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Recently we spoke to the head of Coinbase’s UK entity and we talked about the concept of Robinhood-ification.
This is basically where you pretend to be a platform that offers a vanilla investment product, use that product for marketing, bring in loads of customers, then cross sell into more complex, higher revenue products.
Crypto is basically the same. Instead of stocks, you say you’re a place to ‘buy bitcoin’ or make crypto payments. Then you try to sell people into perpetual futures, options, and other stuff.
Kraken now uses prop trading for this. You can directly access Breakout, the prop firm they acquired earlier this year, on their site homepage. Incidentally, this works as a regulatory arbitrage in the UK – retail can’t trade crypto derivatives, but they can trade crypto derivatives on a demo account!
Will others follow the Kraken path and prop as a Robinhood-ification cross sell product?
In November of this year, the owner of crypto prop firm HyroTrader said that he’d been approached by ‘one of the biggest global crypto exchanges’, with an offer worth “tens of millions of dollars” to sell. He declined.
It’s hard to know whether or not that’s true – why not sell? – but it’s definitely not implausible.
Crypto prop firms have become something like a subset of the wider prop trading space. There are now multiple firms, similar to Breakout, which only let you trade in crypto products.
A number of these firms have an integration with Bybit. You basically plug a Bybit demo account into the prop’s dashboard and can then trade on the crypto exchange’s platform. Incidentally, this process looks and feels what the Americans would call ‘janky’.
It is hard to tell how close the relationship is between Bybit and some of these firms. For example, a relatively new firm called Mubite openly uses Bybit branding on its website and social media platforms.
Other posts they’ve made suggest they have attended events in conjunction with Bybit and have also held their own trading events with the crypto exchange.
No other major crypto exchange, that I can see, has this sort of relationship with prop firms.
Some firms claim to have access to Binance. However, when you actually look at what they are doing, they are just onboarding with a trading platform and tech firm called Cleo.Finance, which is based in the Czech Republic.
Cleo gives you access to pricing and trading on perpetual futures from Binance and OKX but does not involve you signing up to those firms directly. I could be wrong but I basically think Bybit is the only crypto exchange letting prop firms trade on its platform.
A quick scan of open roles at the big crypto exchanges does not suggest there is anyone hiring to manage or build a prop product. So what to make of the HyroTrader claim?
The first point to note, beyond the fact it could just be BS, is that it’s easy to imagine crypto firms holding a prop firm at arm’s length.
This is what a lot of brokers have done, with separate URLs, brand names, and legal entities. Even now Breakout remains under a separate brand and website to Kraken. Consequently there is little reason to believe that a firm would be making a lot of noise about having this product.
But I think if one firm does end up adding it, Bybit is the most likely option. Obviously they have an existing relationship with several prop firms, so they already know what the product is. Hyro mainly appears to deal with Bybit, for example.
The other reason for this is what can be described as ‘mentality’. Bybit’s founder and CEO Ben Zhou was the manager for XM’s China operations for seven years before he set up the crypto exchange in 2018.
Take a quick browse through the Bybit website, particularly on their ‘tradfi’ offering, and the influence of his experience in the CFD industry is very obvious. Prize pools, big deposit bonuses, trading contests – it’s all there baby.
Consequently I would imagine that Zhou and the Bybit team ‘get’ prop trading in a way that other firms like Binance or OKX just wouldn’t, even if they would not necessarily have a problem with adding the product. Obviously others like Coinbase will most likely never touch it because they will have a problem with the product.
Whatever the case, this is all supposition. All we can say for sure is that Bybit knows this product exists and is happy to engage with it. Will that go beyond just supporting APIs and demo account trading? Let’s see what happens.
