Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit. Citadel Cryptosecurities
I guess the most straightforward interpretation of the news that Paradigm, a crypto venture capital firm, is investing in Citadel Securities, a market-making firm that does not trade crypto, is that Citadel Securities is going to start trading crypto? Like this seems unlikely: Paradigm: We are a leading investor in crypto trading firms.
Citadel Securities: Well don’t look at us, we hate crypto, never traded it, never will.
Paradigm: I suppose we could use some diversification. Maybe, who knows, but my guess is the obvious one: The crypto boom is creating enormous gushers of wealth for financial intermediaries, Citadel Securities is a skilled financial intermediary that sits atop various long-running gushers of wealth (stock trading, etc.) that are starting to look just the littlest bit depleted, and it is eyeing all those fresh bubbly crypto gushers with interest. It takes money to build out a crypto business, but fortunately it is also extremely easy to raise money to build a crypto business, so here we are, here we are.
Here is the press release about the deal, in which Sequoia Capital and Paradigm will invest a total of $1.15 billion in Citadel Securities at a valuation of about $22 billion. “Firm Will Continue to Leverage its Superior Technology to Accelerate Global Growth Across Products, Markets and Regions,” it says, and: “Citadel Securities has developed software and algorithms that have driven substantial improvement to market structures for the benefit of institutional and retail investors everywhere,” said Matt Huang, Co-Founder and Managing Partner of Paradigm. “We look forward to partnering with the Citadel Securities team as they extend their technology and expertise to even more markets and asset classes, including crypto.” I sometimes come across claims that crypto will somehow disintermediate finance, that the decentralization of crypto puts the power, and all of the economic benefits, of crypto in the hands of ordinary people and gets rid of the need for big middlemen like Citadel Securities. These claims are crazy . Look around! There are endless profiles of people who have become billionaires by starting crypto exchanges, trading platforms, market makers, derivatives businesses, etc. (Meanwhile I have never read a profile of someone who became a billionaire by using crypto to solve any problem other than trading more crypto but never mind!) Here’s one from two days ago about Changpeng Zhao of Binance , who’s worth $96 billion. Here’s a Forbes profile of Sam Bankman-Fried of FTX , “the world’s richest 29-year-old,” worth $15.2 billion (per Bloomberg). Here’s a profile of Coinbase CEO Brian Armstrong’s $133 million house ; Bloomberg gives his net worth as $8.7 billion. Armstrong’s Coinbase co-founder Fred Ehrsam ($3 billion) is one of Paradigm’s founders. Here’s a profile of the two founders of OpenSea , the non-fungible-token trading platform, worth $2.2 billion each.
Meanwhile Ken Griffin, the founder of Citadel Securities (and also of Citadel, the associated giant hedge fund) is worth $21.1 billion, which is pretty good, but he’s been doing it a lot longer than these other guys. Being a stock-trading middleman was a good way to make a fortune, back when stock trading was dominated by big inefficient banks and there was lots of room for new competition. Now it’s, you know, fine, but it’s efficient and grueling and you fight for every basis point and also you get to be the subject of congressional hearings and weird conspiracy theories.
Meanwhile in crypto! Meanwhile in crypto people will pay millions of dollars for a JPEG of an ape and then hand over the private key to anyone who asks nicely! Meanwhile in crypto you can make huge profits by being the robot counterparty to fat-finger trades , and no exchange will break those trades! Meanwhile in crypto the transaction fee for a $75 transaction is $75 ! Meanwhile in crypto the take rate for exchanges is 0.57% of their transaction volume, and Robinhood Markets Inc. collects more payment for order flow for crypto orders than it does for stock orders. The sidewalks in crypto are carpeted in a layer of $100 bills three inches deep! What kind of lunatic would run a high-tech global multi-asset automated trading firm and not get into crypto?
“Ken Griffin” is I suppose a partial answer […]
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