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BY CNA team - October 2, 2018

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OTC markets becoming more prominent for crypto trading

OTC markets are increasingly being used by institutional investors for trading cryptos
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Institutional investors are becoming more involved in the crypto markets and the recent drop in price-volatility is likely to attract more of them.

Chicago-based Cumberland’s global head of trading Bobby Cho says institutional investors such as hedge funds have replaced high-net worth individuals as the biggest purchasers of digital coins above US$100,000 through private transactions or over-the-counter (OTC) markets.

Cumberland is the crypto trading unit of DRW Holdings, a trader of derivative and equities that entered the crypto trading space in 2014 and now offers around 500 cryptocurrency trading pairs in addition to crypto-fiat trading.

Cho says in an Oct 1 Bloomberg report that their involvement shows that the Wild West days of the crypto markets “are really turning the corner”.

The news wire says that even the big sellers – the miners, are scheduling regular coin sales instead of holding or waiting to offload them during market rallies.

“One of the biggest criticisms of crypto by institutional investors has been the volatility,” Cho says, adding that the market has been trading in a very tight range over the last four to six months.

He pointed out that the price movements seemed to correspond to traditional financial institutions becoming more confident in investing in the crypto markets. “A third of DRW’s transactions are happening during Asia hours,” he says.

While transactions through the OTC markets have declined in tandem with crypto prices, volume has not dropped as much as the crypto exchanges, which has dropped 80% from the peak, according to Digital Asset Research.

The news wire, citing work from Digital Assets Research and TABB Group, sys the OTC markets facilitated anywhere from US$250mil to US$30bil in trades per day in April while data from CoinMarketCap showed that exchanges recently handled about US$15bil.

Jeremy Allaire, the CEO of Boston-based Circle, a peer-to-peer payments tech firm that also operates a crypto exchange, says the company’s OTC business has seen triple-digit growth.

The largest miners also sell their coins to sellers directly or through brokers. “If they are liquidating [coins], they are liquidating them via OTC,” Tom Flake, founder of Bcause, a provider of mining facilities, says.

Fundstrat Global Advisors head of data science research Sam Doctor says institutional investors prefer to buy outside of exchanges because the amount offered for sale is far less within the exchanges.

“At this point in time, because more and more institutions are beginning to enter the market, there’s more of an imbalance,” Doctor says, noting that this is the reason why brokerage firms are springing up to help institutional buyers find inventory.

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