Veterans of FX’s Wilder Days Are Loving Bitcoin’s Volatility

Photographer: Miguel Navarro/Getty Images

Rob Catalanello could’ve sworn he’d seen everything in his more than two decades on various foreign exchange desks in New York, from the unpegging of Brazil’s and Argentina’s currencies from the dollar to the Russian debt crisis.

Then he started trading Bitcoin. In March, when the cryptocurrency plunged more than 30%, “it was more busy than any day I saw in 20-odd years in FX,” Catalanello says. “Just the amount of deals, the violence of the move, the unpredictability of the move, and the amount of risk that we had to hedge.”

Catalanello, 56, who’s headed the U.S. unit of London-based electronic trading firm B2C2 for about a year and a half, is part of a wave of former currency traders who’ve joined the crypto world. Forget all the arguments about Bitcoin’s intrinsic value, its technological merits, or whether it will ever be widely adopted as a way to pay for a cup of coffee. For many FX traders, what matters is that they can make money on its volatility. Others were drawn by the market’s infancy, hoping they could help chart its path forward. Once inside, many veteran foreign exchange traders have found that they’re on familiar territory, reminiscent of a time when currency markets were more manic.

In the early 1990s the FX world was highly fragmented, liquidity was thin, and large block trades could push prices around. It was a market ripe for manipulation. This led to a number of scandals, some even involving the world’s largest banks. But most important for daring traders, bid-ask spreads—the difference between what a buyer is willing to pay and what a seller is willing to accept—were wide. A quick trader could step into the middle and grab a profit.

“It’s very similar to what you’d see in crypto these days,” says Brad Bechtel, global head of foreign exchange at Jefferies LLC, who got his start in the business in the mid-1990s. “It wasn’t for everybody, it was a very difficult market to trade. You could lose a lot of money very quickly.”

Volatility in currency has waned since then, and the market has matured, thanks largely to electronification and heavy central bank involvement following the 2008 financial crisis. This is life for FX traders now: The euro trades in a very tight range relative to the dollar, so even if you’re really good at guessing the direction, you’re not going to be able to make much money, says Marc Chandler, chief market strategist at Bannockburn Global, who in the ’90s spent time with various hedge funds and big banks. FX’s low volatility limits profits. But “because cryptos move, that’s what appeals to some market participants,” he says.

There’s been a lot of action in the past year for those who heard the crypto market calling. Bitcoin, the largest digital coin, dropped from about $13,800 in June 2019 to below $4,000 in March. It’s currently hovering around $10,000. The monthly price change for Bitcoin so far this year averages 8%.

Ture Johnson lived through the changes in FX markets in the ’90s. He remembers having to call in orders via a squawk box in the early part of the decade at Bank of America Corp., before electronic trading existed. Last year he made the leap to Floating Point Group, a crypto trading platform, where he runs the trading desk. “There’s definitely a lot of systematic, hedge fund trend-following guys sitting on the sidelines right now watching and going, ‘Hey, I really want to get involved with this because there’s an opportunity to trade here and make money,’” Johnson says, describing the crypto curious. “People love volatility.”

Well, professional trading people do. Retail crypto trading has waxed and waned since Bitcoin’s manic surge in 2017—and subsequent crash. But institutional interest has picked up, especially in derivatives such as cryptocurrency options. Ownership of cryptocurrency has also consolidated. At the end of August about 2.1% of accounts controlled 95% of all Bitcoin supply, according to Flipside Crypto. At the same time nearly 29% of Bitcoin was in wallets that held from 1,000 to 10,000 tokens, according to Coin Metrics data.

This isn’t to say everything about the crypto world feels familiar to FX veterans. Unlike any other corner of the financial world, it’s a decentralized market thanks to blockchain technology. It’s also small. The foreign exchange market is the largest in the world, with more than $6.5 trillion traded daily, according to the Bank for International Settlements. Cryptocurrency exchanges on average have seen about $130 billion in trading per day over the past month.

Yet the market’s youth is one reason Catherine Coley was drawn to it. She left Wall Street in 2016 after spending five years with Morgan Stanley at its Hong Kong and London FX desks. The experience was thrilling, she says, but after a while the “sparkle and luster of big risk, big reward” waned in the banking industry. She’s now chief executive officer at the crypto trading platform Binance US. Over the years, Coley has seen a number of former colleagues make the move into crypto —“almost to the extent we could resurrect the whole desk,” she says.

“It really is a nimble enough industry for us to get some things right,” Coley says. —With Kenneth Sexton and Olga Kharif

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