Trading Places-INTERVIEWS WITH BUSINESS LEADERS THAT ARE MAKING MOVES IN THE BITCOIN SPACE

Author:  Gilbert Valentine @thegilty @glcbitcoin

INTERVIEWS WITH BUSINESS LEADERS THAT ARE MAKING MOVES IN THE BITCOIN SPACE

CHICAGO IL   In Chicago there is always something happening.  In the “city that works” we are finding persistent small companies continually innovating. Chicago is a financial hub and is also home to financial innovation.  Listed Futures and options were perfected here and began their trading on the Chicago Board of Trade, Chicago Mercantile Exchange, and Chicago Board of Options Exchange.  So, it’s not surprising that some companies in the finance and trading business in Chicago are making moves with respect to an exciting new technology.  One of those companies is Scaled Dynamics and its founder Justin Braun.  From his website:

 “Serial entrepreneur and longtime veteran of the futures industry, Justin Braun began developing custom software solutions for the financial industry in 2003. Prior to founding Scaled Dynamics, Mr. Braun spent his career working for industry leaders in the electronic trading space in roles that ranged from network engineering, software development, business development, and executive leadership. Scaled Dynamics was founded on a dare in the summer of 2010. After having spent a number of years working for software companies where his primary job description involved flying around the world hacking his employers’ own software to make it work for the clients, Mr. Braun founded Scaled Dynamics by wondering what the world would be like if the engineers actually listened to their customers.” 

I recently had an opportunity to sit down with Justin, in the heart of the financial district at his offices between the CBOT & the CBOE.  I picked his brain on a variety of subjects.  Chief among the topics was the aforementioned exciting new technology, Bitcoin.  With regard to Bitcoin we started by discussing his new software offering, to be released in mid-February, Gatekeeper 3.2.

GV: So what’s going on here at Scaled Dynamics?  Anything new?  What’s cooking?

JB:  Actually quite a lot.  Our development team is hard at work to roll out our new front end software, Gatekeeper 3.2.  We’re introducing functionality for automated order entry that is offered for listed products like stocks, futures, and options; and now we are adding Bitcoin!  Central to those new capabilities with respect to Bitcoin is the integration and connectivity with all the major Bitcoin exchanges.

GV:  Sounds intriguing.  Have any of your competitors integrated Bitcoin into their platforms?

JB:  No, though we expect to have a new set of competitors since the market is brand new. Just as importantly, our clients will soon have the ability to pay for Scaled Dynamics software in Bitcoin.  We’re hoping to attract the professional Bitcoin trader who wants to have the full suite of automated tools that traders demand for other listed products.

GV:  Automated trading?  Give me a for instance.

JB:  Say that you wanted to scale into a position by stacking orders and then repeating that stack in the opposite direction to scale out of the position. Trading manually would require a trader to be sitting in front of the computer watching the orders. In an automated system, you could enter the price of the entry and profit-taking orders, and then leave the machine to manage the orders and the algorithm to take the prescript amount of profit.

GV:  So a trader can automate his Bitcoin strategies using Scaled Dynamics Gatekeeper software?  What about arbing the different exchanges?

JB:  Yes, absolutely!  Traders can develop their own trading strategies and algorithms on Gatekeeper, now they can do it with Bitcoin.  If a trader wanted to arb the exchanges they’d have to have accounts at the different exchanges and subject to their capital controls.  Keep in mind that trading on these exchanges has huge counterparty risk.  They exist offshore.  Unlike the peer to peer characteristics of the Bitcoin protocol, these exchanges are centrally managed.

We segue into a discussion on trading.  Justin has been trading Bitcoin since early 2013.  His initial Bitcoin trading experience was rough with ample losses due to elevated volatility of the market.  Lately, his returns have been substantially positive, with his Bitcoin portfolio earning double digit percentage gains every week.  While he doesn’t trade Bitcoin everyday (hint: he has some days where the parameters of his automated programs don’t trigger a trade) he sees this nascent market as rife with opportunity.  Justin’s is enthusiasm for Bitcoin trading is demonstrated by the prominent spot he has given Bitcoin on Scaled Dynamics menu page.  TOP LEFT. 

