Author: Tim Copeland, The Block; Translator: Tao Zhu, Jinse Finance
Top cryptocurrency trading companies have reported a rapid increase in OTC trading volume over the past few months, with election results being a key driving factor.
Tim Ogilvie, head of institutional at cryptocurrency exchange Kraken, said, "Long story short, OTC is now heating up." He added, "Prices have increased, but volumes have skyrocketed."
Ogilvie noted that Kraken's OTC trading volume has increased by 220% year-on-year, with similar growth reported by other cryptocurrency trading companies.
Jake Ostrovskis, an OTC trader at market-making firm Wintermute, said the market was quiet until the prices rose before the election, as market participants hoped to prepare for the results. He noted that Wintermute has been in communication with some clients for years, and they believe this election has opened the green light for finally starting to trade.
Ebert Lin, a trader at market-making firm GSR, stated that the company's trading volume has significantly increased since the election.
He stated, "With the rise of BTC, ETH, and altcoins, projects and investors are becoming more proactive in managing their funds and risks. Institutions and other entities are also looking for new opportunities and methods to gain investment opportunities outside of BTC and ETH."
A trader from an OTC trading company pointed out that recent trading volumes easily match the figures from the peak of cryptocurrency interest in 2021.
Brett Reeves, head of Go Network at BitGo, stated that the election has been a major driver of recent trading volume, with trading volume reaching two-thirds due to the election results over the past three months.
"The U.S. is the largest market in the world, and that could be more favorable for them, which is significant," Reeves said.
Risk appetite is continuously increasing
Clients are also starting to move further along the risk curve, venturing into more cryptocurrencies—as long as they have sufficient liquidity.
"There may be a general sense that people are willing to take on more risk. You know, we look at this from two perspectives. One is just buying, but we also see people moving off the risk curve. They start with Bitcoin. Then they move to Ethereum, Solana, and perhaps they start moving to some [altcoins]," Ogilvie said.
He added that Solana is a risk asset with significant trading volume in recent months.
Ogilvie listed some relevant assets, including Bitcoin, Ethereum, TRON, and AAVE, in addition to pointing out that Wintermute's clients typically focus on these assets. He said this is because they have the strongest liquidity, and clients are naturally drawn there.
"I do think liquidity is the biggest driver for institutions. They are just looking for places to scale down. And retail obviously has the ability to be more selective and try different themes," he said.
Similarly, Lin stated that GSR's clients are looking for new ways to gain investment opportunities outside of Bitcoin and Ethereum.
Expectations for cryptocurrency OTC trading
Looking ahead to the new year, Reeves from BitGo expects the growth in demand to continue, especially for Bitcoin and Ethereum. He noted that OTC trading has reduced some volatility in the exchange market, although volatility remains greater than in traditional finance.
"Compared to previous years, it is much calmer now, as people believe that this asset class will actually continue to exist. These ETFs have solidified this position. Therefore, I think we are seeing this impact both on the OTC trading market and on broader cryptocurrency adoption," he said.
Reeves added that the crypto market might see another ETF—whether it's Solana, XRP, or Ostrovskis—while he noted that one key development he's watching is the increasing maturity of the derivatives market as options continue to be used more widely. He stated that large institutions looking to engage with cryptocurrencies need some form of hedging. Due to liquidity constraints, they may turn to OTC for quotes, while options are a key solution.
"Most of them will heavily rely on these products to hedge their underlying equity books, even against bond or forex risks; they will depend on volatility products for hedging," he said. "So I think this is a huge growth area. I think we've already seen this, and I think this may start to emerge next year."
Ostrovskis added that the launch of Bitcoin ETF options has opened the door for major brokers to create cross-collateral products, whereas the costs of creating these products using just the underlying ETF are too high due to fee reasons.
"This makes it very close to the stock market again," he said. "It opens up a whole pool of capital there. I think it will be interesting to see where it flows into."
