Slippage in cryptocurrency trading has prompted Coinbase, the largest digital currency exchange, to introduce over-the-counter (OTC) block trades, according to a report. The move will allow traders to execute high volume orders without affecting the market.
Coinbase to Lure Institutional Traders With OTC Block Trades, Report Says
Coinbase, a U.S.-based cryptocurrency exchange and one of the largest in the world by trading volumes, is about to launch its over-the-counter (OTC) trading service, which should bring more stability and precision to execution.
Off the main exchange order book, OTC block trading is set to attract a growing number of large market players, increasingly attracted by the trading opportunities offered by bitcoin et al., as the market cap blows up above $400 billion, with over $23 billion traded in 24 hours.
OTC trading within the cryptocurrency market has grown extraordinarily in recent months. The world’s largest OTC exchange deals approximately $2 billion a month and a number of trading desks have transacted over $100 million worth of cryptocurrencies daily, with minimum ticket sizes between $75,000 and $250,000.
The San Francisco-based company has been positioning itself as a valuable solution for the institutional trading industry since 2014 with its GDAX (Global Digital Asset Exchange) exchange. Supporting OTC block trades may be a major step forward to lure large institutions that make markets.
Larry Tabb, the founder of consulting firm Tabb Group, told Business Insider that OTC trading might be an important service for any exchange that wants to capture the influx of institutional money to digital currency markets.
In addition to supporting OTC block trading, Coinbase is reportedly hiring a head of market structure in charge of exploring new order-types, liquidity incentive programs, and other market safeguards. Tabb believes these incentives will bring institutional liquidity to GDAX.
“Those are the things they need to be thinking about. How do we get Virtu, Citadel, DRW, Susquehanna to make markets. It’s going to be a combination of incentives, order types, connectivity, co-location, and pricing”, Larry Tabb said in an email.
As Coinbase guns for larger customers, over-the-counter trading brings a number of benefits for traders who are looking at the cryptocurrency market. The new service should be able to widely reduce current slippage problems that penalize high-volume transactions in thin markets. Inadvertent price movements are more noticeable in less-widely-used currencies.
OTC block trading is growing, but firms still face the absence of clear rules from regulators in the United States. The Commodity Futures Trading Commission (CFTC) considers Bitcoin a commodity, while the Securities and Exchange Commission (SEC) says some cryptocurrencies may be securities.
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