It is an extension of traditional finance into the crypto space, as well as a struggle for asset pricing power and a weakening of retail investors' voice.
Written by: KarenZ, Foresight News
The entry of top market-making firm Citadel Securities into Bitcoin market-making marks a milestone in the maturation of the Bitcoin market and is a key step for traditional financial forces in the competition for future asset pricing power. For retail investors, it may signify a gradual weakening of their voice.
On February 25, according to Bloomberg, Citadel Securities is seeking to become a liquidity provider for cryptocurrencies. Sources indicate that the company's goal is to join the market maker lists of various exchanges, including those operated by Coinbase Global, Binance Holdings, and Crypto.com. Once approved by the exchanges, the company initially plans to establish a market-making team outside the United States.
This move not only signifies a significant strategic transformation for Citadel Securities but also suggests that the crypto market may be on the brink of new changes.
Citadel—The King of Hedge Funds
Hedge fund Citadel and market-making firm Citadel Securities were both founded by "programmatic trading genius" Kenneth C. Griffin. In 1987, at just 19 years old, Ken Griffin began his trading career in a Harvard dormitory and later founded his investment group Citadel (originally Wellington Financial Group) in 1990 with $4.6 million.
As of the end of 2024, Citadel's assets under management have reached $66 billion. According to LCH Investments, Citadel has achieved the highest net returns among top hedge funds since its inception, totaling $83 billion, surpassing D. E. Shaw, Millennium, and Bridgewater Associates.
Citadel Securities—The Largest Designated Market Maker on the NYSE
The market-making division launched by Kenneth C. Griffin in 2002 later spun off from Citadel to operate independently as Citadel Securities. Today, Citadel Securities has become one of the largest market makers globally, particularly holding a significant position in the U.S. capital markets. The primary business of Citadel Securities is to provide liquidity for traditional financial markets, including stocks, options, fixed income products, and ETFs, ensuring efficient matching of trades between buyers and sellers through high-frequency trading technology and algorithms.
According to its official website, Citadel Securities has a daily notional trading volume of $503 billion, accounting for approximately 35% of retail stock trading in the U.S., making it the largest designated market maker on the New York Stock Exchange (holding a 65% share).
The turning point that brought Citadel Securities into the spotlight was the GameStop short squeeze event in 2021. At that time, U.S. retail investors banded together on social media to drive up the prices of "meme stocks" like GameStop, causing significant losses for institutions that shorted these stocks. As a major market maker in the U.S. stock market, Citadel Securities handled a large volume of related trades, gaining fame for its strong trading execution capabilities.
Notably, Citadel Securities' CEO Peng Zhao is a Chinese-American born in Beijing in the 1980s. He entered Peking University in 1997 to study applied mathematics and later pursued a Ph.D. in statistics at the University of California, Berkeley. He also worked as a summer quantitative research assistant at Lehman Brothers. After graduating, Zhao joined Citadel Securities, starting as a senior quantitative researcher and eventually serving as global market-making head, chief scientist, and finally becoming CEO in 2017.
Since becoming CEO in 2017, Zhao has driven the company's international expansion, particularly in the Asian and Chinese markets. In 2023, Citadel Securities China Limited obtained Qualified Foreign Institutional Investor (QFII) status and submitted an application to establish a securities company in China in January 2025.
Citadel Securities: From Caution to Entering the Crypto Market
Citadel Securities' journey into the crypto market has evolved from founder Kenneth C. Griffin comparing "Bitcoin to the tulip bubble," to calling it "one of the greatest stories in finance," and finally admitting to "regretting not buying cryptocurrencies earlier." This transition reflects not only a strategic adjustment to emerging markets but also the trend of traditional financial giants gradually embracing crypto assets.
Initially, Citadel Securities' founders held a skeptical and cautious attitude toward the crypto market. Cryptocurrencies were viewed as high-risk, highly volatile asset classes in their early days, and regulatory uncertainties deterred many traditional financial institutions. Citadel Securities, known for its solid position in the stock, options, and fixed income markets, was naturally hesitant to venture into an immature field. Kenneth C. Griffin, as the founder, had publicly expressed skepticism about cryptocurrencies.
However, as the crypto market rapidly developed and institutional investor interest grew, Citadel Securities' stance began to soften. Following the GameStop event, the retail frenzy and market volatility drew attention to the potential connections between traditional finance and emerging assets. In the same year, trading volumes in the crypto market surged, and assets like Bitcoin and Ethereum began to be viewed as investable categories. That year, Kenneth C. Griffin also famously bid over $43 million for a rare copy of the U.S. Constitution, defeating the DAO organization ConstitutionDAO (which had raised over 10,000 ETH at the time).
