Cryptocurrencies grew immensely popular in 2017, but throughout the following year, digital asset markets fell sharply in value. However, over-the-counter (OTC) market makers thrived in 2018, with a slew of business models in the industry catering to OTC clients.
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Billions Swapped Using Over-the-Counter Cryptocurrency Services in 2018
Even though digital currency markets dropped considerably in value in 2018, early investors and crypto whales who believe in the future of this asset class stocked up. Long term supporters will cost-average their positions by gaining as many coins as they can because they grasp the idea of digital scarcity. One business model that’s been thriving in 2018 is OTC crypto dealers or brokerage providers. Whales and big investors don’t purchase thousands of coins with traditional exchanges, because the premium for the trading fees would be outrageous. Instead, they use OTC providers like Circle, Itbit, Coincola, and Cumberland Mining. Other buyers will connect with miners and pool operators while other businesses and individuals will deal with Telegram, Wechat, and Skype OTC groups. This past April, reports revealed that cryptocurrency-based OTC desks using Skype have traded billions.
This year, many companies that had already provided digital asset exchange services have announced opening OTC desks for institutional clients. In June, Etoro announced opening an OTC platform for institutional buyers, and in May the OTC cryptocurrency service Genesis Global Trading received a Bitlicense to operate in New York. Blockchain.com started OTC operations in September and Coinbase and Hodl Hodl announced the launch of OTC desks in November.
After China banned crypto exchanges last year, over-the-counter trading started heating up. Throughout 2018 there were reports of a flourishing and unregulated OTC market in China. Last April, an executive at Overseas Chinese Investment Management, John DeCleene, described how bitcoin mules were making lots of money smuggling the cryptocurrency into the country.
“Selling and buying bitcoins on those OTC websites is the same as shopping on Taobao,” explained one of the bitcoin smugglers in an interview with Reuters.
Average Joes Don’t Use Crypto-OTC Desks as Bulk Rates and Private Quotes Have a Minimum Membership Requirement
Last week, the crypto options market Skew gave an insightful description of how over-the-counter operations work if a customer wants to buy 1,000 BTC from an OTC desk using Telegram or Whatsapp. Tens of thousands of dollars can be saved buying in quantity and most OTC programs have a $50,000 or more minimum to use their services. For instance, those who want to join the onboarding process and trade with Cumberland Mining must understand that the minimum trade size is $100,000 before continuing to fill out the required know-your-customer (KYC) information. Cumberland has been around since 2014 and is owned by the 25-year old Chicago trading firm DRW.
“We’re dedicated to delivering professional onboarding and relationship management, timely and efficient settlements, and 24⁄7 access to a unique depth and breadth of crypto-assets,” explains Cumberland Mining’s website.
OTC desks deal with a large network of mining operations and exchanges in order to serve as market makers and provide liquidity for trades. Even regulated OTC dealers use private chat rooms on Skype, Telegram, Whatsapp, and Wechat for quotes, discussions, and executing trades. Whales trading with established OTC providers use platforms that provide top of the line security like cold storage and multi-signature settlement. Like the neighborhood convenience store, a lot of the OTC desks today are open for trades 24/7.
The data stemming from 2018 and the spate of companies announcing new OTC operations indicates there’s a lot of demand for market makers executing huge trades on secondary markets. The growth of these types of businesses also shows how OTC markets have thrived despite a year of bearish cryptocurrency prices.
What do you think about the growth of over-the-counter cryptocurrency operations in 2018? Let us know what you think about this subject in the comments section below.
Images via Shutterstock, and Pixabay.
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Russian authorities may try to block Viber if the Federal Security Service (FSB) does not gain access to its encryption keys, according to comments made by the Russian Minister of Communications and Mass Media, Nikolai Nikiforov. “This matter concerns the FSB which has the powers to implement an order to provide the encryption keys. If the security services have problems with acquiring the keys, they can turn to the court and obtain a similar decision,” Nikiforov said, quoted by ITAR-TASS.
The messenger, which claims to have 900 million users, is very popular in Eastern Europe and is the top messaging app in countries like Belarus, Moldova, and Ukraine. In Russia, it’s currently the second most popular application, after Whatsapp. According to a survey conducted by the Russian Modern Media Research Institute in January, Facebook owned Whatsapp has a share of 59% of the Russian users, while Viber is used by 36%. The messenger of the Russian social network Vkontakte is third, with 32%. Telegram is used by 19% of the Russians, and Facebook Messenger – by 14%.
The clampdown on private messaging in Russia started when the country’s telecom regulator, Roskomnadzor, tried to restrict access to Telegram by blocking IP addresses used by the app. Despite some interruptions in its services, authorities have not been able to completely prevent the use of the massager. Roskomnadzor blocked about 20 VPN and proxy services which offering access to Telegram servers.
Skype is a messenger which started as a peer-to-peer and client-server system, features that were part of its appeal. After changing hands several times, however, the platform hasn’t kept much from the original P2P concept. In 2011, Skype was acquired by Microsoft which transformed it into a centralized service based on MS’s cloud computing platform Azure. Leaked documents revealing mass surveillance of global communications showed that the company had granted American intelligence unrestricted access to Skype. This year, the messenger announced it is going to offer end-to-end encryption for audio calls, text and multimedia messages through Private Conversations. The feature, however, will not be set as a default option and won’t be available for video chats.
A small group of about twenty over-the-counter (OTC) traders and clients including big investors, miners, payment processors and hedge funds, has reached a monthly trading volume worth billions of dollars. Instead of using an online exchange like Coinbase or Kraken, the participants close major deals chatting on Skype and settle them by sending fiat via bank wires and cryptocurrency directly to each others’ wallets.
Trading outside the popular cryptocurrency venues can be seen as risk management, trying to avoid losing funds in the case of another exchange hacking or any other incident that can take down an established exchange. “When the big hacks happen we tend to see business go up,” explained one OTC trader.