The growth of Circle Trade and the hidden OTC market driving crypto
Circle celebrates a big year with big boast about its Over The Counter crypto business.
As part of a wide-ranging blog on the state of the company, Circle’s founders have revealed a series of interesting stats about the payment firm’s performance during 2018.
The headline snippet from the cryptocurrency perspective – even in a year where the company launched its own stablecoin, USDC, and reduced the number of outstanding customer service tickets from its new acquired exchange Poloniex from over 200,000 (!) to less than 1,000 – is the news that its Over The Counter (OTC) trading desk, Circle Trade, desk handled a whopping $24bn dollars of business during that time.
The blog, credited to Circle co-founders Sean Neville and Jeremy Allaire, says that that large chunk of OTC trade – where large ticket accredited buyers bypass exchanges to buy large amounts of cryptocurrency in the hope of avoiding skewing prices – came in over 10,000 trades between 600 counterparties. It involved no less than 24 different currencies, too.
The pair say its performance means “Circle Trade has become a core liquidity provider to the entire crypto ecosystem — including miners, exchanges, project developers, and founders,” as well as “VCs, crypto funds, hedge funds, and family offices all around the world.”
Attention has turned more to the OTC business in recent months, with more attention being paid to how it reflects on the Bitcoin system as a whole as exchanges have been in decline. Back in April, we looked at the growing sector, and the increasing worry about rocking already skittish markets. Later in the year, China-based, Alibaba-owned, Alipay moved to shut down services associated with OTC trading in the region – as their growth had threatened to attract the ire of authorities in the wake of its ban of on cryptocurrency exchanges.
Despite the bearish sentiment dominating the visible element of crypto trading during all of 2018, back early September HyperVault’s Sean Walsh told us that business for his HyperTrade Over The Counter crypto trading service had been brisk, and that the rise of custodial solutions during the second half of 2018 was testament to that.
“As HyperTrade,” he said, “I’m brokering transactions for with an order size of 100,000 coins BTC… There are other people that I’ve met at this very conference that are brokering deals that are 20,000 coins, 60,000 coins.”
In November, Changpen Zhou of Binance posited the idea that the cryptocurrency market could be 50% bigger than being reported, telling CNBC that while exchanges we seeing significant falls in volume “what I’ve heard is the OTC market is at least as large as the live recorded volumes”.
He added that “so that is at least 50 percent of volumes that is not being reported on CoinMarketCap. But we’re not heading to that business, so we don’t know the real volumes”.
Another reflection of the growing importance of OTC trade, as large scale investors begin to position themselves for a potential new breed on institutionally focused crypto businesses launching through 2019, is VanEck-owned MV Index Solutions (MVIS) launching its OTC Spot Index, to chart the OTC price of Bitcoin across Circle Trade, Genesis Trading and Cumberland Trading desks in the hope of gaining a better understanding of how it reflects on the Exchange spot prices, and what influence it has on the market.
As VanEck works towards convincing the SEC that its Exchange Traded fund proposal – as the only one still standing after a year of outright rejections – is worth a thumbs up, it seems to believe that the monitoring of Bitcoin paid in such transactions potentially offers institutions a price discovery tool for Bitcoin that is not subject to the problems repeatedly reported with public trading platforms such as manipulation and volatility.
According to Gabor Gurbacs, director of Digital Asset Strategies at VanEck/MVIS, the new index adds “greater transparency and price discovery” for institutional investors, and “may pave the way for institutionally oriented products, such as ETFs, as well as provide further tools to institutional investors to execute institutional size trades at transparent prices on the OTC markets.”
With Coinbase now entering the sector too, and new institutionally based concerns in the pipeline from a range of companies. it would appear that the OTC crypto market is becoming increasingly powerful, and will continue to do so as large players look to create positions without rocking already skittish markets that are battered and bruised from a tough 2018.