Although the past year has seen a drastic market rout, institutional investors are becoming more and more involved in the $220 billion cryptocurrency market than most realize. Although volume seems to be dropping one exchanges, behind the scenes there has been a craze booming for over-the-counter institutional buyers. And it shows no reason to slow down.
Whereas before, the largest cryptocurrency buys used to be from wealthy individual buyers, now they mainly come from hedge funds. According, to Bobby Cho, global head of trading a Cumberland, a Chicago-based cryptocurrency trading unit of DRW Holdings LLC, the biggest buyers recently have been these hedge funds. Handling over-the-counter purchases, Cho’s is not much different from many other cryptocurrency trading units: institutional buyers are in. The “Wild West days of crypto are really turning the corner,” Cho says in his interview with Bloomberg.
According to Digital Assets Research and TABB Group, the over-the-counter market had somewhere between $250 million to $30 billion in trade every day in the month of April. Recently, we have seen somewhere around $15 billion in trades everyday according to CoinMarketCap. The report further found that, although the OTC market has in fact taken a hit volume-wise due to the declining price action this year, it has not suffered as much as exchanges. Exchanges are, according to the report, down some 80 percent since their peak.
Many institutional buyers are now hopping in because the large price swings that once used to be always present in crypto markets have slowed down a bit this year, for now.
According to Jeremy Allaire, CEO of Circle Internet Financial:
“We’ve seen triple digit growth enrolling in our OTC business. That’s a big growth area.”
Others have remarked how, even now, there seems to be an imbalance with the amount of liquidity present and the demand. Sam Doctor, MD at Fundstrat Global Advisors, comments that the supply right now is simply not there – and neither are the ways to buy. This is why OTC businesses have been spiking as of late, because they are being depended upon to facilitate these dealings.
Sometimes, in the case of miners, they oftentimes sell their coins via an auction of some kind. If you own a mining machine, with hundreds of thousands of mining pools, you’re likely not selling these on an exchange. Instead, you sell them directly over-the-counter or through brokers. However, the real reason miners, institutional buyers, and other hedge funds purchase cryptocurrency OTC is simply because of liquidity. There simply are not enough enough coins offered for sale for institutional buyers.
Now mostly comes the next step: can crypto firms open the floodgates to these new institutional buyers and provide the necessary infrastructure for custodial services and easy buying? Can the space provide compliance and regulatory oversight? These are the fundamental questions that will ultimately tame crypto and make it palatable for the masses if resolved.
Institutional Legitimacy Grows
This all comes at a time when Bakkt, the crypto exchange begun by the New York Stock Exchange, is about to open its doors. Unlike other futures exchanges, Bakkt will offer physically-delivered Bitcoin futures contracts. Bakkt has the potential to only accelerate this new crypto-craze amongst institutional buyers. And it seems like it may be the icing on the cake needed to swing the bear market around.
Bakkt will be a joint venture with Microsoft, Boston Consulting Group, and Starbucks. The project has a grant vision. And even plans to create apps to give people easy ways to spend Bitcoin.
With Bakkt right around the corner, expected to be released in November, it seems unsurprising that so many institutional investors and hedge funds are trying to enter the crypto space. Frankly, it makes sense: and with future custodial services becoming more and more easier, with the help of Coinbase and others, we can expect this kind of interest to only continue to grow.
However, we are still right on the cusp of a breakthrough in the crypto space: the necessary infrastructure for large-scale buying of crypto-assets, like in traditional finance, is still being built. But with custodial services, OTC buying, and Bakkt’s highly-anticipated release, we can expect the difficulties associated with buying and storing cryptocurrencies to disappear over time.