While many who are interested in buying or selling crypto can do so on standard exchanges, institutional investors along with high-net-worth individuals have to look to OTC markets to execute their trades. This is because they transact large sums of Bitcoin (BTC).
The idea of Bitcoin OTC markets for traders, and miners alike is that it offers a much-needed transition from crypto to fiat because most crypto exchanges don’t conduct trades in fiat currency.
How Large are OTC Markets?
OTC markets have become more popular and competitive in recent months. Many institutional players have started trading through Octagon Strategy, Genesis Trading, and Circle.
Despite the fact that the actual size of the OTC market is difficult to determine, the director of technology at Digital Asset Research, Lucas Nuzzi, puts the total daily volume of OTC markets at $250M.
There are Still a Few Hiccups For Institutional Investors in The OTC Space
The lack of sophistication in the OTC space hasn’t created a calm environment for institutional investors to conduct transactions comfortably. Because crypto OTC trading typically requires trust to a large extent because the goal is cashing out into fiat currency. Particularly, trading in OTC markets exposes investors to a host of risks.
Due to financial regulations and money laundering laws, institutional investors don’t like the idea of completing large wire transfers related to crypto directly. Hence, there’s no sure way to determine whether a trade agreed on will actually lead to a fiat transfer completion.
There’s positive news here after all. A sign of this is Fidelity’s announcement this week that will be storing and trading digital assets for institutional investors. This can replicate the clearing and settlement as well as manage the risks involved in the OTC space.