The Other Side Of The Trade: QCP Capital

Can you briefly introduce yourself?

QCP Capital is a crypto trading firm that brings institutional trading strategies and solutions to our clients. As one of the leading market makers globally, we provide direct liquidity and access to a full suite of crypto derivatives and other financial instruments (including spot, swaps and options). We were one of the first in the world to offer vanilla and exotic options on digital assets to investors.  

Founded in 2017 by Darius Sit, QCP Capital is a pioneer in crypto derivatives that has grown steadily through multiple market cycles and is a trusted player in the space. Today, QCP Capital has a team of over 80, headquartered in Singapore.

Our options team is led by Simon Nursey who was formerly the Global Head of FX Options at BNP Paribas and also Standard Chartered Bank.

What made you want to enter the crypto space?

We entered into crypto back in 2017 because we saw a huge opportunity in an exponentially growing market. We recognised the value in building the derivatives market as crypto developed into an institutional-grade asset class. The opportunity today is bigger than ever before. 

We are trying to demystify market makers, can you tell us what is your business? What kind of trades do you focus on?

QCP Capital’s aim is to help clients unlock opportunities in this emerging asset class. As a market maker, we are at the forefront of liquidity and our focus is on understanding and developing market structures. 

We give clients access to the best possible liquidity and allow them to execute optimal trading strategies through a wide range of market instruments. 

A big focus for us has been crypto options, a segment of the crypto markets that remains robust and continues to see strong growth in spite of the crypto credit crisis in 2022.

What type of clients are you working with?

QCP Capital works with institutional clients and clients who are accredited investors. This includes hedge funds, foundations, companies (crypto-native or otherwise) as well as family offices.

What product or underlyer do you usually trade with Ribbon and why? What do you usually do with the inventory you source from Ribbon Vaults (delta-hedge, hold naked, cover axes, sell back to other clients?)

QCP Capital provides options liquidity for most of the Ribbon Vaults. The options desk takes these positions into a much larger book which has traded in excess of $32 billion year-to-date. An important focus for our market making book is to generate two-way flow, and the gamma from these options serves as a good foundation for our buy-side customer flow.

What is it like to trade volatility in DeFi vs. TradFi for you?

On the surface, the experience is similar because the derivatives market structure is the same but traded on a different underlying asset class, one that is highly volatile. However, crypto/DeFi has fundamental idiosyncrasies in terms of coin/token characteristics and settlement mechanisms that create unique trading opportunities.

A good example of this is the ETH merge which does not have direct precedence in TradFi. It was a significant issue for the crypto trading community to contend with, but it was precisely the unprecedented nature of the event that created some of the best trading opportunities in ETH derivatives this year.

What is your view on the growth of DOVs and DeFi options as a whole?

Our research and insights team was the first to provide a primer on DOVs along with our views on the evolution of DOVs back in 2021. In fact, we were the ones who coined the term ‘DOVs’! 

Our outlook remains positive and we are very encouraged by Ribbon’s continued leadership and innovation in the space. Aggressive innovation is critical as we believe that DOVs and DeFi will become the most significant access point and distribution layer for the crypto capital markets in the future.

In which areas do you see the largest potential upside for DOVs?

The development and innovation in the products and strategies that are offered by DOVs. Institutional-grade product offerings coupled with the accessibility of DOVs creates the potential for a truly massive market.

We have seen in your latest piece that you started implementing exotic options trades, do you see exotics as a potential catalyst for crypto options adoption?

There is nothing new about exotic options, but the high volatility and trendy markets have made them unsuitable for crypto historically. However we believe the move to rangy markets and a lower volatility regime makes these products much more attractive.

Structured products have typically been an important pathway for users for access to the options market because of their ability to create a specific risk-return payoff without taking unnecessary risk in an underdeveloped credit market. We believe their adoption will only improve liquidity and two-way flow.

Can you tell us about a structural dislocation you are seeing in the crypto volatility space that is not necessarily present in traditional FX or equity vol?

Generally speaking, implied volatility in crypto continues to be structurally rich (relative to actual volatility). In our research piece, many would be surprised by the fact that a simple weekly BTC strangle selling strategy would have positive return of 20-155% even in a year of outsized volatility like 2022. 

What are the main flows that you are observing in crypto vol market?

We have seen a surge in activity from notable TradFi hedge funds and this has changed the volatility dynamic with much bigger ticket sizes and also more rv (relatively-value) trading across the surface. Our strategies have had to evolve and adapt to these more technical flows.

What is your favorite trade in the space at the moment?

The vol curve steepener in ETH is extremely attractive. Feel free to hit us up to discuss.

Disclaimer

QCP Capital Pte. Ltd. is an exempt payment services provider pending licensing under the Payment Services Act (2019) to provide DPT services. Please note that this does not mean you will be able to recover all the money or DPTs you paid to your DPT service provider if your DPT service provider’s business fails.

You should not transact in the DPT if you are not familiar with this DPT. This includes how the DPT is created, and how the DPT you intend to transact is transferred or held by your DPT service provider.

You are aware that the value of DPTs may fluctuate greatly, and that you should buy DPTs only if you are prepared to accept the potentially substantial risk of losing all of the money you put into such tokens.

You are aware that as with any asset, the value of DPTs can go up or down and there can be a substantial risk that you lose money buying, selling, holding, or investing in DPTs. You should carefully consider whether trading or holding Digital Tokens is suitable for you in light of your financial condition.

QCP, as part of its license application to provide DPT services, may offer services related to DPTs which are promoted as having a stable value, commonly known as “stablecoin”.

Trading in payment token derivatives (“PTD”) are also not any less risky than trading in DPTs. PTD services are not regulated by the MAS and QCP is, as such, not licensed under the MAS to provide PTD services. You should only trade in PTDs if you are an Accredited Investor and/or have sufficient experience and knowledge in trading PTDs.

QCP is not registered or licensed to operate in the states of Louisiana and New York and will not be able to establish a trading relationship with you if you are resident, incorporated or have your principal place of business in New York or Louisiana.