Institutional investors are becoming more involved in the $ 220 billion cryptocurrency market than many observers could achieve.
Buyers such as hedge funds have replaced high net worth individuals as the largest buyers of large amounts of digital coins valued at over $ 100,000 through private transactions, according to Bobby Cho, global manager of trading at Cumberland, a trading unit of Chicago cryptocurrency by DRW Holdings LLC, which handles over-the-counter purchases.
"Waiting for institutional investors to accept encryption" has long been the battle cry for digital currency enthusiasts as prices rose and collapsed last year, amid changing expectations of regulatory acceptance of the asset class.
Meanwhile, the big sellers – the miners, whose computers generate coins confirming the transactions – have started to plan regular sales of coins instead of keeping or waiting to download them during the market rallies. Many of the biggest miners have also created their own banks and liquidity operations.
"What is showing you is the professionalization that is happening at all levels in this space," Cho said. "The days of Crypto's Wild West are really turning the corner."
The over-the-counter market eased anywhere from $ 250 million to $ 30 billion in trades a day in April, according to researchers including Digital Assets Research and TABB Group. Exchanges have recently managed about $ 15 billion in daily trading, according to CoinMarketCap.com.
"We have seen triple-digit growth subscribe to our OTC business," said Jeremy Allaire, chief executive office of Circle Internet Financial based in Boston. "This is a great area of growth".
While the OTC market declined along with cryptocurrency prices, it probably did not decline as much as the stock market volume, which is down 80% from its peak, according to Digital Asset Research. Many institutional buyers have recently dived into cryptocurrency because the market has failed to manifest itself, said Cho.
"One of the biggest critiques of the crypt by institutional investors was volatility," said Cho. "In the last four to six months, the market has been trading in a very narrow range, and it seems to match the traditional financial institutions that are becoming more comfortable in space". A third of DRW transactions are happening during Asia, he said.
Big buyers and sellers prefer private sales because trade transactions can shift coin prices. In a private sale, the parties can set the price upfront, instead of worrying about a sudden dip or spike just as the transaction takes place.
"If they are liquidating [coins]They are liquidating them through OTC, "said Tom Flake, founder of Bcause, a mining plant supplier whose clients are institutional miners with hundreds of thousands of machines, the biggest ones selling their coins to sellers either directly or through intermediaries.
One of the biggest reasons to buy coins outside of trading, however, is that often there are not as many coins put up for sale as institutional buyers would like to buy, according to Sam Doctor, managing director and head of data science research at Fundstrat Consultants global.
"At this point in time, as more and more institutions are starting to enter the market, there is more than one imbalance," Dr. Doctor said. That's why brokerage firms are emerging to help institutional buyers find inventory, he said.
In addition, miners can offer something unique: new, "virgin" coins, which some investors wish. These coins hold a premium of up to 20%, according to Travis Kling, founder of the Ikigai hedge fund. It's easier to prove that you have not been involved in money laundering operations, he said.