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The Great Return: From Crypto Back to Traditional Finance

Posted on August 2023

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In recent years, the financial world has been rocked by the meteoric rise of cryptocurrencies. A lot of talented quants and traders, attracted to crypto's volatile prices and potentially massive returns, shifted their attention away from traditional markets and dove headfirst into crypto native funds. However, the tides seem to be shifting once again, and there's a noticeable migration back to the world of traditional finance. Why? Let's delve deeper.

The Similarities in Pricing Engines

For those who might not be well-versed in the intricacies of the financial world, pricing engines are essential tools used by traders to make quick buy or sell decisions based on a myriad of variables. These engines are especially vital in areas such as electronic FX (foreign exchange) trading.

Interestingly, many of the pricing engines used in electronic FX trading are quite similar to those employed in the crypto market. This makes the transition between the two markets relatively seamless for quants and traders, so when the dynamic crypto market turns, the familiarity with traditional finance pricing engines might draw them back.

The Volatility of the Crypto Market

While volatility can be profitable for traders, it can also be perilous. The crypto market, in particular, is known for its extreme fluctuations, sometimes swinging by double-digit percentages in a single day. This kind of uncertainty can be exhilarating for some, but draining for others. The fatigue from such intense volatility might be one of the reasons driving traders back to the more stable, albeit less exciting, realm of traditional finance.

Regulatory Concerns

The crypto world has always existed in a kind of regulatory gray area. As governments and financial institutions around the world grapple with how to classify and regulate cryptocurrencies, traders and funds operating in this space are constantly on their toes. This regulatory unpredictability can be a significant source of risk and stress, making traditional markets with established regulations appear more attractive.

The Quest for Stability

Despite the potential for massive profits in the crypto world, the allure of stability and a steady paycheck can be tempting. Traditional finance, with its established institutions, regular trading hours, and relatively predictable market movements, offers a level of security that the 24/7 rollercoaster of crypto trading might not.

Broader Market Dynamics

While the crypto market offers a limited (though growing) number of assets to trade, traditional markets, including FX, commodities, equities, and bonds, provide a diverse array of opportunities. This breadth can be appealing for traders looking to diversify their strategies and risk profiles.

It's essential to recognize that while there's a noted shift of quants and traders moving back to traditional finance, this doesn't signify the decline or dismissal of cryptocurrencies. The crypto market is still young, evolving, and undeniably influential. However, this migration underscores the enduring appeal and resilience of traditional financial markets. As the landscape of global finance continues to evolve, it will be fascinating to see how these migrations and intersections between the old and new financial worlds shape the future.

If you're a firm or individual looking to harness the expertise of quants professionals, especially during these dynamic times, we have the right resources for you. Toby Hill, our seasoned expert in matching financial talent with demanding roles, is at your service. To get started and discuss your requirements, please request a call back by completing the form below.

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