As bitcoin (BTC) approaches a record high, sophisticated investors and high-net-worth individuals are taking steps to trade without influencing the price in the spot market. One notable trend is the significant rise in the use of over-the-counter (OTC) desks, which have seen an increase of over 200,000 BTC in the past five months.
What are OTC Desks?
OTC desks are a platform that allows two parties to trade directly without disclosing information to the wider market. This feature makes them particularly attractive to institutions and high-net-worth individuals who prefer to avoid having their transactions appear on crypto exchange order books. By using OTC desks, these investors can transact large quantities of bitcoin without affecting the market price.
Growing Demand for OTC Desks
The data from CryptoQuant reveals that OTC desks now hold 416,000 BTC ($30 billion), compared to an average of less than 200,000 BTC during the first quarter. This significant increase is one reason why the bitcoin price has been trending in a sideways channel for the past seven months.
Why are OTC Desks Attractive?
The primary advantage of using OTC desks lies in their ability to allow large-scale transactions without impacting the market price. This feature is particularly beneficial for sophisticated investors and high-net-worth individuals who require flexibility in their trading activities.
Impact on Spot Market Price
The abundance of bitcoin on OTC desks means that U.S. spot-listed exchange-traded funds (ETFs) could make purchases without affecting the spot price. In fact, Tuesday’s record daily purchases by the bitcoin ETFs represent just 2% of the total bitcoin balance on OTC desks.
Historical Context
During the first quarter, with bitcoin posting an all-time high shortly after the ETFs received regulatory approval, the share of inventory ranged between 9% and 12%. However, since September, the total OTC desk balance has held pretty steady. The 30-day change is just 3,000 BTC, down from a June high of 92,000 BTC.
Current Trends
The current trend indicates that daily inflows into OTC desks have declined to the lowest levels this year. CryptoQuant notes that in October, OTC desks averaged around 90,000 bitcoin, a reduction of 52% compared with the first three quarters of the year. If demand for BTC continues accelerating amid low inflows into OTC desks, this could propel bitcoin to new highs.
Implications for Bitcoin Price
For bitcoin to go higher this cycle, daily inflows into OTC desks need to start reducing, as is observed currently. This trend suggests that investors are becoming more confident in their ability to trade without influencing the spot market price. As a result, it is likely that we will see increased demand for BTC, which could propel the asset to new highs.
Conclusion
The rise of OTC desks in bitcoin trading has significant implications for the market. With over 416,000 BTC held on these platforms, sophisticated investors and high-net-worth individuals can now trade large quantities without affecting the spot price. As the trend indicates a decline in daily inflows into OTC desks, it is likely that demand for BTC will continue to accelerate, leading to potential new highs for the asset.
References
- CryptoQuant: OTC Desk Balance
- CoinDesk Indices: Bitcoin Price Data
