Crypto’s ‘Flash Boys’ on Regulation in High Frequency Trading

The cryptocurrency industry is old enough that institutional capital has started to take notice, but still young enough that there are still a number of logistical and operational challenges that firms need to overcome in order to present products and services that are suitable for high-volume investors.
Indeed, even if a firm is regulated, there may be struggles to find other regulated entities that provide the kinds of partnerships that the firm may need to operate successfully–finding the necessary liquidity, market-makers, and even trading itself can be a challenge.

Recently, Finance Magnates spoke with Thomas Beute, Ryan Rupp French, and Giuliano Benoni of Goldbaum & Partners (aka the “Flashboys” of crypto) about the challenges of operating as a regulated firm in a regulated space, as well as how corporate governance structures can be effectively used to create a regulated product.
Rupp French and Benoni are co-founders of the firm; Rupp French acts as CEO. Beute is the firm’s legal counsel.
“We know that data is nowadays more valuable than oil”
Rupp French said that the “Flash Boys” nickname was probably born out of the association between what Goldbaum & Partners is doing and the book by Michael Lewis. “What we do is similar to what [has been] already going on for a decade now on the regular stock exchange market. We all know that 70% of trades are fully automated.”
“It’s all about distance and speed,” he continued. “Therefore, we also have our […] locations next to the core data centers or within the core data centers of the most renowned and reputable digital assets exchanges.”
“So, instead of looking at this as victim[s] who are exposed to the vulnerability of such a market, we see it as an opportunity in order to capture the market’s inefficiencies. That’s how we create value.”
In other words, Goldbaum & Partners’ operations are primarily driven by data. “We know that,” Rupp French said.
Indeed, Goldbaum & Partners “definitely a firm that is data-driven. We derive investment decisions based on statistical analysis of large data sets,” Rupp French said, adding that the derived trading models are executed through “high-performance algorithms” on a “high-end IT infrastructure.” This is done in such a way that reaction time is minimized.
“In this way, Goldbaum & Partners actively participated in news trading, blockchain and network traffic-derived trading, arbitrage strategies, and–most importantly, our flagship–ultra-low latency with its proven high-frequency quoting and ‘hitting’ strategies. That’s what we’re focusing on.”
Additionally, “we’re having it all–preferably–in a regulated environment. So, segregation of powers is given.”
Goldbaum & Partners’ high-frequency, low-latency strategy means that “we are sort of market makers, because we provide a lot of liquidity”
Goldbaum’s strategy focuses on “[trading] a lot of undervalued digital assets which have a trading volume [that is] highly correlated to Bitcoin. We see that at an early stage so that we can go in and out on numerous venues, and we do hundreds of thousands of trades like this per day per exchange.”
Exactly how are these “undervalued” assets identified? Rupp French explained that “we see that there’s volume within a particular coin at time X. And before we see it as manual traders, our algorithms will be all over it.”
“By clustering all that data together from the several exchanges that we are involved with–not as dedicated market makers, but under the radar, we are sort of market makers, because we provide a lot of liquidity–we will see that there is movement going on within that particular coin. Then, we have the chance to go in and out as fast as possible.”
This high-frequency, low-latency strategy “has strategy,” Rupp French said, although he added that Goldbaum recommends every retail and institutional investor to keep a stash of Bitcoins on hand.
“What we do requires a lot of server power,” he said, adding that Goldbaum & Partners also makes arrangements with exchanges to have access to lower fee levels because of the fact that the number of trades that the firm does is so high. In other words, this isn’t for amateurs.
“We have big deposits on those exchanges in order to get those fee levels,” he explained. The operation also requires “data-feed programs, trading order software, and so on.”
What does regulation look like in high-frequency trading?
Thomase Beute said that the “regulated” part of what Goldbaum & Partners does “comes from [the fact that] we try to create an environment where the investor can feel safe to invest in.”
“Besides the asset group that we’re talking about in this case (cryptocurrencies), you need to first make the investor comfortable with the structure, and with the people, and with the corporate governance within the structure.”
“That’s what has been the big problem with cryptocurrency–it has had a bit of an ‘outlaw’ image, so to speak, because it was used in the beginning by many criminals,” he said, adding that although the majority of crypto users have been law-abiding citizens, .
“Now, so what we have tried to do is create a traditional fund whereby we have the segregation of powers, in a way…where you have multiple parties involved that are all independent from each other.”
Here’s what that looks like on a practical level: “we have a fund where we have an independent director who needs to check if all the trades and all the things that we’re doing are according to the PPM and according to the law.”
“Cryptocurrency is still a highly volatile market–but at least we have an approach that has created the safest environment possible for outside people, and now it’s only the trading that can be a risk.”
“Then we have another party that is the fund administrator that will check and calculate everything, and will have access also to give orders.” Finally, there are “the managers, or traders (like ourselves) that basically can provide our trading service,s but cannot do ‘payments out’, so to speak.”
“So, even though it’s our own structure, we will have to request approval from the director and from the administrator to do a payment–say, the [performance] fee payment to ourselves,” he explained. Essentially, the bottom line is that the structure does not allow Goldbaum & Partners as service providers to move any of the fund’s money themselves.
“That way, we always have a third-party involved that needs to confirm and say ‘oh yes, it’s correct.’’ The firm also has an external auditor in place.
“[In this way], we have created a regulated environment authorized by the authorities, which can go out in the world and say, ‘I’m a regulated fund.’”

To watch CEO, Samantha Barrass, deliver her keynote speech at last week’s Barcelona Trading Conference, on Gibraltar’s approach to regulating DLT,select the link below:

— Gibraltar FSC (@gibfsc)

On the assets side of things, “cryptocurrency is still a highly volatile market–but at least we have an approach that has created the safest environment possible for outside people, and now it’s only the trading that can be a risk.”
Logistical challenges of operating as a regulated entity in an unregulated industry
“We have a number of operational challenges,” Beute said. “Since it’s not such a developed market yet, you always look at liquidity issues. The coins don’t have all the liquidity in the market you would need to apply our strategy, which is high-frequency trading.”
“There needs to be a lot of liquidity, otherwise you’re becoming a market maker,” Beute explained, “which would then be counter-effective to our algorithms.”
Beute also mentioned the “level of professionalism from several parties” as sources of potential logistical issues. “For example, exchanges that have not fully developed into an exchange like we know them in the traditional world” he said.
“And then, on top of that, you have the [question of] acceptance from the traditional world of this type of business–meaning mostly, in our case, that basically saying like, ‘although you’re regulated, you’re trading cryptocurrencies; we don’t like to touch it.’”
“You always have to deal with trying to fight off the liquidity issues and the diversification in your model”
On the trading side of things, “you don’t have that much depth in the market yet as you might want to have to diversify your strategy fully,” Beute said.
For example, “if you do euro-dollar trading, there is an endless supply of euros and an endless supply of dollars. Bitcoin itself is primarily what the cryptocurrency market exists out of at this moment…so if you have one of these major currencies in there, then everything is always derivative of the Bitcoin automatically.”
“So, you always have to deal with trying to fight off the liquidity issues and the diversification in your model, so that it is a sound trading strategy that you’re applying.”
This was an excerpt. To hear the full interview with Goldbaum & Partners (aka the “Flash Boys of crypto”), please visit us on or

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