Crypto OTC Brokerage
While crypto asset exchanges are experiencing an increase in users across the globe, the majority of “big ticket” trades are happening in the over-the-counter (OTC) market and never touch exchange order books.
OTC bitcoin brokers aim to provide liquidity to the bitcoin whales that top the “bitcoin rich list” and trade in ticket sizes north of $100,000 USD in BTC. While the number of bitcoin holders who hold millions in BTC and regularly place trades of this size is very limited, brokers are targeting a new type of bitcoin client: the institutional investor.
Institutional investors gradually started entering the crypto asset market last year, thanks to the exuberate gains that leading digital assets managed to book in 2017. Digital currency-focused hedge funds, foreign exchange funds, and even a handful of mutual funds have started to eye bitcoin and other crypto assets for their portfolios.
While there has been a surge in individuals on social media claiming to provide OTC cryptocurrency trading services, only a handful of brokerages have managed to establish themselves are trusted counterparties in the OTC market. These are the brokerages you will be introduced to in this article.
Circle Trade
Circle Trade is the OTC brokerage arm of Goldman Sachs-backed digital currency startup Circle. Circle Trade provides OTC digital asset trading services for high-net worth individuals and institutional investors, and reportedly trades $2 billion worth of cryptocurrency a month.
Business Insider reported Circle Trade recently bumped up its minimum ticket size from $250,000 to $500,000 but average trades sizes are $1 million dollars, according to Circle CEO Jeremy Allaire, with some trades even exceeding $100 million.
Cumberland
The DRW Holdings subsidiary, Cumberland Mining, has also managed to establish itself as a market leader in the bitcoin OTC brokerage market since it opened its doors in 2014.
The Chicago-based brokerage firm, which has recently opened offices in Asia and Europe, provides liquidity for high net-worth individuals and institutional investors in major digital assets as well as enabling large investors to participate in initial coin offerings.
Minimum trade size is $100,000 and trading fees are incorporated in the bid/offer spread.
Genesis Trading
New York-based Genesis Global Trading is probably the most established bitcoin broker. The company was spun out of SecondMarket’s former trading division and is owned by the leading blockchain investment firm Digital Currency Group.
Genesis Trading started its brokerage service back in 2013 and due to its ownership by Digital Currency Group is one of the most reputable players in the OTC bitcoin market.
Minimum ticket size is $25,000 and there is no fixed percentage. Instead, Genesis Trading incorporates its fee in a fixed spread above the XBX Bitcoin Index.
itBit
New York-based digital asset exchange itBit, which launched in 2013, also has a bitcoin OTC trading desk servicing large investors.
Minimum trade size is 25 BTC and a 0.1 percent fee is charged on each transaction. According to the company website, itBit’s brokerage arm services clients in over 100 countries and is fully regulated bitcoin exchange in the State of New York.
Why institutional investors are looking to OTC brokers
Institutional investors have strict compliance guidelines that they are required to follow for regulatory reasons. Hence, trading digital assets on relatively insecure (and often overseas) digital asset exchanges is a risk that not everyone is willing to take. Instead, institutional investors look towards established OTC brokerage firms to execute their trades.
Brokers act as the intermediary and thus ensure that all trading counterparties are fully KYC’d before a trade is executed. This drastically reduces the chance of fraudulent trades or falling victim to a scam.
Furthermore, investors are not required to store their funds on third-party accounts to conduct their trades. This effectively negates the potential for a loss of funds because of a hack. In fact, an OTC broker who decided to remain anonymous told Reuters: “When the big [exchange] hacks happen we tend to see business go up.”
Finally, OTC trading allows large investors to receive better pricing than they would on exchanges as a large seller or a larger buy would quickly cause the price of bitcoin to move when they are detected in the order books.
The bitcoin OTC market is well positioned to continue its upward trend as more institutional investors, who are looking for the same service they are used to in the traditional financial markets, are entering the crypto market.
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