XBTO receives full 3A licence approval from ADGM, accelerating strategic expansion in the UAE | Image by XBTO
XBTO receives full 3A licence approval from ADGM, accelerating strategic expansion in the UAE | Image by XBTO
Abu Dhabi, UAE – XBTO, a 10-year global leader in institutional digital asset management, is proud to announce that it has received full approval for its Financial Services Permission (FSP) under the 3A licence category from the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) in the UAE.
The approval authorises XBTO to provide a range of financial services in and from ADGM, including custody, dealing in investments as matched principal, advising on investments, and arranging deals in investments. This marks a significant milestone in the company’s expansion strategy across the MENA region and beyond.
“The UAE is a leading market in digital assets and the 3A licence enables us to be a part of a positive digital movement in the region. This licence also serves to reinforce our long-term commitment to institutional integrity, regulatory transparency, and financial innovation in the UAE,” said Philippe Bekhazi, CEO and Founder of XBTO Group. “ADGM has built one of the most respected regulatory frameworks in the digital asset space globally, and we are honoured to be recognised under its jurisdiction.”
The licence enables XBTO to operate as a regulated counterparty to institutional investors, including sovereign wealth funds, family offices and regional financial institutions. It also allows the company to actively market its services across the UAE, bolstering its ability to engage directly with local stakeholders and deepen its presence in the region.
“This approval gives XBTO the strategic footing to engage more actively with regional partners and demonstrates our alignment with the UAE’s vision of becoming a global hub for digital finance,” said Karl Naim, Chief Commercial Officer and General Manager for UAE at XBTO. “ADGM has created a forward-thinking environment that balances innovation with robust oversight - a model we are proud to be part of.”
The licence approval complements XBTO’s existing regulatory footprint in Bermuda and is part of its broader global expansion strategy, with the next regulatory milestone being its anticipated entry into the UK market.
XBTO's regulatory approval has been welcomed by key stakeholders within Abu Dhabi's thriving digital asset ecosystem. The company has been an active participant in Hub71's specialized digital assets cohort and has collaborated with the technology hub on educational initiatives focused on advancing digital asset knowledge and best practices across the region.
Peter Abou Hachem, Head of Growth and Strategy, Hub71 said "We’re proud to see XBTO, a global leader in digital assets, secure their 3A license and scale from Hub71 to serve the world. Their move to Abu Dhabi reflects a clear shift toward the Middle East - one of the fastest-growing and most liquid markets globally. XBTO’s focus on regulatory excellence and innovation embodies the caliber of founders we back. As more startups choose our ecosystem to launch and grow, we remain committed to helping them scale with speed and impact."
XBTO is exploring plans to celebrate this milestone with a media event in Abu Dhabi, underlining its commitment to fostering long-term partnerships within the UAE and the wider region.
About XBTO
From asset management to capital markets, XBTO helps clients capture opportunities in the age of digital assets.
Founded in 2015 as a proprietary trading firm, XBTO built its foundation through nearly a decade of active participation in digital asset markets.
Since 2023, XBTO has expanded into a full-service crypto quantitative investment firm. With a strong focus on Bitcoin, XBTO delivers risk-adjusted strategies across the alpha–beta continuum designed to perform across market cycles and regulatory environments.
With decades of experience earned at the world’s leading financial institutions and deep expertise in digital markets, XBTO brings a rare combination of financial discipline and digital-native insight.
XBTO operates under robust regulatory oversight, with operating entities regulated by the Bermuda Monetary Authority and the Financial Services Regulatory Authority in Abu Dhabi. It operates from key financial hubs including Bermuda, New York, Miami, London, Paris, and Abu Dhabi.
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The full breakdown
In our first article, "Navigating Crypto Volatility: The Advantages of Active Management," we explored how the high volatility and low correlation of digital assets with traditional asset classes create unique opportunities for active managers. We discussed how these characteristics enable active managers to execute tactical trading strategies, capitalizing on short-term price movements and market inefficiencies. Building on that foundation, we now turn our attention to the unique market microstructure of digital assets.
Conducive market microstructure of digital assets
The market microstructure of digital assets - a framework that defines how crypto trades are conducted, including order execution, price formation, and market interactions - sets the stage for active management to thrive. This unique ecosystem, characterized by its continuous trading hours, diverse trading venues, and substantial market liquidity, offers several advantages for active management, providing a fertile ground for sophisticated investment strategies.
24/7/365 market access
One of the defining characteristics of digital asset markets is their continuous, round-the-clock operation.