In a 2022 interview, Kenneth C. Griffin stated that cryptocurrencies have been one of the greatest stories in finance over the past 15 years and admitted that Citadel would engage with cryptocurrencies in the coming months.
In January 2022, Citadel Securities announced an $11.5 billion minority equity financing from Sequoia Capital and Paradigm (an investment firm focused on cryptocurrencies). Paradigm co-founder Matt Huang stated at the time, "We look forward to Citadel Securities extending its technical expertise into the crypto market."
It is worth mentioning that after the UST decoupling incident in 2022, which caused severe market volatility, rumors circulated online that Citadel Securities and BlackRock borrowed a large amount of Bitcoin from Gemini and sold UST, triggering the collapse. In response, a representative from Citadel told Bloomberg that Citadel does not trade stablecoins, including UST. Later, in 2023, Terraform Labs submitted a motion requesting Citadel Securities to provide transaction data related to May 2022. Citadel Securities responded that it only conducted two test trades in March 2022, a few months before the UST collapse, with a transaction value of only $0.13, and refuted Terraform Labs' claims.
Starting in the second half of 2022, Citadel Securities took more substantial steps. In June, according to Bloomberg, Kelly Brennan, head of ETFs at Citadel Securities, stated that they would be ready to market these products if crypto ETFs received regulatory approval. Additionally, Citadel Securities launched the institutional-grade cryptocurrency exchange EDX Markets in collaboration with Charles Schwab, Fidelity Digital Asset, Paradigm, Sequoia Capital, and Virtu Financial, aiming to provide a secure, efficient, and compliant trading environment for crypto-native companies and large global financial institutions. EDX Markets completed a financing round in June 2023, with investors including Miami International Holdings, DV Crypto, GTS, GSR Markets LTD, and HRT Technology. Subsequently, in January 2024, EDX Markets completed a Series B financing round led by Pantera Capital and Sequoia Capital.
In August 2022, Citadel Securities also invested in digital asset and forex brokerage Hidden Road Partners. In February 2023, Citadel Securities reported holding a 5.5% stake in crypto-friendly bank Silvergate Capital.
After entering 2023, the signs of Citadel Securities' entry became more apparent, such as the expansion, integration, and internationalization of EDX Markets, and being selected by BlackRock as an authorized participant (AP) for the iShares Bitcoin Trust (IBIT). At the end of last year, Kenneth C. Griffin expressed regret for not purchasing cryptocurrencies a few years ago.
What Impact Will Citadel Securities' Entry into Crypto Market-Making Have?
The transition of Citadel Securities from observation to entry is not coincidental. The institutionalization of the crypto market, the gradual clarification of regulations, and competitive pressure have collectively driven this process.
This not only signifies further recognition of the crypto market by traditional financial giants but may also reshape the landscape of Bitcoin and crypto trading ecosystems. On one hand, it symbolizes the extension of traditional financial infrastructure into the crypto space, which will further promote Bitcoin's transition from a fringe asset to a mainstream investment category. This is especially true among institutional investors, which may attract more traditional players such as hedge funds and pension funds into the Bitcoin market to allocate Bitcoin.
On the other hand, Citadel Securities' market-making could significantly increase the order depth and trading volume of the Bitcoin market, bringing greater transparency and stability to the crypto market. At the same time, Citadel Securities providing liquidity to mainstream exchanges like Coinbase and Binance will enhance the trading experience on these platforms, attracting more institutional capital.
Its entry may also trigger follow-up actions from other financial giants (such as Jane Street), intensifying competition in the crypto market-making space. Of course, this will also squeeze the market share of existing crypto market makers. Smaller market makers may be marginalized due to their inability to compete with Citadel Securities' technological and cost advantages.
However, for retail investors, Citadel Securities' entry brings both convenience and hidden challenges. With the influx of institutional funds and professional market makers, the Bitcoin and crypto markets may shift from being a "retail haven" to an institutional arena, potentially diminishing the voice of retail investors.
References:
https://www.bloomberg.com/billionaires/profiles/kenneth-c-griffin/
https://36kr.com/p/2400302300962948
https://archive.nytimes.com/dealbook.nytimes.com/2011/08/11/citadel-chief-gives-up-dream-for-investment-bank/
https://baike.baidu.com/item/%E8%82%AF%C2%B7%E6%A0%BC%E9%87%8C%E8%8A%AC/14092927
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