According to multiple sources, there is already much more institutional money in the $220 billion strong cryptocurrency market that people might be aware of.
Growth in OTC Trading Highlights Shift from the Retail to the Institutional
The largest buyers of crypto were high-net-worth individuals who willing to take a risk on Bitcoin and other digital assets.
Now the majority of $100,000 and above sales are hedge funds making private transactions at over-the-counter (OTC) brokerages. This revelation comes via Bobby Cho, the head of trading at Cumberland (the cryptocurrency department of DRW Holdings LLC). Cho personally handles many of the purchases for the hedge funds and other OTC traders.
Many in the cryptocurrency space have been waiting with baited breath for the “entry of institutional money” to trigger the next bull market. However, Cho and others believe that it is already beginning to trickle in.
Taking the other side of these big trades are often the miners themselves. Cho went on to state that many have regular sales scheduled to help pay for the immense operational costs of running mining equipment. Some have even set up their own trading desks to help arrange their OTC sales.
Cho stated to Bloomberg that he sees these developments as signalling a turning point for the entire cryptocurrency industry:
“What that’s showing you is the professionalisation that’s happening across the board in this space… The Wild West days of crypto are really turning the corner.”
Whilst precise figures are difficult to come by, researchers from Digital Assets Research and TABB Group believe that the value of OTC trades is catching up or possibly exceeding those taking place on traditional exchanges. The figures they provide range from between $250 million and $30 billion in trades per day during April. This compares with around $15 billion in daily trades on exchanges.
Another industry insider highlighted the shift in trading habits from the exchanges to OTC trading desks this year. Jeremy Allaire, CEO of Circle Internet Financial, said:
“We’ve seen triple-digit growth enrolling in our OTC business… That’s a big growth area.”
However, despite the ratio of OTC sales to exchange trades growing, the numbers for both are down overall owing to declining prices throughout 2018. The declines have also seen a drop in the volatility of the market, which Cho believes is also luring institutional players towards the market:
“One of the biggest criticisms of crypto by institutional investors has been the volatility… Over the last four to six months, the market has been trading in a very tight range, and that’s seems to be corresponding with traditional financial institutions becoming more comfortable diving into the space.”
There are numerous reasons why high volume buyers and sellers prefer private OTC trades. These include being able to make sales without moving the market, having access to brand new, “virgin” coins, and being able to access the larger numbers of digital coins required to supply their demand. Sam Doctor, MD at Fundstrat Global Advisers, commented:
“At this point in time, because more and more institutions are beginning to enter the market, there’s more of an imbalance.”
He continued to state that the growth in brokerage firms in 2018 is a response to the increased demand from institutional investors.
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