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Massive Bitcoin Purchases, what is really happening.
Most people buy their Bitcoin on exchanges like Coinbase, but another market exists that not many people know about. This market is known as the over the counter trade or OTC market. In this article, we look at what is going on in this off-exchange market and give you some valuable information that will further your knowledge of this space.
Huge Bitcoin Transactions over the last 30 days have taken place. In the chart below we can see some of the biggest. 48000 Bitcoin or $188 Million USD was moved on December 29th.
What are these transactions? These transactions do not appear to be exchange related as shown by the fact they are from unknown wallet to unknown wallet. Many Exchange wallet transactions are known as shown by the chart below.
So what could these transactions be? These could be people restructuring their wallets for reasons like not keeping all your Bitcoin in one wallet and the obvious security ramifications there. If you are preparing a wallet for sale you may want to move coins to another wallet so the buyer would not know your total BTC holding. These could also be large OTC transactions. These OTC transactions could be from large holders of BTC or mining operations. There is lots of talk of huge institutional purchases taking place at present and I fully believe this is the case. There appears to be a large appetite to buy on a large scale and a limited supply at present to service these huge off-exchange transactions. This is what I hearing from many sources.
Big OTC Players
Along with Coinbase, Circle operates an OTC desk. Circle is backed by Goldman Sachs and Bitmain. In a medium blog post on the 3rd of January, it was reported that Circle had a notional volume of $24 Billion dollars in 2018. They state they executed 10000 OTC trades with 600 different entities. They say they partner with over 1000 institutional clients including asset managers and other global endowments. They claim to have become a core liquidity provider to the entire crypto ecosystem.
Other big OTC desks
In early November, Changpeng “CZ” Zhao CEO of Binance stated:
“I think that it is very possible [the money is flowing into the OTC market]. What I’ve heard is the OTC market is at least as large as the live recorded volumes. So, at least 50% of volumes are not being reported on CoinMarketCap. But we’re not heading to that business, so we don’t know the real volumes [there].”
In a very quick change of heart, 13 days to be exact after the above statement Binance Labs, the venture and incubator arm of its namesake, made a $3 million investment in Koi Trading. Koi Trading is based out of San Francisco and it is an emerging platform that acts as an OTC desk, offering non-retail investor issued crypto exchange orders.
I suspect many exchanges are ramping up their OTC offerings as Coinbase and Binance are doing. They will be feeling the pinch from reduced revenue as many Alt coins fail and are no longer traded on their platforms.
Why use OTC
One of the main reasons OTC trading exists is that brokers can provide a quoted price for large transactions and shield high-value traders from adversely impacting their own price point, as the traders would if they traded directly on an exchange.
Purchasing large amounts in the OTC market also provides a better degree of anonymity which is appealing for many buyers, however writing the contracts is a technical task that requires the labour of several legal scribes and many hours of preparation.
The Dark Side of OTC
The opportunity for conmen and scams is very prevalent in OTC and the space is full of many one-man bands looking to broker deals who do not fully understand what they are doing. Approaching this space should be done with a large degree of caution. I have personally spoken with people who came close to being scammed. While the Crypto wild west is not as wild as it was, this is still a time of many grey areas existing and both the savvy investor and entrepreneur are still having to navigate scam infested waters within both Crypto investment and the OTC market.
Summary
I personally have no doubt the OTC market is booming. A huge part of profit-making is buying up cheap assets without too much noise. Big plays or sudden changes attract unnecessary attention and competition. The ultra rich like to cover their direct exposure, which requires a sophisticated network of dealers, brokers, intermediaries and middlemen. This exists in the OTC market and with the institutions’ players entering this market, OTC is an area you should be aware of if you are investing in the Bitcoin and Crypto space. While it is difficult to know the exact percentages I think more than 50% of BTC trade is happening in OTC and this will grow in 2019.
