A tiny crypto firm making 9-figure bitcoin trades is taking a page out of Goldman Sachs' playbook to become a juggernaut
- Paxos, the blockchain company, has brought on a trading vet to join its itBit OTC desk, Business Insider has learned.
- Paul Ciavardini is now leading the desk. He says the firm's custody business could help its trading business.
- Paxos' chief executive Charles Cascarilla recently told Business Insider the OTC desk sees nine-figure deals.
Paxos, the cryptocurrency company, appears to be taking a page out of Goldman Sachs' playbook.
The firm, which runs a crypto exchange and over-the-counter trading desk via its itBit unit, is looking to leverage its crypto-custody business to lure trading volumes to its venue. It's a move that Paul Ciavardini, the director who oversees OTC trading at the firm, says looks a lot like how Goldman offered prime brokerage services to hedge funds that turned into big profits for its trading business.
Ciavardini, a former Citadel trader who joined Paxos in March, said its custody product could lure in hedge funds clients looking to store their crypto in a secure and regulated manner. Paxos is only of a handful of companies offering crypto-custody.
"I see the custody business doing something similar here [to what Goldman did]," Ciavardini said. "It acts as a conduit and translates into business on the trading and exchange side. It's just all about getting them comfortable with the custody."
Many market observers have said that in order for large institutional firms to get comfortable trading bitcoin, there need to be reputable custody offerings to safeguard holdings.
Still, custody might not be the panacea to lure in Wall Street firms that are skeptical of the crypto market, says Michael Dunworth, the chief executive of Wyre, a blockchain company.
"People seem to think that custody is holding 'big institutional money' on the sidelines," Dunworth said. "That's just not the reality. The reality is that it's a long education process, which likely started materializing for a lot of them toward the end of last year during the bull run."
Paxos recently closed a $65 million fundraise led by investors including Liberty City Ventures, RRE Ventures and Jay Jordan. In total, the company has raised $93 million. The company also announced Thursday that it would begin offering custody and trading in four new cryptocurrencies.
Besides its custody product, Paxos' trading business has been robust and the firm has been involved in "nine-figure trades," said Charles Cascarilla, the chief executive of Paxos. The firm's minimum for an OTC trade stands at 25 bitcoin, or the equivalent of $168,000 at last check.
"There's some big trades that have gone through, but that's because there's only so much liquidity on exchange," Cascarilla said. "It's another way for firms to manage where they need to get liquidity."
Cascarilla sees a big opportunity for itBit over the course of the next two years as the broker dealers and asset managers enter the space.
Wall Street is "facilitating trades in bitcoin futures, they are figuring out how to do crypto for customers," Cascarilla said. "That whole wave of brokers and banks hasn't happened yet."
Large Wall Street firms are only starting to enter the nascent crypto market.
Fidelity, the $2.5 trillion asset manager, has quietly been working on some big projects in cryptocurrency and Goldman Sachs is building out a crypto trading operation.
"The next 18 months, however, the space could be unrecognizable," Cascarila added.