Multiple cryptocurrency trading companies have indicated that the results of the U.S. election and the recent rise in cryptocurrency prices have led to a rapid increase in over-the-counter trading volume in recent months. Clients are also beginning to pay more attention to altcoins beyond Bitcoin and Ethereum. Additionally, because institutions place great importance on liquidity, the emergence of options and other markets has significantly improved their hedging efficiency.
Over-the-counter (OTC) trading has grown significantly.
According to a report from The Block, Tim Ogilvie, the institutional head of the cryptocurrency exchange Kraken, stated that OTC trading is currently thriving. Kraken's OTC trading volume has increased by 220% year-on-year, with other cryptocurrency trading companies experiencing similar growth.
Jake Ostrovskis, an OTC trader at market maker Wintermute, noted that Wintermute has been in discussions with some clients for several years, and market participants hope to be well-prepared, with this election playing a key role in the final decision.
Another market maker, GSR's trader Ebert Lin, stated that with the rise of BTC, ETH, and altcoins, projects and investors have become more proactive in managing their funds and risks. Institutions and other entities are also looking for new opportunities and ways to engage in areas beyond BTC and ETH.
Institutions value liquidity, and markets like options help them hedge.
Market makers also pointed out that clients are beginning to move further along the risk curve, starting to engage in more cryptocurrencies—as long as they have sufficient liquidity.
Ostrovskis listed other cryptocurrencies that Wintermute clients frequently pay attention to, aside from Bitcoin and Ethereum, including Solana, BNB, Tron, and AAVE, because they have the strongest liquidity, naturally attracting clients there. Liquidity is the biggest driver for institutions.
Ostrovskis also pointed out that as options are more widely used, the derivatives market is maturing. He stated that large institutions looking to engage in cryptocurrencies need some form of hedging. Due to liquidity constraints, they may turn to the OTC desk for quotes, with options being a key solution.
Most institutions heavily rely on these products to hedge their underlying positions in stocks, bonds, or foreign exchange, while the introduction of Bitcoin ETF options has opened the door for major brokers to create cross-collateralized products, since using just the underlying ETF to bundle these products is too costly.
According to data from SoSoValue, the three Bitcoin ETFs currently issuing relevant options are BlackRock's IBIT, Grayscale's GBTC, and BTC. As of 12/23, the Open Interest (OI) totaled $7.98 billion.
This article, "The booming cryptocurrency OTC market, with the options market aiding institutional hedging," first appeared in Chain News ABMedia.
