An interesting trend that played out during 2018 is one in which institutional investors have moved to over-the-counter (OTC) desks of cryptocurrency exchanges from traditional exchange platforms.

According to data from Diar, in 2017, Bitcoin volume on Coinbase during traditional market hours has been very close to the Grayscale Bitcoin Investment Trust (GBTC) share volume. This means that investors were buying Bitcoin on Coinbase just as much as it was purchased via Grayscale Investments.

2018, on the other hand, shows a divergence between the two.

Coinbase’s Bitcoin volume during OTC market hours has been growing throughout the year, while GBTC’s share volume has seen a steady fall. This could be due to the fact that institutional investors started to have more trust in Coinbase, as regulatory issues around Bitcoin and Coinbase as a Qualified Custodian had been ironed out during the year. As a result, investors started switching to the OTC desk of Coinbase, which as a cryptocurrency exchange offers their services around the clock.

The OTC Effect

Another interpretation of this change is that cryptocurrency OTC desks have risen in popularity during 2018. A testament to that is the numerous OTC desks opened by the majority of existing cryptocurrency exchanges. To further confirm the increased activity in OTC markets, Van Eck subsidiary MVIS launched in November a Bitcoin OTC Price Index in partnership with Circle Trade, Cumberland, and Genesis Trading.

In spite of a year when prices kept tumbling, trading activity has remained stable. Moreover, as prices decline in markets, demand usually increases. In cryptocurrency markets, the same can be observed as an OTC desk revealed that order requests have been doubling every month in 2018. With prices as low as right now, it has become difficult for the exchange to find matching sell orders.

Crypto Versus Traditional

Another factor that might be playing out here is that some of the major financial institutions have announced digital asset exchanges that will be launched in 2019. Intercontinental Exchange (ICE) will launch the Bakkt platform. Fidelity is also releasing its own digital asset venture. ErisX is another exchange backed by TD Ameritrade and NASDAQ. With these announcements all throughout 2018, this could have had an impact on investors’ decision on how to invest in Bitcoin.

One of the clear advantages of OTC desks at cryptocurrency exchanges is the 24/7 availability. This could prove to be essential in cryptocurrency markets, which have no closing hours. Financial products based on Bitcoin, like GBTC or the Bakkt Bitcoin Futures, that trade on traditional exchanges will be limited to the opening hours of the platforms. Considering that investors will be exposed to a volatile market that is continuously trading, having restricted access to markets could prove to be tricky.

What do you think? Will crypto financial products on traditional exchanges lag behind in volume to 24/7 available services? Or will Wall Street trade on venues it is familiar with? Let us know your thoughts in the comments below!

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