AS usual, Patrick gets most of it right and is refreshingly honest about the negatives in the crypto space — a near-unknown and unheard-of trait of most sector participants

Patrick hints a bit at it, but here is the real reason HFT exchanges, as in the equities space, will never come to crypto: the trust infrastructure. Anyone entering the equities HFT or other space on any of the exchanges has to be a prime broker or have one and the settlement of the transactions has multiple guarantees, all the way to the actual legal exchange of the equity and cash. Anything fails, parties have to be liquid enough to absorb the costs. And, even after 2008, there is the infrastructure (at least in the OECD countries) to manage the worst.

In the case of crypto, it’s all theory and the exchange is the only guarantor. Because of chain latency, price movements on the chain are completely out of sync with what is being traded and reported on any given exchange at the time of any accepted bid or ask. So you are not trading with a real time market, you are trading with the small relative state on the given exchange and a purely speculative one on the state of the chain.

The exchanges that want to stay in business for a long time look at this and don’t want to own the first HFT disaster. And, I have to believe, none of the HFT institutional investors would accept trading in such circumstances. Not now or in the future.