How Low Latency Connectivity is Driving Institutional Crypto Trading

In March this year, in response to the “dramatic growth” of digital assets and cryptocurrencies, US President Joe Biden issued his first Executive Order on the subject, instructing federal agencies to work in unison to draft cryptocurrency regulations. This is something the market had been anticipating for some time. 

Many observers expect this move to further accelerate the trading of cryptos and digital assets amongst financial institutions, which to date has been somewhat stymied by the lack of regulatory clarity in the US. This in turn is likely to increase the demand from market participants for the necessary infrastructure to support their crypto trading activities, both in the US and globally. With other financial centres such as Singapore and Switzerland already having established more accommodating regulatory regimes for digital assets, the need for low latency connectivity solutions between crypto trading venues around the world is now becoming more crucial than ever.

The Need for Low-latency Crypto Trading Solutions

Until fairly recently, most crypto trading was conducted over the internet. But for firms that are latency sensitive, conducting arbitrage, or trading across multiple crypto exchanges around the world, it has become obvious that depending on the backbones of cloud service providers (CSPs) for their connectivity is not necessarily the best strategy. Consequently, the ability to connect cloud-to-cloud, with dedicated layer two/three networking, at fixed, predictable latencies, has become an increasingly attractive proposition for small, medium and large trading firms.

Although many crypto matching engines still reside in cloud-based environments, some of the bigger crypto exchanges are now starting to deploy physical infrastructure and dedicated routes, not only to attract more interest and investment from institutional players, but also to be compliant with regulations that will require financial institutions to have private connections to those markets.

The Rise of Dedicated Cloud-to-Cloud Connectivity

At BSO, we are seeing a growing demand for this type of connectivity and infrastructure, from both established firms and new players across the market. Newer crypto trading firms are not necessarily set up in the same way as the more traditional proprietary trading firms and banks, who typically have dedicated infrastructure in place for trading other asset classes, such as equities and exchange-traded derivatives.

Whereas previously, crypto trading firms would connect directly to virtual machines (VMs) on the crypto exchange, many of them now realise that they need their own VMs close to each exchange, and fast, secure and reliable connectivity between exchanges, in order to perform arbitrage between those VMs. And the more well-established firms, who typically already have points of presence in financial data centres, are increasingly requiring dedicated cross-connects into the major 10-12 crypto venues worldwide, running on CSPs such as AWS, Google Cloud Platform (GCP), Azure and AliCloud. 

For firms at both ends of the spectrum, BSO’s Crypto Connect service provides dedicated layer two/three routing between their own servers/VMs and each of the main CSPs. CryptoConnect supports data centre-to-data centre connectivity, data centre-to-cloud connectivity, and cloud agnostic cloud-to-cloud connectivity, with low, highly deterministic latencies. Offering dedicated bandwidth, no reliance on routing hardware, and private and secure trading routes, it is the most comprehensive low-latency crypto trading solution on the market.

Levelling the Playing Field: BSO's Low Latency Crypto Trading Solution

At BSO, we have a long history of supporting electronic trading in capital markets, streamlining each component of the execution flow, from order decision on the client server to execution on the exchange matching engine. The crypto trading world is now moving into that seamless, efficient way of executing, and can only benefit from the experience that we have and the low-latency crypto trading infrastructure that we have put in place.

Summary

Looking forward, as the crypto market evolves and demand for low-latency crypto trading solutions increases due to regulatory demands and infrastructure concerns, BSO aims to partner with more crypto exchanges. Through these partnerships, we intended to further leverage our low-latency footprint in financial data centres with additional access points and to provide institutional trading firms fair and equal access to low-latency crypto matching engines at a growing number of venues.

Learn more about our low-latency crypto trading capabilities or download our infrastructure security template to enhance your crypto platform security. Alternatively, get in touch with our team of connectivity experts to find out more.