discovery, aiding in making financial markets more stable.
Topic #5 Make Sure To Do Hedges
Sam says that there are various ways to hedge in crypto. There are different instruments available, not to mention lending desks and market trading. A whole bunch of products and options are open to the trader. Because of this, you can put a position on one exchange, and do the opposite to another exchange. A lot of this is on finding places where you can hedge your trading, and that whenever you trade on one exchange, make sure that it’s good to make another trade on another exchange, and you follow up on that trade.
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