‘Over-the-counter’ crypto trades flourish as big investors avoid exchanges

Many big crypto investors avoid putting big trades through online exchanges for fear of upsetting volatile markets. 

Reuters is reporting that many cryptocurrency trading firms are buying, selling and lending digital currencies with ‘over-the-counter’ services utilising Skype, as a way of catering to big investors’ wish to avoid “rocking already volatile online exchanges”. Many are also reluctant to store their crypto stashes with hackable online services; “When the big [exchange] hacks happen we tend to see business go up,” said one anonymous trader is quoted as saying.

It’s story asserts that such trades account for hundreds of millions of dollars of trades daily, quoting Kevin Zhou of hedge fund Galois Capital as saying firms like his use such services “when you have a large block trade you want to do without moving the market too much or incurring too much slippage”.

Such services, which are being offered by Goldman Sachs Group-backed Circle among others, are neither reported nor independently audited, despite some traders racking up volumes of $100m per day. Minimum trade sizes range from $75,000 to $250,000, depending on a company’s policy.

This type of trading comes with its own set of risks for investors, though. Not least, that anyone using OTC traders is implicitly trusting them to vet whoever they’re doing business – or else they could end up helping launder illegal funds. With bigger firms, this means both parties in any trade will have undergone the SEC-mandated know-your-customer and anti-money laundering checks that standard stocks and shares trades would require.

However, as regulation in the sector is currently largely a matter of interpretation, there are still – no doubt – grey areas regarding exactly what rules apply. Thus for the moment, trading entities looking to stay as safe as possible with regards to regulation, are limiting the number of currencies they trade in, and recording all conversations between client and trader.