Recently, reports show that institutional cryptocurrency trading on traditional exchanges have reduced significantly in volume as Bitcoin joins many major portfolios. 2018 has seen more institutional investors joining the crypto markets with many others scheduled to come online in 2019. Crypto exchanges have an upper hand over traditional markets since they have no closing times, and there’s a lot of automatic trading tools available to receive the market trends
Nevertheless, high-demand liquidity may ultimately have to be found through over-the-counter trading desks. In comparison, Coinbase sees more bitcoin trading volume than Grayscale’s Bitcoin Investment Trust (GBTC) on the OTC Markets where the crypto asset is listed. The OTC Markets are open for trading only 31% of yearly tradable hours. These volumes do not tell the real story in terms of trend.
The trading volumes between GBTC and Coinbase were almost equal in 2017. However, 2018 has witnessed the two go in opposite sides. GBTC Bitcoin trading volume decreased by 35% while that of Coinbase increased by 20% during OTC Markets hours for the same periods in 2017 vs. 2018.
The decline may signify that institutional traders have gone to the higher liquidity OTC physical Bitcoin markets or they are staying out of the market for now. Also, the reason may be due to both of these possibilities.
Grayscale saw net inflows of $216Million into its BTC Investment Trust (Diar, 5 November) within the first three quarters of 2018. These inflows are attributed to the company’s holding custody of at least 1% of Bitcoin’s circulating supply as reported in Diar, 3 December.
Preference of private placement may also be a driving force behind this shift in a market that has seen regulatory clarity with regards to Bitcoin’s Future. Furthermore, the development of many insured custody solutions and the launch of many OTC trading avenues may have also accounted for the shifts.
Global Trading Spheres
Coinbase represents a small segment of the global markets. The platform sees at least 30% of trading outside the traditional exchange hours. Without any closing hours in the crypto markets, big money and institutional investors would need around-the-clock access to avoid unprecedented occurrences in the highly volatile market.
The need for stability and regulated trading is what makes the institutional investors shift to the over-the-counter trading desks. On the other hand, it may also be a challenge to institutions that would require extensive manpower to determine the prevailing open-risk in the market, even with the support of technological trading algorithms and stop-gaps.
All the major exchanges operating in the United States now offer OTC services. Also, many other individual players are also joining this market space. The CEO of Peer-to-Peer exchange HodlHodl, Max Keidun, has an OTC desk. He explained that large order requests have increased in 2018 and in some cases doubling month-on-month.
However, Mr. Keidun acknowledged that it is quite challenging than normal to get a seller at the current low prices after the November plummet. But, the markets balance themselves naturally where buyers and sellers find a perfect match.
The real challenge now remains whenever large fiat transactions linked to Bitcoin’s Revolution have to undergo in-depth analysis by the banking sector despite obtaining all the required Know-Your-Client clearance needs.