Surviving and Thriving in Crypto Markets

Cryptocurrencies are booming and creating lots of investment interest and volatility. Multiple crypto exchanges with little or no regulatory oversight are generating arbitrage opportunities. High volatility and market inefficiencies promote the rapid creation of new products as institutional investors experiment with different strategies to capture higher returns and hedge their exposure. The result is a wild ride that has quickly moved beyond just a few types of coins, but getting these instruments to work effectively in legacy trading and risk management systems is the next challenge.

To survive and thrive trading in cryptocurrencies and related derivatives, systems need three fundamental capabilities:

• Flexible data connectors to capture information from multiple exchanges
• Customizable source code to create and modify derivatives
• Cross-asset functionality to effectively manage overall risk

Capturing Exchanges

Multiple crypto exchanges and the lack of a central clearing house are creating interesting investment opportunities, at the expense of having to connect to and manage each individual market source. Beacon’s comprehensive set of connectors and data warehouse tools enables us to easily consume data from many different sources, including exchanges, data vendors, and your own internal databases. Data abstraction and time series implementations enable you to neatly organize and tag the data into a consistent structure for your users to access. Each pricing source is simply set up as a unique market prefix, so users can price coins and options from multiple markets in real time on a single screen.

Creating Derivatives

As a new asset type, cryptocurrencies need to be properly defined in the system so that they are correctly priced and analyzed. Beacon provides a range of standard instrument models called market interfaces that you can easily modify to incorporate the characteristics of crypto coins. Building new derivatives from these interfaces is a quick process so that your trading desk can use them while the opportunities are still fresh. Beacon’s ability to incorporate existing code libraries, models, and algorithms in multiple languages means that you can use your choice of vendor-supplied or in-house analytics. Integrated development frameworks and software development tools make short work of experimenting with new models, testing them at scale, and deploying to production without sacrificing quality and governance controls.

Managing Risk

Managing risk in the face of high volatility and multiple markets is a complex problem. With Beacon, all instrument definitions include their contract terms, data, and logic needed to price and evolve themselves through lifecycle events, including forward cashflows. So crypto instruments can be risk managed and processed in the same environment and with the tried and trusted techniques as other more traditional assets, enabling a more complete, cross-asset picture of the whole portfolio. Beacon’s database also supports a bi-temporal data model that stores multiple entries for time series, reference, trade, and position data with both “entry time” and “as of” time. This makes it trivial to time travel through the data and run reports as of any date and time when running risk reports, pricing instruments, or shocking a portfolio.

Accelerating Time to Market

Beacon’s flexible platform with underlying source code and developer tools allow traders to easily customise how crypto assets are valued, without having to worry about the trading and risk management architecture that’s needed to manage the differentiation with traditional asset classes. With Beacon’s service deployment model, we can connect to pretty much any system on the street. You can run your traditional business through existing infrastructure, manage the crypto related pricing and valuation in Beacon, and return results into your existing stack. The result is much faster time to market, augmenting your existing systems with Beacon’s developer tools and risk management functions to quickly setup a comprehensive crypto business.