According to a recent TABB Group research report titled “Crypto Trading: Platforms Target Institutional Market”, the Bitcoin over-the-counter (OTC) market is approximately three times larger than the exchange market. While cryptoasset exchanges process around $4 billion worth of bitcoin trades per day on a global basis, TABB’s evaluation is that the OTC market processes $12 billion worth of bitcoin trades daily.
Who is trading over-the-counter?
“Whales” or large holders of Bitcoin comprise most of this over-the-counter trading. Due to the concentrated ownership of the Bitcoin network, whales can substantially move the market with a single large trade of a few hundred million dollars. Instead of selling Bitcoin on an exchange, whales prefer to sell cryptoassets over-the-counter to prevent any drastic moves or sell-offs in the market.
For example, Chainalysis, a provider of cryptoasset tracking tools to companies and law enforcement, noted 50 transactions involving a total of 50,500 Bitcoins stemming from a whale’s wallet moved between Aug. 23 and 30.
Reddit users began picking up on this unusual activity, which was enough to spook the market. You can imagine the reaction if the wallet-holder decided to sell these Bitcoins all at once on an exchange.
Is this disparity forever?
The imminent inflow of institutional money into the crypto space is likely to lessen and ultimately eradicate the ability of whales to profit via manipulating the market. As soon as more institutional investors enter the space, the market will be less concentrated and whales will have less control of the market.
There are certainly a few items that institutional investors have their eyes out for before committing to crypto. First, institutional investors are keen on enterprise-grade infrastructures, such as trusted custody solutions and brokers. JPMorgan, Bank of New York Mellon, and Northern Trust are all exploring trading and custodial services of cryptoassets.
Additionally, institutional grade data is another advancement needed for many institutional players to enter the space. There are no current standards for cryptoasset data. Last but definitely not least, institutional investors are looking for more regulatory clarity, which is expected to come this year as several regulatory bodies are expected to roll out a framework.
While the over-the-counter market for Bitcoin is currently roughly three times larger than the exchange market, things should change when a myriad of institutional investors enter the cryptosphere.
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