Top ten USD/BTC exchanges. Notice the price is different on each one. Source: Bitcoin ChartsRight now bitcoin is not generally considered a traditional financial instrument because of regulatory concerns from banking institutions. Even so, SFOX does not believe that banks are the enemy of bitcoin.
“I wouldn’t define [banking] as a problem,” Thobhani said.
Bankers, he added, are just doing their jobs:
“I think banks – you just have to work with them. You have to understand what they are. Banks are responsible for following the compliance and the laws that are set in countries.”
It’s possible that someday platforms like SFOX will be integrated into something like E-Trade, a financial services company with which investors can by and sell securities on an ETF or by phone.
But for the time being, startups like SFOX will build a place to be a sort of foreign exchange for decentralized currencies. This could eventually make it desirable to banks, because of its experience with bitcoin.
“Banks want to be involved [in bitcoin], they just have to be comfortable,” Thobhani said.
Algorithmic bitcoin trading
SFOX sees its platform as becoming increasingly useful as cryptocurrencies grow as financial assets.
Despite bitcoin’s $6bn market capitalization, Thobhani believes BTC has room to grow, bringing specialized algorithms for the financial markets into the cryptocurrency space.
“These algorithms are very special. They have to be rewritten for the world of cryptocurrency,“ said Thobhani.
Inside the interface for San Francisco Open Exchange. Traders can use special algorithms in the platform. Source: SFOXSFOX sees its main customers as traders who will need access to multiple exchanges at one time. While much there has been much talk about derivatives and options or futures to provide liquidity, SFOX is just managing trading across exchanges as an easy starting point to integrating more complex instruments.
Said Thobhani:
“We [will be] the window into all of these instruments we can trade. We just want to make it super simple and easy for traders to manage that.”
For larger bitcoin deals on the exchange platforms it can be difficult to transact bitcoin in buy and sell orders because of a general lack of liquidity. SFOX offers itself to payment companies and perhaps bitcoin-accepting merchants as a broker of sorts.
“Payment companies [are] going to need a mechanism to trade in large numbers,” Thobhani told CoinDesk. “In a manner that doesn’t move the market – they need to buy or sell one currency or another. We offer liquidity.”
Y Combinator and beyond
SFOX was one of few bitcoin companies that were accepted into Y Combinator’s Summer 2014 class. Others, including Onename.io and card company Shift Payments were accepted with a more complete product to show YC’s partners.
However, SFOX came through the renowned accelerator building its product; the founders only applied with the concept for the platform.
Said Thobhani:
“We applied to YC with an idea. Which is very unusual. You look at most of the YC companies and they have a product or at least you have been operational for six months or so.”
There are a number of companies that are somewhat similar to San Francisco Open Exchange – especially by offering a trading platform.
Thobhani argues the startup is doing something unique amongst the competition. The idea for SFOX, he says, is something many in the bitcoin community will need, similar to how the conventional currency markets operate right now, he said.
“There’s a lot of working with other partners in a currency market, and we don’t see how bitcoin is going to be any different. Bitcoin is an open technology, and we are an open platform. We see this as an opportunity to work with the community,” said Thobhani.
SFOX is currently in limited beta. Anyone can sign up but deposits and withdrawals are currently restricted. For full platform access, go to the SFOX deposit page and follow @sfoxtrading on Twitter.
Markets image via Shutterstock
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Original author: Daniel Cawrey