Author: Tim Copeland, The Block; Translated by: Tao Zhu, Jinse Finance
Top cryptocurrency trading firms stated that OTC trading volume has surged in recent months, with the election results being a key driving factor.
Tim Ogilvie, head of institutions at cryptocurrency exchange Kraken, stated, “To make a long story short, OTC is now booming.” He added, “Prices have risen, but volumes have surged significantly.”
Ogilvie noted that Kraken's OTC trading volume has increased by 220% year-over-year, with other cryptocurrency trading firms experiencing similar growth.
Jake Ostrovskis, an OTC trader at market-making firm Wintermute, said the market was quiet until mid-year, when prices rose ahead of the elections, and market participants wanted to be prepared for the outcomes. He pointed out that Wintermute has been in discussions with some clients for several years, who believe this election has given the green light to start trading.
Ebert Lin, a trader at market-making firm GSR, stated that the company's trading volume has increased significantly 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 ways to gain investment opportunities beyond BTC and ETH.”
A trader at an OTC trading firm noted that recent trading volumes easily match the figures seen during the peak of cryptocurrency interest in 2021.
Brett Reeves, head of BitGo's Go Network, stated that the elections have been a significant driver of trading volume in recent months, with trading volume reaching two-thirds in the past three months due to the election results.
“The U.S. is the largest market in the world, and they might be more favorable to this, which is significant,” Reeves said.
Risk appetite is continuously increasing
Clients are also beginning to move further along the risk curve, venturing into more cryptocurrencies—as long as they have sufficient liquidity.
“There may be a general feeling that people are willing to take on more risk. You know, we look at this from two angles. One is just buying, but we also see people getting off the risk curve. They start with Bitcoin. Then move to Ethereum, Solana, and maybe they begin to shift 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, namely 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 believe liquidity is the biggest driver for institutions. They are just looking for places where they can 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 beyond Bitcoin and Ethereum.
Expectations for cryptocurrency OTC trading
Looking ahead to the new year, BitGo's Reeves expects the growth in demand to continue, especially for Bitcoin and Ethereum. He stated that OTC trading has reduced some volatility in the exchange market, although volatility is still greater than in traditional finance.
“It’s much calmer now than in previous years because people believe this asset class will actually continue to exist. These ETFs have solidified that position. Therefore, I believe we see this impacting the OTC trading market as well as broader cryptocurrency adoption,” he said.
Reeves added that another ETF could emerge in the crypto market—whether it be Solana, XRP, or Ostrovskis, while he mentioned that one key development he is watching is the increasing maturity of the derivatives market as options continue to see wider usage. He stated that large institutions looking to access 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, or even bond or forex risks, and they will depend on volatility products to hedge,” he said. “So I think this is a huge growth area. I think we’ve already seen that, and I think we might start seeing this in the next year.”
Ostrovskis added that the launch of Bitcoin ETF options has opened the door for major brokers to create cross-collateral products, while it is too costly due to fees to create these products solely using the underlying ETFs.
“It makes it look very much like the stock market again,” he said. “It opens up an entire pool of capital there. I think where it flows in will be interesting.”
