Institutional investment is increasingly being seen as the future of crypto trading, with both Binance and Bittrex launching their own dedicated over-the-counter (OTC) desks in January. The desk launches come after Morgan Stanley published a bullish report in November, showing a strong pattern of institutional investment for Bitcoin. The latest developments indicate that some of the world’s largest exchanges are receiving increased demand from institutional investors, for whom OTC represents a lucrative opportunity. Cointelegraph takes a look at the latest launches and OTC news.
Binance launches dedicated OTC desk
On Jan. 23, the number-one ranked cryptocurrency exchange Binance announced the launch of its over-the-counter (OTC) trading desk in a blog post on its website. This new service, known as Binance OTC, will allow service users to carry out transactions larger than the equivalent of 20 BTC ($69,552).
Officials explained the basic premise of the new service in a blog post:
“Our OTC desk allows Binance users to trade larger amounts of many cryptocurrencies listed on the exchange, with transactions being settled via their Binance accounts.”
As per the post, officials also hoped to draw potential customers to their service by promising trades of large quantities of different cryptocurrencies that will clear at the same price simultaneously. The blog post also sought to reassure prospective clients by adding that trades are private due to the fact that order books will not be touched. Service users will also be able to use direct settlements for OTC trades, without needing to use different wallet addresses.
The product launch comes on the back of strong gains being made by Binance Coin (BNB), which now ranks as the 12th-largest coin by market capitalization. The company recently rebranded Trust Wallet as a multi-cryptocurrency wallet, adding an additional 14 blockchains.
Bittrex launches OTC desk after increased client demand
Another company to recently launch an OTC desk is United States-based cryptocurrency exchange Bittrex. The firm will offer investors seeking to conduct larger trades the opportunity to trade the same 200 crypto assets available to users on its standard platform. Unlike users of the standard service, OTC investors will have to be able to commit to minimum trades of $250,000 or more.
According to Bittrex CEO Bill Shihara, the launch of the desk is a result of increasing demand for an OTC service from its customer base:
“This offering will be another way for Bittrex to further advance adoption of blockchain technology worldwide, while also providing our customers with price certainty and a fast and easy way to trade large blocks of digital assets.”
Bittrex Chief Strategy Officer Kiran Raj told Cointelegraph that the OTC launch is part of Bittrex’s commitment to continually revise its services to suit its customers:
“We continuously evaluate and expand our offerings to give our customers a wide range of opportunities for participating in the blockchain industry, and our customers were interested in an OTC service with an extensive selection of digital assets.”
Regarding the ongoing crypto bear market, Raj remained optimistic both about continued client demand and the possibility of staying afloat in an increasingly competitive market:
“We continue to see interest from investors at all levels, and we’re expanding our offerings and services to meet the current and future demand. It really comes down to trust and our extensive selection of digital assets. Bittrex is known for our reliability, security and commitment to compliance, and by combining these core pillars, with our broad selection of innovative blockchain projects, we’re providing customers a unique service that’s tailored to their needs.”
Circle leads the way with OTC
Despite the abundance of recent over-the-counter desk launches and a vertiginous fall in crypto prices throughout 2018, cryptocurrency finance firm Circle announced that its OTC desk, Circle Trade, had a notional volume of $24 billion in 2018.
According to the announcement made by the company in a Medium blog post, Circle completed 10,000 OTC trades, with around 600 distinct counterparties across 36 different crypto assets. As per the press release, the notional volume equated to roughly $24 billion in notional volume.
In light of the group’s increased growth and influence across the crypto market, the firm claims to have “become a core liquidity provider to the entire crypto ecosystem.”
According to the company, Circle is now partnered with more than 1,000 institutional clients, such as OTC desks, exchanges, asset managers, token projects and other global endowments. In the press release, Circle indicated that it expects positive growth for institutional adoption:
“This year, we anticipate further incremental growth in institutional adoption catalyzed by stablecoin usage, advancements in institutional custody solutions, increasing regulatory clarity particularly in the [United States], and improvements and innovation in core crypto infrastructure.”
Circle Trade’s head of trading, Dan Matuszewski, told Cointelegraph that the so-called crypto winter is behind the current trend for new OTC desk openings:
“The crypto winter is forcing companies to look for new opportunities and they’re now realizing what we’ve known for years: OTC trading desks already play an integral role in crypto.”
Despite the ongoing downward trend in the crypto markets, 2018 was a record year for Circle Trade. Matuszewski said that the company is building on this momentum in 2019:
“Last year, Circle Trade traded about $24 billion in notional volume and worked with more than 600 distinct counterparties, so we start 2019 from a strong foundation and are seeing steady activity. We onboarded a record number of institutional investors in 2018 and haven’t seen interest dim much relative to the overall trend in crypto markets. Institutional counterparties tend to be more patient and work positions over larger time frames.”
