Institutional investors are choosing over-the-counter (OTC) markets over standard exchanges to enter the bitcoin space, revealed Forbes.
An OTC market executes trades via a private dealer network as opposed to a formal exchange in which counter parties expose their offers to the party in public. That allows big investors to purchase a large number of assets without alerting the market. Bitcoin, whose supply is relatively limited, and is available across the online exchanges, thus becomes an ideal candidate to be listed on OTC markets.
Major Bitcoin Deals Go OTC
An investor willing to put a multi-million dollar’s worth of investments into crypto space cannot just sign up at a random exchange and do it. Online Bitcoin exchanges lack the infrastructure, liquidity, and technology to execute large block orders. Coinbase, for instance, allows traders to purchase only $25k worth of cryptocurrencies every day regardless of being one of the world’s leading crypto exchanges.
The limits are visible all across the formal exchanges. US-based Kraken exchange allows withdrawals between $2,500 per day and $20,000 per month. Another US exchange Circle imposes a withdrawal limit of up to $3,000 per week. Other high volumes crypto exchanges like Binance are purely crypto-to-crypto. Therefore, their liquidity options come in the form of stablecoins, which again is a risky alternative to institutional traders.
“The big deals have to go OTC. A lot of the exchanges limit the order size, so you have to break up your orders, and that’s just fatal,” explained Monica Summerville, director of fintech research at UK-based Tabb Group, to Forbes.
OTC Volumes Outpacing Standard Exchanges
Summerville authored a report in April that revealed that OTC market volume had crossed $12 billion globally. She found that the OTC figures were two-to-three times larger than that of standard crypto exchanges. Nevertheless, many of these formal exchanges are believed to have manipulated their volumes in the absence of minimal regulations. Therefore, the true nature of these volume figures cannot be verified.
The OTC figures, though not visible on the Bitcoin blockchain, appears to include other crypto assets as well.
“Our reports are based on interviews and with participants in markets, cover more than BTC and keep in mind that not all transactions show up on public blockchains as many venues omnibus accounts so only net changes to their positions will be written to the public blockchain,” Summerville explained.
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