There was a time when institutional investors were reluctant to enter the crypto-market owing to the high volatility and lack of regulatory clarity inherent to the market. However, things are changing for the better in 2019.
There has been a proliferation of trading venues that have resulted in dramatic structural changes to the cryptocurrency industry. One such development is OTC or Over-The-Counter Trading, which is typically not as transparent as standard exchanges and are also subject to fewer regulations. This makes these venues even more lucrative for big institutional investors to purchase a large number of assets without alerting the highly volatile market and impacting the prices of crypto-assets.
Along the same lines, leading crypto-exchange Gemini’s Managing Director of Operations, Jeanine Hightower-Sellitto, in a recent interview on the sidelines of the Digital Asset Summit in New York, said,
“A lot of the things I think about are how do you bring services to the institutional customer to meet them where they’re at? Because institutional customers in any other asset class in particular options and equities where I came from, expect the same types of markets that they would in any other service offering.”
Elaborating more on OTC and Gemini’s role in it, she added,
“So we recognize that a lot of institutional customers use the OTC markets because they have size trades. They don’t want to leave a footprint in the marketplace. So any trade that’s done and settled through Gemini clearing isn’t reported to the tape. It’s still anonymous. It’s still not even reported to the market in terms of a trade. And that’s something that a lot of institutional customers need in terms of their trading style.”
Gemini had added off-chain and OTC trade negotiations on its platform in September 2019. OTC trade has encouraged some prominent exchanges like Coinbase, Bithumb, and Huobi to offer exclusive OTC desks for their institutional clients.
Given the market’s opaqueness, it’s impossible to know the exact figures in terms of daily OTC volumes for cryptocurrencies. However, according to Bloomberg’s report in 2018, the daily OTC market was anywhere between $250 million and $30 billion per day, at a time when the crypto-exchange figures stood somewhere around $15 billion per day. This can be a major trend in 2020 as cryptocurrency exchanges face increasing regulatory pressure next year.
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