Institutional Investors Enter the Cryptocurrency Market Through Over-The-Counter Platforms


The involvement of institutional investors in Bitcoin and other cryptocurrencies is at a higher level than many observers assume. This was stated in comments by the Bloomberg industry experts.

The head of trading at Cumberland, the cryptocurrency division of the Chicago-based DRW company, Bobby Chao, says that hedge funds and other financial organizations crowd out individual investors in transactions in the amount of $100,000. Such purchases are made primarily through private transactions on over-the-counter platforms.

At the same time, large sellers, including miners, increasingly organize regular sales of coins, rather than keeping them in the hope of selling at a higher price during the next rally. At the same time, many of the miners create their own highly liquid platforms through which they conduct operations.

“What that’s showing you is the professionalization that’s happening across the board in this space,” Cho said. “The Wild West days of crypto are really turning the corner.”

The publication cites data from a study by TABB Group, according to which in April of this year, over-the-counter transactions with cryptocurrency accounted for between $250 million and $30 billion daily.

“We’ve seen triple-digit growth enrolling in our OTC business,” said Jeremy Allaire, chief executive office of Boston-based Circle Internet Financial. “That’s a big growth area.”

According to Digital Asset Research, OTC-trading volumes decreased along with cryptocurrency prices, however, they did not suffer as much as the similar indicators of Bitcoin exchanges, which fell by 80% relative to peak values.

At the same time, as noted by Bobby Cho, many institutional investors entered cryptocurrency relatively recently, when volatility began to decline.

“One of the biggest criticisms of crypto by institutional investors has been the volatility,” Cho said. “Over the last four to six months, the market has been trading in a very tight range, and that seems to be corresponding with traditional financial institutions becoming more comfortable diving into the space.” A third of DRW’s transactions are happening during Asia hours, he said.

According to Cho, a third of Cumberland’s transactions accounted for the opening hours of Asian markets. Large companies prefer over-the-counter instruments to conclude transactions, as they can agree in advance on the price and not worry about sharp fluctuations in the rate that their transactions may trigger.

“If they are liquidating [coins], they are liquidating them via OTC,” said Tom Flake, founder of Bcause, a provider of mining facilities whose customers are institutional miners with hundreds to thousands of machines.

At the same time, Sam Doctor, Managing Director of Fundstrat Global Advisers, stressed that large buyers often go to over-the-counter platforms, since cryptocurrency exchanges are not able to offer them sufficient liquidity.

Moreover, miners can offer large buyers something unique: the so-called “virgin” bitcoins, which have never been used for questionable purposes, for example, for money laundering. According to the founder of the hedge fund Ikigai, Travis Kling, some buyers are willing to overpay up to 20% for such coins.

In September, the possibility of over-the-counter trading in the blockchains of digital assets with a minimum threshold of $100,000 was added by the Kraken exchange.