We next talked about the different exchanges that he uses, trading, and security.

GV:  What are the different exchanges that you use and keep your accounts?  How do you rank them?

JB:  I trade and keep accounts on Bitstamp (Slovenia), BTC-e (Bulgaria), and MT Gox (Japan).  I would rank them in that order.  Realistically, I trust none of them.  I’m honestly afraid to try and pull my fiat out of MtGox. I keep low balances there and pretty much transfer my Bitcoin to my digital encrypted wallet that’s kept on an external hard drive.  I detach the hard drive and the wallet at the end of the day.

GV:  So, you don’t trust any of them?  That sounds rough.

JB:  The existing exchanges are all based outside of the US.  One of the issues is that they all use restful web based API’s, horrible technology infrastructure if you’re an exchange; wasteful and inefficient in maintaining an order book.  In addition to that their banking relationships are rather opaque.

GV:  What about getting short Bitcoin?

JB:  In order to get short, a trader needs access to a margin facility, which we have been yet to find a derivatives exchange that we trust enough to connect and execute on.

GV:  So, right now, a trader can only be flat or long Bitcoin?

JB:  Correct.  I hear there are some places out there that advertise leverage to be short Bitcoin however, I don’t trust them. I have some miner friends that I borrow from whenever I want to get short.   (Authors note:  I found sites offering futures and derivatives btc.sx, Predictious,  and icbit.se.  Caveat, I have not tried trading on any of them.)

GV:  So it’s a user beware environment out there in Bitcoin trading

JB:  Indeed, like I said before, there’s elevated counterparty risk.  With respect to Scaled Dynamics, we would certainly help a Bitcoin trader to understand those risks.  At the end of the day, Scaled Dynamics was always built to be a consulting company masquerading as a trading platform vendor.  We have a very powerful math and formula engine and a very powerful ability to do automated trades. All of those functionalities tend to get very complicated and there’s often a steep learning curve. A large portion of our revenue comes from helping our customers automate. If you have a proprietary trading strategy that you want to automate and you don’t have the programming skills, we’ll help you get there.

GV:  So, if I’m hearing you correctly; is that in addition to being a software company, Scaled Dynamics  is  pushing the envelope, finding the best exchanges and partners.

JB:  Exactly. I’m leaving for New York meet with a US based exchange that, I have it on good authority, has a Tier 1 US based banking relationship. I can’t name names just yet, but they are the only exchange I’ve found thus far that is building out proper FIX Connectivity and has a matching engine designed by professionals. I plan on transferring the bulk of my Bitcoin’s and trade flow to this US based exchange, which is expected to open shortly. With respect to finding the exchanges that are less risky to do business with, have more liquidity, and better security, we certainly will pass that information along to our clients.

GV:  Got it.  We look forward to hearing more upon your return.  Anything else cooking in New York?

JB:  I’m meeting with the CEO of an exchange software company to see what synergies there may be between his company and mine.  (The author knows the company, Alpha Point, and the CEO Joe Ventura.  Alpha Point is an exchange software provider)  We are hoping to attend the New York State Department of Financial Services Hearing regarding Virtual Currencies  on Jan. 28th & 29th in New York City.   (Agenda here)

This is  one of an ongoing series of articles relating to Bitcoin trading, market structure, derivatives, exchanges, and discussions with Bitcoin companies that are on the move.  In the next article in the Trading Places series we will check back in with Justin, CEO of Scaled Dynamics and Joe Ventura, Exchange Software Expert and Interim CEO of Alpha Point.  We will glean insight into the issues of Bitcoin regulation, Bitcoin as a technology, education, adoption, and where these leaders see Bitcoin heading.