Flowdesk raises $50M as bitcoin ETF liquidity providers take center stage

Flowdesk, a crypto market-making and over-the-counter trading service provider, has raised $50 million in Series B funding led by the venture arm of Cathay Capital. The round also drew participation from Cathay Ledger Fund, Eurazeo, ISAI, Speedinvest, BPI and Ripple.

Flowdesk, in collaboration with Jane Street, Virtu and Flow Traders, serves as one of the four liquidity providers for Grayscale’s recently approved spot bitcoin ETF. Liquidity providers regulate the buying or selling of bitcoin, contingent on investors creating or redeeming shares of the ETF.

Read more: Bitcoin ETF Tracker

This process ensures that the ETF’s price tracks bitcoin’s. It offers investors a more accessible and regulated way to participate in bitcoin trading without the need to directly own the digital currency.

Unlike in traditional crypto trading, bitcoin ETF shares don’t settle the same day, and all trades have to be pre-funded by liquidity providers, Flowdesk CEO Guilhem Chaumont said.

This pre-funding requirement means that liquidity providers, like Flowdesk, must allocate funds in advance to cover the trades. This process ensures that the funds are available to complete the trade, thus reducing the risk of default. It also aligns with the more regulated and structured approach typical of traditional financial markets, compared to the often instantaneous and decentralized nature of crypto trading.

While the fundraise announcement comes in the immediate aftermath of spot bitcoin ETF approval, Flowdesk’s term sheet was signed in mid-2023. The round closed near the end of last year, Chaumont said.

“When we closed the fundraise, the ETF was not even part of our plans,” Chaumont said.

So far, Flowdesk’s services probably involve selling a fair amount of bitcoin for Grayscale. GBTC, which charges the highest fees among the dozen-odd firms offering spot bitcoin ETFs, has seen a reported $1.2 billion in net outflows since launching.

After sell-the-news pressure sent bitcoin tumbling from its local high above $49,000, the asset has trended sideways at around $43,000 this week.

Chaumont said that in the days following ETF approval that the firm’s OTC desk was seeing a spike in altcoin demand coming from existing crypto traders rather than institutions.

Flowdesk previously raised $30 million in a Series A round in June 2022.

Chaumont declined to disclose how much of Grayscale’s spot bitcoin ETF trading volume it was responsible for but said each of the liquidity providers handle a “substantial share.”

Updated Jan. 18, 2024 at 11:12 am ET: Modified headline for clarity.

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