Coinbase to introduce OTC cryptocurrency block trading

Posted: 2 May 2018 1:02 pm
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Coinbase aims for a piece of the quickly growing OTC pie.

Coinbase is introducing over the counter (OTC) block trades, insiders say to Business Insider. OTC cryptocurrency trading occurs off the main exchange order books and is typically used to buy or sell high volumes without affecting the market.

By the numbers, it's a prudent move for Coinbase, which is widely known as one of the largest cryptocurrency firms in the world and for having ambitions of becoming the Google of cryptocurrency.

It's less obvious than the frothier open-market hype, but OTC trading has grown at an extraordinary clip even while regular volumes remain flat. It's not unusual for some desks to move over US$100 million of crypto a day, and the world's biggest OTC exchange handles about US$2 billion a month, with expectations of it growing even more. The big money, it seems, hasn't lost any interest in cryptocurrency, even as retail traders remain wary.

The main reason is because slippage is a very real problem, especially with markets being relatively thin now compared to the start of the year. It can be especially problematic for buyers who want to use less-widely-accepted fiat currencies like AUD. Slippage refers to inadvertent price movements when buying or selling in high volumes and can cut a sizable percentage off each purchase.

Coinbase has been serving institutional clients through its GDAX exchange since 2014, but it is now gunning for larger customers, Business Insider speculates.

OTC trading might be an important service for any exchange that wants to capture the influx of institutional money to digital currency markets. It's also sprucing up its trading systems in other ways through high profile new hires and by exploring new order types, liquidity incentive programs and other market safeguards for GDAX, consultant Larry Tabb explained to Business Insider.

"Those are the things they need to be thinking about," Tabb said. "How do we get [big traders] to make markets... It's going to be a combination of incentives, order types, connectivity, co-location, and pricing."

Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VEN, XLM, BTC and NANO.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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