While you would be waiting for institutional investors’ entry in the crypto market, let us tell you they have already started chipping in! The latest report from Bloomberg notes that “institutional investors are becoming more involved in the $220 billion cryptocurrency market than many observers may realize.”
Bobby Cho, global head of trading at Cumberland, the Chicago-based cryptocurrency trading unit of DRW Holdings LLC, said that high-net individuals are now getting replaced by hedge funds in the crypto market. The hedge funds are said to be the biggest buyers for over-the-counter purchases. Bobby Cho said that these hedge funds have bought cryptocurrencies more than worth $100,000.
Crypto markets have corrected by nearly 80% since the beginning of this year. Moreover, the prevailing regulatory uncertainty has kept institutional investors from participating in the market. This has caused further speculation as retail investors remain confused. However, Bobby Cho says that the market is learning from its past mistakes.
Back when the crypto market was at its peak, many miners and sellers were holding on to their assets waiting to gulp more profits. But when the market started to post losses, many of them started selling at the recovery points. Cho says that the miners are now selling cryptocurrencies at regular sales.
“What that’s showing you is the professionalization that’s happening across the board in this space,” Cho said. “The Wild West days of crypto are really turning the corner.”
According to researchers from Digital Assets Research and TABB Group, the over-the-counter (OTC) market has facilitated trades worth $250 million to $30 billion per day in April 2018. On the contrary, exchanges have handled $15 billion worth daily trades during the same period.
“We’ve seen triple-digit growth enrolling in our OTC business,” said Jeremy Allaire, CEO of Boston-based Circle Internet Financial. “That’s a big growth area.”
Digital Asset Research notes that since then although the OTC market has declined with the falling crypto market, it hasn’t dropped considerable enough. Cho further notes that institutional investors have, in fact, jumped into the crypto market since market volatility has come a bit under control.
“One of the biggest criticisms of crypto by institutional investors has been the volatility,” Cho said. “Over the last four to six months, the market has been trading in a very tight range, and that’s seems to be corresponding with traditional financial institutions becoming more comfortable diving into the space.” A third of DRW’s transactions are happening during Asia hours, he said.
Buyers and sellers with a huge appetite always prefer private sales as exchange transactions can bring volatile price swings. In private sales, the order prices are fixed in advance. Hence, soon as the orders get executed and the transactions take place, there is not a wild price swing.
Another reason which Sam Doctor, managing director and head of data science research at Fundstrat Global Advisers, points is that in normal trades over exchanges, institutional investors don’t get to buy a huge quantity at one time.
“At this point in time, because more and more institutions are beginning to enter the market, there’s more of an imbalance,” Doctor said. “That’s why brokerage firms are springing up to help institutional buyers find inventory,” he noted.