“At this point in time, because more and more institutions are beginning to enter the crypto market, there’s more of an imbalance,” said Sam Doctor, Quant Strategist at Fundstrat, an independent research boutique.
Another research company, TABB Group, as well as the start-up Digital Assets Research, has further claimed earlier this year that Over the Counter (OTC) crypto trading volumes range from $250 million to $30 billion, at times considerably more than the trading volumes on crypto exchanges which currently stand at about $14 billion.
According to Bitcoin Magazine, the $5,000 report further says “institutional capital investment in cryptocurrencies from institutions currently waiting on the sidelines, including hedge funds and pensions, will likely go from a trickle to a torrent.”
Bloomberg argues the crypto OTC market is getting more mature with miners setting up their own trading desks, regularly liquidating cryptos rather than selling them off during bull runs.
“We’ve seen triple-digit growth enrolling in our OTC business. That’s a big growth area,” Jeremy Allaire, Circle’s CEO, said.
To avoid big movements either up or down, individuals that want to buy big amounts usually go to sellers directly. In Proof or Work coins, the biggest sellers are miners, which apparently currently command a 20% premium according to Travis Kling, founder of Ikigai, a hedge fund.
“If they are liquidating [coins], they are liquidating them via OTC,” said Tom Flake, founder of Bcause, a service provider to industrial miners.
Such OTC trading then gradually affects market prices because there are only so many cypto coins to go around, with some balance seemingly recently found, especially in bitcoin which has been sort of sidewaying for some time.
“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,” Bobby Cho, global head of trading at Cumberland, said.
Interestingly, the price premium at Barry Silbert’s Bitcoin Investment Trust has recently fallen below 10%. They’re facing considerable competition, especially from XBT Provider which offers bitcoin and ethereum ETNs, but Tyler Jenks of an asset management company called Lucid Investments says:
“In the past, this would be a screaming buy. Not this time. Either Bitcoin is about to go much lower, AND/OR, Big money is betting on a new Bitcoin ETF.”
Chances of a bitcoin ETF in the near future are probably very close to zero, but the infrastructure for institutional investors now developing considerably, it may be the case that pent up demand is starting to make wave in the less public OTC markets where big whales swim.
If that’s the case, it will probably be reflected on public markets fairly soon, with hedge funds now apparently replacing wealthy individuals in big purchases as cryptos leave behind the early adopters phase to enter the second stage, institutional investors.