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verifying customers may last months, requir-
ing large resources and trained personnel.”
The world’s crypto exchanges saw incred-
ible sign up during the end of 2017, so much
that it most likely held them back from mak-
ing large infrastructure changes to accom-
modate institutional investors.
Subsequently, around $100 billion of cryp-
tocurrencies were traded in the OTC market
in the first four months of 2018, according
to research firm Aite Group, which expects
to see an increasing market share of OTC
trades moving forward.
Where to trade
“There are many different things to consid-
er – the capacity for example, for any sort of
institutional investor sized-fund, you would
have real trouble running the volume you’d
need through the exchanges or existing trad-
ing options,” adds Linedata’s Gouldstone.
“If you are taking on an account or a fund
in the hundreds of millions or billions, it’s
hard to use existing standard coin exchang-
es, so you’re looking at OTC deals with
brokers or firms who will help you find that
liquidity.
Aite Group found that some institutional
24
Global Custodian
The Hedge Fund Annual 2018
A D M I N I S T R AT I O N ]
market participants are now routing their
orders to OTC desks for immediate access to
block-sized liquidity, minimised market im-
pact of trade orders, and security concerns
over exchange venues.
“Trading liquidity is becoming increasing-
ly fragmented on exchange venues, while
institutional players usually trade with
block-sizes – 1,000 Bitcoin one trade would
be normal for them,” explained the report
author, Gabriel Wang. “Trading on the OTC
venues gives them a piece of mind – as they
don’t need to put assets on the wallets pro-
vided by exchanges – anonymity of trade and
preservation of trading strategies as OTC
trades don’t get reported.”
It’s a new world for fund administrators, and
the rest the institutional market alike, crypto
has evolved from its humble beginnings as a
form of pizza payment to becoming one of the
most talked-about products on Wall Street.
Things have moved incredible quickly for
Bitcoin and co, so don’t be surprised if cryp-
tocurrency has become a fully-fledged and
serviced asset class in the near future. Those
that are already offering services around the
digital assets will be hoping to benefit from
first mover advantage.