Matuszewski told Cointelegraph that, although he expects more desk launches in the crypto community, Circle Trade will continue to stand out from the crowd:
“We expect to see more desks come onboard as companies recognize the value of offering OTC. Additional desks are likely to be agency and bolted on top of existing crypto businesses, primarily exchanges. The essential difference between us and other OTC desks is we’re able to more quickly meet a customer’s need because we act in a principal capacity, meaning every counterparty faces Circle directly — we don’t merely act as middlemen waiting to find a buyer or seller on the other side.”
Coinbase Prime customers gain access to OTC
In late January, Coinbase announced that selected Prime customers will have access to U.S. and European over-the-counter trading desks and Coinbase custody, a service that focuses on institutional investors and the storage of large amounts of cryptocurrency.
Launched in November, Coinbase’s OTC desk permits customers to “execute large volume trades with minimal price slippage.” According to Christine Sandler, head of sales at Coinbase, the decision to launch the desk stems from increasing demand for OTC trading from institutional clients:
“We launched our OTC business as a complement to our exchange business because we found a lot of institutions were using OTC as an on-ramp for crypto trading.”
The origins of Coinbase’s OTC trading initiative began on June 6 when President and Chief Operating Officer Asiff Hirji commented that the acquisition of a regulatory license would help the company set off on “a path to offer future services that include crypto securities trading, margin and over-the-counter (OTC) trading, and new market data products.”
In order to facilitate its transition into securities, Coinbase acquired the securities dealer Keystone Capital Corp., along with Venovate Marketplace Inc. and Digital Wealth LLC in June.
Poloniex adds OTC service for institutional clients
U.S.-based cryptocurrency exchange Poloniex also jumped on the institutional bandwagon in December. Similarly to Coinbase, Poloniex is actively increasing the number of services it offers to customers. Institutional customers using dedicated accounts on Poloniex’s OTC desk will be able to do so, although the threshold for minimum trades is set at $250,000.
In a blog post, the company laid out its offer to institutional clients:
“Institutions large and small can enjoy the benefits of our large curated selection of crypto asset trading pairs, dedicated support and robust API services. […] Poloniex is focused on meeting the advanced trading needs of institutions.”
Huobi’s OTC desk required to remove Alipay and WeChat payment methods
Major Chinese digital payment providers Alipay and WeChat have reportedly sent legal letters to the crypto exchange Huobi requesting that the use of both their services and logos on the exchange’s OTC trading desk is unauthorized.
Despite the request from both providers, as of press time, the WeChat Pay and Alipay payment methods are still visible and available for use on the website of the Huobi OTC platform. Huobi responded to the claims from the payment providers, claiming that the company has not received any cease-and-desist letters and stating that the logos represent a payment link. The firm also stressed that there is no official cooperation between the involved parties and confirmed that user transfers are peer-to-peer payments.
Both of the payment platforms have litigious pasts when it comes to cryptocurrency. Alipay began to tighten its regulations for OTC Bitcoin transactions in August 2018, restricting accounts that used the system to transact Bitcoin OTC and establishing a monitoring system for “key websites and accounts.” WeChat blocked several accounts suspected of publishing initial coin offerings (ICO), along with the official sales channel of the Bitcoin mining behemoth Bitmain due to an alleged licence violation.
Despite the OTC trend, some institutions remain wary
Although established OTC desks such as Circle Trade are reportedly not experiencing any significant tapering of client interest, a December report from investment bank JPMorgan Chase found that the crypto winter is scaring off institutional investors.
Together with global market strategist Nikolaos Panigirtzoglou, analysts from JPMorgan reportedly found that the investment activity of institutional players in Bitcoin (BTC) “appears to be fading,” noting that “key flow metrics have downshifted dramatically.”
In particular, the report noted the decreasing amount of open contracts on Bitcoin futures on the Chicago Board Options Exchange (CBOE) global markets. As per the report, the index reached its “lowest levels” since the launch of Bitcoin futures trading in December 2017.
The report also documented the ongoing decrease in mining profitability associated with the decline of crypto markets. As a result of the dropping hash rate, JPMorgan analysts reported that mining is no longer a profitable activity for many miners, resulting in a sell-off of equipment.
The JPMorgan research also found that there has been a significant fall in average transaction size across the crypto market, dropping from $5,000 one year ago to below $160. Analysts also note that altcoins are prone to suffer disproportionately during the “correction phase.”
The findings of the JPMorgan report echo the views of CoinShares Chief Strategy Officer Meltem Demirors, who postulated that the crypto crash has its roots in institutions “taking money off the table.”