Unlike traditional financial markets that operate within specific hours, cryptocurrency markets are open 24 hours a day, seven days a week, all year round. This continuous trading capability is particularly advantageous for active managers for several reasons:
- Immediate response to market events: Unlike traditional markets that close after regular trading hours, digital asset markets allow managers to react immediately to breaking news or events that could impact asset prices. For instance, if a significant economic policy change occurs over the weekend, managers can adjust their positions in real-time without waiting for markets to open.
- Managing volatility: Continuous trading provides more opportunities to capitalize on price movements and volatility. Active managers can take advantage of this by implementing strategies such as short-term trading or hedging to mitigate risks and lock in gains whenever market conditions change. For instance, if there’s a sudden drop in the price of Bitcoin, managers can quickly sell their holdings to minimize losses or buy in to capitalize on the lower prices.
Variety of trading venues
The proliferation and variety of trading venues is another crucial element of the digital asset market structure. The extensive landscape of over 200 centralized exchanges (CEX) and more than 500 decentralized exchanges (DEX) offers a wide array of platforms for cryptocurrency trading. This diversity is beneficial for active managers in several ways:
- Risk management and diversification: By spreading trades across various exchanges, active managers can mitigate counterparty risk associated with any single platform. Additionally, the ability to trade on both CEX and DEX platforms allows managers to diversify their strategies, incorporating different levels of decentralization, regulatory environments, and security features.
- Arbitrage opportunities: Different venues often exhibit price discrepancies, presenting arbitrage opportunities. For example, managers can buy an asset on one exchange at a lower price and sell it on another where the price is higher, thus generating risk-free profits.
- Access to diverse liquidity pools: Multiple trading venues provide access to diverse liquidity pools, ensuring that managers can execute large trades without significantly impacting the market price.
Spot and derivatives markets (Variety of instruments)
The seamless integration of spot and derivatives markets within the digital asset space presents a considerable advantage for active managers. With substantial liquidity in both markets, they can implement sophisticated trading strategies and manage risk more effectively.
For instance, as of August 8 2024, Bitcoin (BTC) boasts a daily spot trading volume of $40.44 billion and an open interest in futures of $27.75 billion. Additionally, derivatives such as futures, options, and perpetual contracts enable managers to hedge positions, leverage trades, and employ complex strategies that can amplify returns.
Overall, the benefits for active managers include:
- Hedging and risk management: Derivatives offer a powerful tool for hedging against unfavorable price movements, enabling more efficient risk management. For instance, a manager holding a substantial amount of Bitcoin in the spot market can use Bitcoin futures contracts to safeguard against potential price drops, thereby enhancing risk control.
- Access to leverage: Managers can use derivatives to leverage their positions, amplifying potential returns while maintaining control over risk exposure. For instance, by employing options, a manager can gain exposure to an underlying asset with only a fraction of the capital needed for a direct spot purchase, thereby enabling more capital-efficient investment strategies.
- Strategic flexibility: By integrating spot and derivatives markets, managers can implement sophisticated strategies designed to capitalize on diverse market conditions. For instance, they may engage in volatility selling, where options are sold to generate income from market volatility, regardless of price direction. Additionally, managers can leverage favorable funding rates in perpetual futures markets to enhance yield generation. Basis trading, another strategy, involves taking offsetting positions in spot and futures markets to profit from price differentials, enabling returns that are independent of market movements.
Exploiting market inefficiencies
Digital asset markets, being relatively nascent, are less efficient compared to traditional financial markets. These inefficiencies arise from various factors, including regulatory differences, market segmentation, and varying levels of market maturity. For example:
- Pricing anomalies: Phenomena like the "Kimchi premium," where cryptocurrency prices in South Korea trade at a premium compared to other markets, create arbitrage opportunities. Managers can exploit these by buying assets in one market and selling them in another at a higher price.
- Exploiting mispricings: Active managers can identify and capitalize on mispricings caused by market inefficiencies, using strategies such as statistical arbitrage and mean reversion.
The unique aspects of the digital asset market structure create an exceptionally conducive environment for active management. Continuous trading hours and diverse venues provide the flexibility to react quickly to market changes, ensuring timely execution of trades. The availability of both spot and derivatives markets supports a wide range of sophisticated trading strategies, from hedging to leveraging positions. Market inefficiencies and pricing anomalies offer numerous opportunities for generating alpha, making active management particularly effective in the digital asset space. Furthermore, the ability to hedge and manage risk through derivatives, along with exploiting uncorrelated performance, enhances portfolio resilience and stability.
In our next article, we'll delve into the various techniques active managers employ in the digital asset markets, showcasing real-world use cases.
