Billionaire Ken Griffin Didn't Believe In Cryptos, But Now Seems To

By our editor Jorg Leijten

Amsterdam. Digital flash trading was still in its infancy when young American Ken Griffin joined Harvard University’s housing department in 1987. Was it possible to place a satellite dish on the roof of his student flat? Griffin had just started out as an investor and he was eager to in real time the latest stock prices.

Griffin already knew back then what virtually every trading house today has based its strategy on: every second you trade before your competitors is worth money. By tracking the price movements live, he can trade faster than many others.

With money from friends and family, the speculator builds from the late 1980s what will become one of the most successful hedge funds in the world: Citadel. It makes Griffin a multi-billionaire. According to business magazine Forbes he now owns 27.6 billion dollars (24.1 billion euros).

Last week it turned out that Griffin can add a few billion again. Two major investors took an interest in his trading house Citadel Securities. Sequoia and Paradigm are paying $1.15 billion for 5 percent of the shares. It boosted the value of his remaining stake by several billion at the same time, business magazine calculated Forbes.

In the US, this participation sparked excitement and surprise. A hefty sum of money made the crossing from Silicon Valley to Wall Street. Sequoia and Paradigm are major investors in cryptocurrencies. Griffin has always indicated that he wants to stay away from the erratic bitcoin. Is one of the largest trading houses now also over?

Mathematical Models

Ken Griffin’s mathematical models and extensive analysis are running at full throttle to predict price movements. Long time with success. Until 2008, when his models overlook an important development: the financial crisis.

Hedge fund Citadel is about to go under and Griffin has to pull out all the stops to prevent investors from withdrawing their money. That works. He manages to bring the ship back on course. “It took me three years to make up for sixteen weeks of losses,” he later summed up.

Griffin has already divided his activities between two companies: the hedge fund Citadel, with which he invests for his own account and risk, and Citadel Securities, which as an intermediary carries out relatively risk-free transactions for third parties. He makes Citadel Securities one of the largest trading houses in the US. According to figures in various American media, the company now accounts for a quarter of all share transactions on the American stock exchanges. In 2020, sales were $6.7 billion.

Handelshuis Citadel Securities has in recent years been able to keep pace with the wishes of investors and developments in the market. For example, it entered into a partnership with investment platform Robinhood. That company developed an app that allows young investors in particular to buy financial products, such as shares and options, in a few clicks. In line with this, Citadel Securities carries out the actual purchases on the ‘real’ trading platforms. The profit for Citadel is in the difference between the price an investor pays and the price at which the company actually repurchases the shares. That difference is usually small, but with large transaction volumes it gradually becomes more lucrative.

Believe in cryptos

Through Citadel Securities, investors can trade in all kinds of traditional financial products: from shares to options. But cryptocurrencies, on the rise, have so far been excluded. Griffin “just doesn’t want to take a risk” in a market without “decent oversight,” he said last fall.

The companies that Griffin is now working with do believe in cryptos. Paradigm is owned by Fred Ehrsam, co-founder of crypto trading platform Coinbase, and Matt Huang. Paradigm also invests heavily in blockchain applications, the core technology behind cryptocurrencies. According to Huang, his fund invests in Citadel Securities because this trading house wants to “expand technology and knowledge to more”. [verschillende] markets and forms of investment”.

Why the U-turn at Citadel? Demand for cryptocurrencies has been increasing for years, and recently, young investors, among others, have given an extra boost through Robinhood. The financial director of this investment app, Jason Warnick, hinted last week that his platform wants to offer more cryptos.

Several competitors of Citadel Securities have already jumped into this gap. Tai Mo Shan, a trading house that does a lot in cryptos, is rapidly stealing market share from Citadel Securities. Robinhood transferred 36 percent of its orders to Citadel in mid-2020 and 1 percent to Tai Mo Shan, at the end of last year the share for Citadel was only 14 percent and that for the competitor with 29 percent already more than double.

In that light, Griffin’s move is primarily one that should prevent competitors from running even further away. With the money from Paradigm and Sequoia, Griffin would now like to invest in knowledge and technology to better fend off the crypto market.

Citadel Securities chief executive Peng Zhao now sees “great opportunities to meet our clients’ needs in more markets and more products.” In other words: the price is again drastically adjusted.