Since Bitcoin (BTC) found its all-time high in late-December 2017, two weeks shy of one fateful year ago, the leading cryptocurrency has fallen by a jaw-dropping 81%, posting a performance that would make speculators shudder. Yet, dozens of reports indicate that institutional players have only advanced further into the battlefield that is crypto, infusing hundreds of millions, if not billions of dollars worth of capital into BTC and its altcoin brethren.
Although these reports have been deemed credible by a myriad of industry commentators and analysts, the market has barely budged, which begs the million-dollar question — how are the institutional-sourced greenbacks entering the crypto market? And while many have struggled to discern the solution to this pertinent inquiry, the answer might have been floating right under the industry’s nose all along. More specifically, in crypto’s recent memory, a number of preeminent startups have launched over-the-counter (OTC) desks or made significant investments in this unique form of infrastructure.
Coinbase, Binance Embark On OTC Forays Amid Bear Market
In early-November, Changpeng “CZ” Zhao, the juggernaut behind the powerhouse that is Binance, made a guest appearance on CNBC Africa’s “Crypto Trader,” speaking with anchor Ran NeuNer about the status of crypto. After claiming that “something will trigger” a bull run, “sooner or later,” CZ, lending his insight as an exchange CEO, divulged that the OTC crypto market is “at least as large as the live recorded volumes.” In other words, as the Binance chief stated:
“I think that it is very possible [the money is flowing into the OTC market]. What I’ve heard is the OTC market is at least as large as the live recorded volumes. So, at least 50% of volumes are not being reported on CoinMarketCap. But we’re not heading to that business, so we don’t know the real volumes [there].”
Just 13 days after Zhao made his striking comments, in an evident change of heart, news arose that Binance Labs, the venture and incubator arm of its namesake, had made a $3 million investment into Koi Trading. San Francisco-based Koi Trading, for those who aren’t aware, is an emerging platform that acts as an OTC desk, specializing in the facilitation of non-retail investor-issued crypto exchange orders.
Coinbase, arguably Binance’s foremost competitor when it comes to diversified crypto offerings, quickly followed suit, one-upping Binance by launching its own OTC platform initially behind closed doors. As reported by NewsBTC, Christine Sandler, head of coverage at Coinbase, took to Cheddar to divulge more about the newfangled institutional product.
Sandler, discussing the matter in an exclusive interview, noted that Coinbase recently launched an “agency-only” OTC desk to complement its traditional exchange business. Explaining that this venture was catalyzed by the presence of valid interest, the executive, admitting that Coinbase’s OTC launch was “opportunistic,” stated:
“We found that a lot of institutions are usig OTC to on-ramp [their fiat] for crypto trading. And so we felt that this was a huge benefit for our clients to leverage our exchange and our OTC desk. So, we’re agency-only and we have plans to expand the service to offer delayed settlement and integration into our custody platform as well.”
Institutions Still Enamored With Crypto
Sandler’s statement, coupled with Zhao’s insight into the relationship between OTC and spot markets, only accentuates the fact that institutions continue to purchase copious amounts of crypto assets, even while it goes unnoticed by most naive traders. These two industry insiders aren’t alone in alluding to the fact that Wall Street hotshots are waxing their cryptocurrency skis, so to speak.
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Bobby Cho, the global head of trading at Cumberland, DRW’s cryptocurrency trading division, recently noted that hedge funds continue to issue abounding OTC Bitcoin transactions. Cho discerning what this meant, explained:
“What that’s showing you is the professionalization that’s happening across the board in this space. The Wild West days of crypto are really turning the corner.”
Boston-based Circle corroborated Cho’s remarks, with CEO Jeremy Allaire telling Bloomberg that Circle Invest has seen “triple-digit growth” in the number of individuals enrolling into its in-house OTC business.
While it is more than apparent that institutions still see monstrous value in this innovation, even in spite of BTC’s drawdown, it hasn’t been made all too clear how much capital flows into cryptocurrencies directly. Bitcoin proponent Alex Kruger, trying his hand at making an educated guess on the matter, recently speculated that $5.9 billion from Wall Street participants have been allocated towards crypto. To put the jaw-dropping sum into some much-needed perspective, Kruger, a leading markets researcher, explained that $5.9 billion is comparable to 237 days of block rewards issued by the “largest coins,” which report amounted to $24.8 million per day as of July 1st.
Still, the fact of the matter is that if institutions are truly unloading their wheelbarrows through OTC desks, the spot market will fall victim to the whims of speculators, making a bullish breakout less likely, unless this market sees a fundamental shift or extremely progressive news cycle.
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