Building Trust In The Crypto Market

OTC crypto trading is here to stay. With an influx of institutional investors keen to avoid the associated risks, there is a pressing need for a different form of OTC crypto trading - via escrow, with a trusted partner.

The cryptocurrency ('crypto') market appears to be on the rise. Bitcoin, the main digital currency with a market share of over 60%, has seen its price increase from around $4,000 in April 2019 to over $10,000 in July 2019. This is despite concerns about the Dark Web, the global chatter about the recent Congressional hearings on Facebook's Libra, and confusion over regulation.

In tandem with increasing prices, institutional investors look to be getting more involved in the market. Last year, we saw institutional investors surpass high-net-worth individuals (HNWIs) for the first time in terms of purchasing cryptocurrencies. It's fast becoming part of a diversified investment strategy. Whilst there is still a strong UK/US footprint, we're seeing deals in Switzerland, Hong Kong and Canada.

The speed of professionalisation in the cryptocurrency market has ramped up, with much of the recent growth driven by more efficient financial infrastructure. This is helping financial institutions to take a more considered look at crypto, and use it to revamp their portfolios. As of July 2019, the total market capitalisation for these digital assets in circulation was just under $300bn. It's likely that this will rise above $300bn in the near future, though longer-term prospects depend on how the industry adapts to upcoming regulatory framework, with the likes of the Financial Industry Regulatory Authority (FINRA) looking to apply rules that will provide a more stable platform to trade digital assets whilst reducing risk.

Trading volumes have been boosted by a sharp rise in over-the-counter (OTC) trading as crypto projects look for liquidity. In the so-called 'Crypto Winter' of 2018, crypto-centric OTC desks, including Genesis Trading and Circle (backed by Goldman Sachs) started reporting tremendous growth and this trend is continuing. According to research by Diar, over 25% of Bitcoin in circulation now sits in addresses that have a balance of between 1,000 and 10,000 BTC - volumes that point to financial institutions.

These institutional investors opt for OTC trading as opposed to spot exchanges for a number of reasons. Exchanges often have low liquidity in their order books which rules out large orders, OTC allows large orders without an...

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