Director of Global operations for MXC exchange, one of the largest digital asset exchanges in Asia.
Different statistics in the cryptocurrency industry aren’t always entwined. Some will see the popularity of OTC trading volume as a result of more people being interested in DeFi and yield farming. In reality, they couldn’t be further from the truth. Those who explore OTC markets are not the target audience for decentralized finance, at least in its current form.
Figuring out the exact volume passing through Bitcoin OTC trading is difficult. Providers can either disclose information or keep it to themselves. Despite this somewhat lack of transparency, it is safe to assume there are billions of dollars flowing through the different trading desks. Regardless of what may be the “current hot trend” in crypto, OTC traders will always try to buy in bulk if their situation allows or requires it. There is a good reason why OTC trading remains such a sought-after solution, even though DeFi is seemingly getting all of the attention lately. Primarily active on Ethereum's blockchain, DeFi - or decentralized finance - gives crypto holders options to put their assets to work and generate revenue. As such, many people would expect this to trigger a decrease in OTC trading, but that may not be the case after all.
Not everyone in this industry is looking to chase the next pump. Additionally, not everyone thinks of Ethereum as a “financial facilitator” either. The vast majority of onlookers in this world have no idea DeFi even exists, or who it is supposed to matter. Those why engage in OTC trading are often leveraging long-term strategies, instead of having a pump-chasing attitude.
Bitcoin and Ethereum will remain very prominent crypto assets in the industry. Not everyone is using these assets through fairly risky and mainly unaudited DeFi offerings. Instead, there are always those who hold these assets for a longer period of time. Bitcoin and Ethereum have seen a decent price increase throughout the past year, rising by 47.5% and 127.7% respectively.
Given the recent rise in the number of companies buying Bitcoin as part of their investment portfolio, OTC trading is likely to keep increasing. These people are drawn to cryptocurrencies for a reason that has nothing to do with what crypto influencers want others to believe to be important. In its current shape, DeFi has no real use other than mere speculation, and comes with far too many risks to boot.
During my research, I learned how the first OTC market was launched in 2014 by Circle. Since then, a cascade of new OTC providers has been coming to market, ranging from Kraken to MXC Exchange and Grayscale to Cointral, to name just a few. In my opinion, it is safe to assume there will be even more competition in the OTC segment over the years to come. Institutional demand for cryptocurrency is on the rise globally, and these people buy in bulk.
As competition emerges in OTC trading, several aspects become apparent. Clients want to use their preferred payment method and not worry too much about fees. A lot of platforms provide one or the other, but finding both under one roof remains difficult. Slowly but surely, this is changing with the help of crucial partnerships. Working together in the cryptocurrency industry will often have beneficial outcomes. Finding the right mix between innovation, convenience, and accessibility will be the key hurdle to overcome.
Again, this has very little to do with DeFi, yield farming, or any other current “hot trend”.Those who trade OTC are the ones who make a bigger impact on the overall appeal of Bitcoin. While these traders are not moving the price in a visual manner, the quantities of BTC moving hands tell a tale of their own.
DeFi Isn’t Ready for Institutional Interest
In reality, the people flocking to DeFi are often small-scale cryptocurrency enthusiasts. They are people who already own Bitcoin or Ethereum, and look to earn a quick buck by any means necessary. In the past, these people would invest in altcoins, such as Litecoin, Monero, NEO, DigiByte, and others. Today, they are trying to find the next DeFi “unicorn” token in the hopes of securing phenomenal returns.
This makes the DeFi crowd very different from the people who trade Bitcoin or Ethereum over-the-counter. Those people are not interested in whatever may be brewing behind the scenes, or terms that are clearly not sustainable in the long run. All they want is to diversify an existing - and oftentimes large - portfolio by obtaining Bitcoin first, and perhaps Ethereum if they have a larger risk appetite.
DeFi is , in its current state, seemingly going through a period of stagnation. The total value locked in the industry has not risen much recently, and struggles to remain above $11 billion. Compared to the OTC market - which was estimated by a $220 billion industry in 2018 - that is small change. This is a further sign of how OTC traders aren’t showing an increasing interest in decentralized finance as of right now.
Different Audiences are a Good Thing
Rather than relying on smart contracts, OTC traders engage with a buyer or seller directly. Although some may opt for trading crypto-to-crypto, the vast majority is more likely to be fiat-to-crypto or crypto-to-fiat.
The main draw of OTC trading is how one can buy and offload large amounts of cryptocurrency without influencing the market price directly. As Bitcoin’s momentum appears to be turning bullish again, there is likely to be an influx in OTC trading volume.
For exchanges and other service providers in the industry, catering to the needs of as many different types of users is crucial. While DeFi may seem appealing, OTC trading is where companies can make a genuine impact. With the right partnerships in place, there is an interesting future ahead. Both DeFi and OTC can co-exist without issues, but they clearly target completely different audiences, at least for now.
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