By Will Hadfield and Edward Robinson, Bloomberg 

Europe’s largest trader of exchange-traded funds is moving into crypto, even though its regulator urges consumers and institutions not to buy and sell digital currencies.

Flow Traders NV, an Amsterdam-based speed trader, is making markets in the first exchange-traded notes based on Bitcoin and Ether, according to Co-Chief Executive Officer Dennis Dijkstra. XBT Provider, an issuer of crypto ETNs listed in Sweden, said that the Dutch company has “dramatically increased” trading of its securities in the last few months.

Dennis Dijkstra, Photographer: Christopher Goodney/Bloomberg


While five big U.S. speed traders are already making markets in cryptocurrency futures or the underlying currencies, Amsterdam-based Flow Traders is the first firm anywhere to disclose it’s buying and selling crypto notes listed on regulated stock exchanges. Publicly traded notes or funds would broaden the appeal of virtual money as an asset class by providing a straightforward and cheaper way of investing in the likes of Bitcoin and Ether.

“People underestimate crypto,” Dijkstra said in an interview. “It’s big, and it is to be regulated very soon. The market participants are much more professional than people think. Institutional investors are interested — we know they are because we get requests.”

The enthusiasm from Flow Traders’ investors isn’t reciprocated by its regulator, the Dutch Authority for the Financial Markets.

‘Prone to Abuse’

“We discourage activities in cryptos both by consumers and professional license holders,” Nienke Torensma, a spokeswoman for the AFM, said in a statement. “By virtue of its newness and the anonymity it potentially offers, it is very prone to abuse. Given its inability to serve the promised purpose as a currency, we don’t regard it to be an asset class.”

The AFM may dislike crypto, but there is little it can do to stop any firm from trading regulated securities or derivatives on a regulated exchange.

Flow Traders is making its move as a number of banks and investment firms push into the fledgling cryptocurrency space. Goldman Sachs Group Inc. is setting up a digital-asset trading desk, and Barclays Plc recently agreed to provide U.K. banking services for Coinbase Inc., the San Francisco-based exchange. The push to go mainstream has continued unabated, even though the value of Bitcoin and its ilk has plunged more than 55 percent this year.

“The biggest thing is keeping the regulators on board,” Dijkstra said.

Spillover Benefits

As a speed trader, the Dutch firm seeks to hedge every trade it makes as quickly as it can. Making markets in crypto has forced its traders to find new ways of hedging. Dijkstra said the new approach had “big spillover benefits” for the company’s nascent foreign-exchange trading business. He didn’t elaborate.

Dijkstra said Flow Traders was hedging its trades of crypto notes with futures contracts run by CME Group Inc. and Cboe Global Markets Inc. He declined to say whether Flow is also using the underlying cryptocurrencies to hedge.

The Dutch firm traded 244 billion euros ($284 billion) of ETFs globally in the first quarter, including 143 billion euros in Europe, making it the region’s biggest trader of the securities. Like its main rivals, last year’s dismal trading volumes in its core market prompted Flow Traders to move into new asset classes. Cryptocurrencies are particularly attractive because speed traders make the most money in the most volatile markets.

Read more: why Europe’s biggest ETF trader is moving into new markets

“With the growing interest from institutional clients willing to invest in digital assets, I can see why so many proprietary trading businesses are now focusing on this new asset class,” said Laurent Kssis, managing director at XBT Provider. The company is part of London-based CoinShares Ltd.

Cryptocurrencies have come in for intense criticism in the last month. The Bank for International Settlements, a central bank for other central banks, outlined three big problems: cryptocurrencies are too unstable, use too much electricity and are vulnerable to manipulation.

Like regulators in other countries, the AFM wants to see a global agreement to regulate cryptocurrencies. “Since cryptos are global in nature, we firmly believe only a globally regulatory response has a chance to be effective,” Torensma added.

Yet with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority and their counterparts in Japan and other major markets each taking their own approaches, policing digital tokens will probably be a patchwork for some time to come, say experts.

— With assistance by Viren Vaghela