Cryptocurrency trading had its largest year ever in 2019. Its entire market capitalisation has risen by 44.1%, gaining $60 billion throughout the year, and closing 2019 at $180 billion, according to cryptocurrency data platform CoinGecko. Bitcoin’s trading volume increased by 600% in 2019.
It is an increasingly competitive market for trading firms, hedge funds and other cryptocurrency traders, where accessing data and executing orders with minimal latency is critical. Today, some traders still rely on connecting to crypto exchanges via the public internet rather than private networks.
They risk poor network performance, insecure connectivity and higher latency, all of which can impact their profit and loss performance. Traders can miss opportunities while receiving data after competitors have already reacted and taken a position in the market. If they use ‘best effort’ connectivity over the internet they are putting themselves at a disadvantage.
Private networks can offer more than 33% reduction in round-trip latency between New York and London compared to the public internet. Dublin to Seoul offers a similar reduction. New York and Tokyo’s round-trip latency can be reduced by 23% or more. Across global destinations, round-trip latency can be reduced by as much as 70 milliseconds.
The hard numbers reveal the limitations of the internet and show the potential that traders have to improve their latency with a new approach to networking. The move from public internet to private networks will only accelerate as trading firms look at their connectivity options. The ones that don’t make the move to private networking will ultimately be one step behind in terms of accessing data and trading across multiple exchanges.
The network cannot be the weak link in their trading strategies.
Crypto in the Clouds
While the fundamentals of trading cryptocurrencies or any digital asset are the same as trading on traditional exchanges, crypto exchanges are more numerous, diverse and cloud centric. The challenge is to match maximum network performance with the freedom to access exchanges across multiple clouds and global locations.
Unlike trading in traditional assets, connecting to crypto exchanges requires connectivity to non-traditional hubs like Dublin, Ashburn, Portland and Seattle. They can be hosted in multiple clouds like Amazon Web Services, Alibaba and Microsoft Azure or data centres like Equinix LD4 and NY5. For example, BitMEX, Binance, Huobi, OKEx, Bitflyer, Bittrex, Kraken and Bithumb, as well as most other crypto exchanges, are hosted in cloud.
Connecting these exchanges creates both a challenge and opportunity for trading firms. They can choose an unreliable internet-based approach or find a solution that gives them access to these exchanges while delivering new levels of network performance. It is an opportunity to go beyond the basics and use networking to create an advantage over competitors.
Choosing a Connectivity Partner
The solution is to step back and look at the best path forward for going beyond basic internet connectivity. With a single provider, cryptocurrency traders can easily access multiple exchanges in multiple clouds with speeds over 50-70 milliseconds faster than traditional internet connectivity. Private networks can deliver higher speeds, availability and redundancy.
The key is to choose the right networking partner. Here are six things a trading firm should look for when making the move to private networks:
- Immediate Access to Exchanges – A network provider must offer immediate and direct access to crypto exchanges. With existing points of presence (PoPs) in data centres in key crypto hubs, it should take less than a millisecond to get a direct link from the network provider’s PoP to the exchange’s matching engine. It should not require time to set up physical cross connects to get up and running, as traders should be able to use ready-to-go infrastructure on the provider’s side. It is that fast.
- Ultra-Low Latency – A network provider should be able to demonstrate that it can drastically reduce latency with its network services. It should be able to show the difference between the public internet and private networks across a variety of key routes for traders.
- Global Presence – A networking provider should deliver truly global presence and enable traders to access exchanges in whatever market they want to trade in. They should not put geographic limits on traders especially when the flexible nature of crypto means new exchanges can be launched in different locations.
- Multiple Clouds – A networking provider should offer direct connectivity to all major cloud service providers (CSPs) with a one-stop-shop. If a trader is active on multiple exchanges, then they need a simple and seamless multi-venue solution that doesn’t require the support of multiple providers.
- A Growing Ecosystem – A networking provider has to be continually adapting to changing demand across different exchanges and growing its presence to meet the needs of traders. In a rapidly changing market, they have to be in tune with demand and expanding their network presence and relationships with CSPs, as well as technology and networking partners. Otherwise, they’re ready to serve demand today but not in the future.
- Expertise in Connecting Crypto – A networking provider in the crypto space needs to really understand the needs of traders and how to make them successful. Networking solutions should be specifically designed for this market with teams of experts ready to provide end-to-end support.
Getting the Core
Ultimately, the networking provider should be removing the barriers from connecting to exchanges and accessing the data that traders need. Their role is to ensure that executing orders is seamless and as immediate as possible. When a network provider has been successful, traders have an optimised experience when trading and can really focus on their core business.
They should see the benefit of going beyond the basic internet with a model that simplifies their operations while enabling them to increase their profitability. The networking provider should be removing complexity end-to-end, while enabling new competitive advantages. In a market where technology is part of its DNA, traders should take advantage of the opportunities that networking offers.