OTC is alive and kicking

crypto.inferno (67)in #bitcoin • 5 years ago

Volumes and volatility are far down from their peak at the beginning of this year – at least, on exchanges. For the secretive OTC market, things are far more active.

The OTC (Over the Counter) bitcoin market has quietly been growing over the past couple of years, as wealthy individuals and financial institutions start dipping their toes into bitcoin. And these are big toes; typically, the size of these trades is at least $100,000 and can be many times that, stretching to hundreds of BTC.

Large traders do business off-exchange for a number of reasons. It’s more private, and there’s no risk of your money disappearing if the exchange goes down. But a major reason is the lack of supply on regular exchanges: put in a big market buy and you’ll drive the price through the roof. Buying blocks of coins, often directly from miners, avoids this slippage.

Exchange volumes are down by maybe 80% since the peak in December, but the same dynamic hasn’t impacted the OTC market so badly. There are lots of buyers, though they operate quietly, behind the scenes, and avoid making waves where they can. This is big money, which is synonymous with smart money, and it doesn’t want to drive prices up yet if there are still bargains to be had.

The OTC market is significantly larger than the exchange market, according to a recent report. ‘Per researchers from Digital Assets Research and TABB Group, the OTC market facilitated $250 million to $30 billion in trades per day in April, while recently exchanges have handled about $15 billion in daily trades.’

Bobby Cho, global head of trading at Chicago crypto trading outfit Cumberland, says of the development of the OTC market: ‘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.’ In other words, while retail traders have been wringing their hands and trembling at the thought of further falls in price, institutions have been scooping up available coins right, left and centre.

One final benefit of working with an OTC broker who sources coins directly from miners? ‘What’s more, miners can offer something unique: brand-new, “virgin” coins, which some investors covet. Such coins command a premium of up to 20 percent, according to Travis Kling, founder of the hedge fund Ikigai.’

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