By
Chimamanda U. Martha
April 23rd, 2024
OTC market is an important part of the crypto community, but the recent research claims that its volume has been underestimated, which can explain the difficulties of predicting movements of BTC and other cryptos.
The crypto sphere has grown enough to attract the attention of billionaire investors and influential institutions. Their interest is not theoretical – they are ready to invest big money in cryptos. But do not expect them to use popular crypto exchanges as big deals are carried out in the over-the-counter (OTC) market. What is more, the latest research of TABB Group has showed that crypto OTC market significantly exceeds crypto exchanges.
OTC trading eliminates formal exchanges from the process. The initial focus of OTC brokers was set on investors operating deals over $100.000. Later the sphere of interest extended to institutions. The other party is usually represented by some other institutions or miners. The existence of OTC market is nothing new for the crypto sphere, but its volume could be underestimated.
A research held by the international research and consulting firm TABB Group has unveiled the major role of OTC trading for the crypto sphere. The company has stated that the OTC market is twice or even three times as large as crypto exchange market. Given that the average volume of the exchange market is about $4 billion trades a day, the estimated volume of the OTC market varies from $8 billion to $12 billion trades per day.
There are several reasons why ‘whales’ prefer OTC trading to exchanges: cost effective deals, exclusive asset classes and personal support. However, the current state of crypto exchanges is giving no choice to big traders. One of the main issues is the lack of liquidity. Even though the daily volume of the top exchanges like OKEx or Binance exceeds $1 billion, the platforms may struggle processing multi-billion dollar orders. The transfer of the OTC trading to the crypto exchanges market would simply crash them.
The crypto sphere has already created reliable OTC infrastructure. Some of the OTC service providers are combining this direction with a wide range of B2B services like IBC Group, while others are also working as cryptocurrency exchanges like itBit.
No wonder the extremely popular Coinbase and Circle exchanges turn out to be one of the leading OTC brokers. Both platforms are building a bridge between the crypto community and regulators. Both Circle and Coinbase are seeking for the SEC registration and have experience working with institutions. Circle attracted China’s biggest Bitcoin mining company Bitmain as one of the key partners, while Coinbase intrigues institutional investors with the ability to trade digital currencies in bulk. The top crypto exchanges have everything needed for success in the OTC market, but the potential profit is not that easy to estimate as the TABB Group’s evaluation of the market’s volume raises many questions.
A software engineer and cryptocurrency trader Eric Wall expressed some reasonable observations in his Tweet:
Just read an estimate from the TABB Group (in a $5000 report) that OTC crypto markets exceed exchange volumes by 2-3x. That would mean 1-1.5MM BTC is traded OTC *daily*. Strange it’s not visible on the blockchain, which shows a meager 100k/day.
Source: https://t.co/5AxY82DM38 pic.twitter.com/pJrDoazqdk
— Eric Wall (@ercwl) 29 июля 2018 г.
According to the research held by TABB Group, the bitcoin exchange market represents just ¼ of the actual volume of the dominant cryptocurrency. That fact is not only highlighting the influence of OTC trading – it means that prediction of the crypto movements is more about guesses rather than analysis.