After Midnight on April 2, 13 orders of bitcoin, each of more than $4.9 million were reported by Cumberland, an OTC desk of DRW Holdings, based in Chicago. They also reported that each order consisted a minimum of 1,000 bitcoins and the trades were real since there were actual buyers and not just bids. Backing their claim, Cumberland also shared its data via a twitter post below;
Desk Update: The post-trade analysis of Monday evening’s price action revealed a series of large bids (>1,000 BTC per order) within a 1 hour span, which appear to be actual buyers vs. forced liquidations. pic.twitter.com/UiuHLoCbPr
— Cumberland (@CumberlandSays) April 4, 2019
Over-the-counter, or OTC, trading is done directly between two parties without the interference of the exchange. The products traded on exchanges are well-standardized, meaning there are narrow ranges of quality, quantity and identity maintained by the exchange. In an OTC exchange, the participating parties can agree on quality and quantity that are mutually beneficial. OTC trading desks provide big corporations and institutions with trading opportunities without the interference of the exchange.
The Japanese cryptocurrency exchange Coincheck also launched an over-the-counter (OTC) trading desk for bitcoin to attract the institutional investors in this space, as announced recently by the firm in a blog post. The post reads:
Large-scale OTC trading service is a service that allows you to buy and sell virtual currencies at attractive prices for large-scale customers.
For Coincheck’s OTC trading desk, a terminal has been provided by the exchange using which large-scale investors can trade large volumes of bitcoin. The working hours for this OTC desk are from 10:00-15:00 (JST). Overtime trading and trading from other than the large OTC trading screen are not allowed. Besides this, trading through Coincheck app and APIs are not allowed. The reason for not allowing overtime trading and API usage is linked to the security measures that are necessary for large-scale transactions. Since huge amounts are moved by institutions, it is only natural to keep the trading in check and under strict constraints for security purposes. In the blog post, the exchange has also expressed its aim of supporting cryptocurrencies other than bitcoin in the future.
Although the launch of the OTC trading desk by Coincheck comes off as significant news for the institutional clients, there is a catch. The exchange’s warning in the blog post that ‘if the company goes bankrupt, it may not be possible to return the deposited money and virtual currency’, is off-putting for many. This warning in the hindsight of a massive $532 million hack that occurred to the exchange in January 2018 puts a red alert out for the institutions, though after acquisition by Monex Group in April 2018, a lot of security-related steps have reportedly been taken to make the exchange safe. Reimbursement of customers affected by the hack, restored trust regarding the exchange to some extent. The exchange also joined the Japan Network Security Association in November 2018 in order to cancel out its bad reputation in terms of security.
Besides Coincheck, we have seen Coinbase launched its over-the-counter trading desk for institutional clients in November 2018. This was done by Coinbase after going through the process of becoming a fully regulated broker-dealer by the SEC. But what do large-scale institutional clients entering the crypto market signify for this space?
The institutional clients have largely been holding back from entering the crypto space owing to the uncertainty that is attached to it. Volatility of prices is one of the issues that destroy the reputation of cryptos in the institutional eye. Besides, a lot of investors in crypto have lost large amounts of money to scams, fraudulent activities and fake Initial Coin Offerings (ICO). As a result of these issues, the connotation that is attached to this space is negative.
Custody is another big issue linked with crypto for institutions which tend to move amounts much greater than an average user. Just recently, we saw the Canadian exchange Quadriga CX get engulfed in controversy as when its Chief Executing Officer, Gerald Cotten, died he took away access to a huge amount of cryptos (worth approximately $190 million) with him. These are the kind of events that build the aura of uncertainty around the crypto space and keep the institutions away. No corporation wants its millions of dollars to get lost in thin air, something that can also hurt its stocks. But the entry of institutional investors into this space is necessary if the crypto world is to grow and mature.
Institutions will bring up the capital that is flowing into the crypto space. With billions of dollars flowing in and interest from global corporations growing, cryptos will get more attention from the general public as well. As a result of the large influx of money, prices of various assets are expected to go up making this space more
attractive and trustworthy overall. Institutions are the key to driving the global adoption of cryptos and opening up of OTC bitcoin trading desk by Coincheck for institutional clients is just another step to attract them into this space by providing better security promises.