Yesterday, I had a call with an investor. Even though we never spoke before, the gentleman had all the great /investing creds: he started and then successfully exited a technology startup and was now focussed on the wellness sector, he said. What struck me however, was his unsolicited blurb about crypto. It went something like this: “Of course, I also invest in crypto, like everyone else. I am waiting for Bitcoin to cross 70,000 [USD/BTC]. It went to 72,000, but now went down, but I know it’s going to go back up any day now.”

As a researcher with a keen interest in all new financial technologies, crypto is definitely at the top of my list. As someone who has always been very partial to Mathematics, it is also interesting to examine the foundations of crypto and compare those with traditional market models, such as exchanges and more recent dark pools. And guess what? According to my most recent research, at least from the perspective of market design, traditional market models win.

My recent note outlines the details, but here is the gist: while Bitcoin in many ways mimics a traditional exchange structure, the dark pools are superior, at least market-design-wise. Bitcoin’s competitor and the original clone Ethereum recently changed their market structure to the proposed, but untested, model known as “batch auctions.” Unfortunately, from the market design perspective, now-traditional dark pools win yet again, as my note shows. Oh shucks!

So what does market efficiency actually mean? Is it the old-hat thing about information and how it seeps in to create no-arbitrage conditions? If so, please give me the least efficient market where I can make the most money via arbitrage. Well, not quite. Market efficiency also refers to a system of incentives that result in market properties that make markets just better for all, without sacrificing anyone’s individual benefit. So yes, dark pools come out as top dogs among today’s markets.

Anyway, you decide. I’ll be grateful for all comments, pings and, of course, please feel free to reach out directly anytime.

Here is the link to my new note: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4804374