Wall Street's Cowboy Traders Find New Riches In Bitcoin And Cryptocurrencies
Mike Komaransky spent 16 years trading, starting out as a clerk in the pits of the Chicago Mercantile Exchange, buying and selling everything from U.S. Treasuries to European fixed income derivatives. He spent his career at DRW Holdings, becoming a partner at the proprietary trading firm that runs one of Wall Street’s largest high frequency trading businesses. Since 2010 Komaransky has focused on a new asset class, trading cryptocurrencies like bitcoin, and he did so well that Komaransky retired this summer—at the age of 38.
“After 16 years of trading, today is my last day,” Komaransky tweeted on the last day of June. “I wish you the best.”
Komaransky has moved to France. His twitter feed shows him standing next to a pool and holding a surf board that has bitcoin emblems on it. Komaransky won’t comment on how much money he made trading bitcoin, but he clearly earned a fortune. “He has moved to France with his family,” says Bobby Cho, who now runs the cryptocurrency trading business Komaransky founded at DRW in 2014. “I don’t want to get into the finer details but you can anticipate that anyone who was interested in the technology in 2010 and had a trading background probably made some plays.”
For years, proprietary trading firms were booming, minting fortunes that were fueled by high frequency trading. The crowd that revolutionized Wall Street trading became the subject of fascination (appearing on the cover of Forbes in 2009 as “The New Masters of Wall Street”) and derision (cast as the bad guys in Michael Lewis’ bestselling book “Flash Boys”).
But with markets in a long period of record-low volatility, high frequency trading is no longer sizzling and some firms are struggling. High frequency trading firms are searching for new ways to deploy their capital and some of the bigger firms are buying their smaller rivals. Just this month DRW announced it was buying RGM Advisors, a smaller high frequency trading firm.
With cryptocurrencies like bitcoin quadrupling in value this year alone, high frequency players are finding their way to the new Wild West of trading that some believe is in bubble territory. Proprietary trading firms are particularly well positioned to pursue cryptocurrency trading because they are in the business of putting their firms’ own capital to work. The fiduciary obligations Wall Street’s hedge funds have to their outside investors often preclude them from trading bitcoin and other cryptocurrencies. The big Wall Street investment banks like Goldman Sachs have their own institutional limitations.
“The only place to start an institutional-sized bitcoin trading desk in 2014 would have been at a principal trading firm like DRW,” Komaransky said in an interview conducted over email with Forbes.
While working in London in 2010, Komaransky became interested in bitcoin after reading about it on the blog of Tyler Cowen, an economist at George Mason University. Cowen’s simple blog post changed Komarnasky’s life and he began getting “personally involved in bitcoin from that point.”
Komaransky says there was not sufficient interest in trading bitcoin for it to make sense at DRW until November 2013, when the price of bitcoin really started moving after the largest bitcoin exchange, Mt. Gox, started to collapse. With trading activity increasing in 2014, DRW’s founder and CEO, Don Wilson, gave Komaransky the green light to launch a crypto-trading currency desk. Komaransky called the business Cumberland Mining after the Grateful Dead song “Cumberland Blues” about a poor hard-working miner.
During a volatile phase of bitcoin trading, DRW’s Cumberland unit connected to major exchanges to trade opportunistically and built a base of counterparties looking to trade bitcoins. Komaransky’s group provided a trading counterparty that was willing to take on risk and inventory bitcoins, making notable trades like winning the majority of coins auctioned by the U.S. Marshals Service, which had seized them from Ross Ulbricht and the online black market he founded, Silk Road.
“The market was young and laden with negative headlines from Silk Road and Mt. Gox,” says Komaransky. “We were able to look beyond the headlines and identify a true market opportunity. A core strength of DRW is intelligent risk-taking.”
Today Cumberland Mining is one of the largest cryptocurrency market makers, with 12 employees mostly trading bitcoin and ethereum, largely for bigger investors looking to trade blocks of $1 million or more. “I have had more conversations with traditional financial firms in the last 30 days than I have had in the last year,” says Cho, who now runs Cumberland Mining.
Take Chase Lochmiller, who has math and physics degrees from the Massachusetts Institute of Technology and a master’s in computer science with a concentration in artificial intelligence from Stanford University. For the last decade he has put his talents to work for the biggest high frequency trading players on Wall Street, like Getco and Jump Trading.
But in July Lochmiller left his job at Jump Trading, where court documents show he made millions of dollars annually, abandoning his career of using quantitative models to trade stocks and futures in fractions of a second, in order to pursue cryptocurrency investing. At 31, Lochmiller joined Polychain Capital, the hedge fund run by Olaf Carlson-Wee that has seen its assets surge from $4 million to $250 million in less than a year of trading cryptocurrencies like ethereum and tezos.
https://www.forbes.com/sites/nathanvardi/2017/08/22/wall-streets-cowboy-traders-find-new-riches-in-bitcoin-and-cryptocurrencies/#57446ac514ac
