OTC market for cryptocurrencies gain more traction than exchanges amid deferred regulation

Ever since the inception of bitcoin during 2009, time and again, the pioneer cryptocurrency has been traded through OTC setups (off-exchange).

With mentions of the Winklevoss Bitcoin (BTC)-based exchange-traded fund is being discarded or deferred by the United States Securities and Exchanges Commission (SEC), alongside, we observe that huge quantum of bitcoin trades have been traded on a regular basis in the OTC market by institutions, HNIs and miners. While the eminent cryptocurrency exchanges like Binance, Huobi, Coinbase, Bitfinex, Poloniex, and OKEx have also transacted comparatively lesser.

Most importantly, the liquidity on such platforms is not adequate to process a multi-billion dollar buy and sell orders.

While the price speculation continues as BTCUSD has turned bearish by sliding below the $7.5k mark. We have yet another investment management firm ‘VanEck’, who also submitted a proposal for a Bitcoin ETF with SEC if the underlying price shows any bounce-back rallies should not be surprised.  

An international research company, TABB Group, has divulged that the OTC market for bitcoin is significantly larger than the bitcoin exchange market in its extensive analytical report.

No doubt, in a way, exchange-traded Bitcoin markets have comparatively superior price transparency than OTC system. The counterparty risks are also lesser in exchange-traded markets. On the flip side, the flexibility of OTC market means that they suit better for trades that do not have high order flow or special requirements. In this context, OTC market performs the role of an incubator for new financial products.

Another major benefit of OTC system is that, unlike the “standardized” exchange-traded products, these instruments could be tailored so as to suit precise requirements of the clients, the resultant effects of a particular exchange rate or commodity price over a given period.

TABB claims that OTC crypto markets exceed exchange volumes by 2-3x. Like in equity markets, OTC securities are vital because they tender investors alternatives to just investing in the listed companies on the NYSE and NASDAQ.

Because most are not required to report to the SEC, while we observe that many OTC stocks are either penny stocks. However, not all listed OTC-traded companies have bad credit ratings; many companies simply don't want to participate in the expensive reporting process.  Likewise, crypto-aspirants and entrepreneurs will always have alternatives to do ethical and fair business practices.

Well, having mentioned that, as per the general notion, OTC counterparties with smaller exposures have usually been the most competitive on price for transactions. While such traders would have more risk appetite on smaller transactions than larger firms with an objective of enjoying leverage benefits. On the flip side, larger counterparties can bring solid prices for transactions up to millions of dollars in size–something not probable through the average OTC trader. 

Currency Strength Index: FxWirePro's hourly BTC spot index is inching towards -36 levels (which is mildly bearish), while hourly USD spot index was at 1 (absolutely neutral) while articulating (at 07:23 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex