Institutional investors are at the forefront of trading in crypto currencies, according to a report published yesterday. These investors, who in some cases represent hedge funds, have displaced individuals with greater purchasing power as the biggest bitcoin buyers, after making private transactions, some of them as large as [EDITED a mistake – not $100k but $100 M] $100 million in the over-the-counter (OTC) market.
The report was published by Bloomberg and contains the conclusions reached by some specialists. Among them, Bobby Cho, global head of operations in the crypto currency operations unit of DRW Holdings LLC, Cumberland. For Cho, the cryptocurrency market is experiencing “a growing worldwide professionalization”. This professionalization is driven by institutional investors, who are more interested in the cryptomarket than the traditional market.
The report indicates that the crypto currency market has become more attractive for these institutional investors in recent months. The reason for this has been the reduction of volatility in the price of crypto currencies. Especially in the price of bitcoin (BTC), which has remained between 6 thousand and 7 thousand dollars in the months of August and September, as can be seen in the chart provided by CoinMarketCap.
According to researchers from Digital Assets Research and TABB Group, the OTC market had between 250 million and 30 billion dollars in daily operations in April. On the other hand, the exchanges of crypto currencies have handled, on average, about 15 billion dollars in daily operations in recent months, according to data from CoinMarketCap. However, it is important to note that, in the month of April, the daily volume of operations in the crypto exchanges also reached 30 billion dollars.
Graph of the volume of operations of the crypto-mint market in April 2018. Source: CoinMarketCap
A MARKET FOR FRESHLY MINTED CRYPTO COINS
Similarly, miners have also been shifting the trading volume to the OTC market. Also the miners who handle larger volumes of crypto currencies have set up their own desks for liquidity operations. Travis Kling, founder of the Ikigai hedge fund, points out that miners can offer virgin crypto currencies that have a 20% premium, as it is easier to prove that they are not linked to money laundering. Therefore, buying directly from the miners would become more attractive.
In addition, large buyers and sellers are more attracted to private transactions because these operations in exchange houses can influence the price of cryptocurrencies, the report says. In an OTC transaction, those involved can fix the price in advance. So they don’t have to worry about a sudden drop, or rise, right when the transaction takes place.
Bloomberg also picked up the opinion of Sam Doctor, Fundstrat’s managing director and chief data science researcher. For him, another reason that makes the OTC market so attractive is that exchange platforms could not offer as much coins as some institutional investors would like to buy. This would cause more brokerage firms to emerge to help balance the market.
In February, Morgan Stanley’s financial service providers assessed that the increase in institutional investors in the bitcoin market would be detrimental for crypto currency. For the analysts, the presence of these agents causes the cryptomarket to start behaving like the traditional market. This is because, little by little, investments in crypto currencies come from financial institutions and not from small investors.