ReutersTrading firms are negotiating buying, selling and lending digital currencies like bitcoin and ether over Skype, catering to big investors looking to avoid rocking already volatile online exchanges.
FILE PHOTO: A web camera is seen in front of a Skype logo in this photo illustration May 26, 2015. REUTERS/Dado Ruvic/File Photo
Some 20 traders as well as clients such as wealthy investors, bitcoin miners, payment processors and, increasingly, hedge funds, have in around five years spawned an over-the-counter market moving hundreds of millions of dollars of cryptocurrencies daily, mostly via online messaging, participants told Reuters.
“Generally, you would go trade through an OTC desk when you have a large block trade you want to do without moving the market too much or incurring too much slippage,” said Kevin Zhou, founder of cryptocurrency-focused hedge fund Galois Capital. The traders work at firms including Chicago-based Cumberland Mining, a division of proprietary trading firm DRW Holdings; Goldman Sachs Group Inc (GS.N)-backed bitcoin payments firm Circle and New York-based broker-dealer Genesis Global Trading, owned by Digital Currency Group.
OTC trades are not reported and independently audited, but some dealers said their desks often handle more than $100 million of cryptocurrency trades daily with minimum ticket sizes between $75,000 and $250,000.
OTC trading may appeal to those wary of stashing coins and fiat currency with digital exchanges after high-profile hacks and other issues.
“When the big [exchange] hacks happen we tend to see business go up,” said an OTC trader who asked to remain anonymous.
The OTC transactions are settled through bank wire transfers and by sending cryptocurrencies to digital wallets.
To be sure, OTC trading carries its own risks to participants. Price discovery is murkier, and there is higher settlement risk. Clients also need to trust brokers to vet counterparties to avoid inadvertently helping launder illegal funds.
VOLUME SPIKE
Genesis on average handles $75 million to $80 million in trades daily, 10 times year-ago volumes, Chief Executive Michael Moro said, and in December hit record monthly volume between $1.5 billion and $2 billion.
Boston-based Circle handled up to $4 billion in OTC trades monthly over the past year, spokeswoman Jennifer Hanley said.
Cumberland has been adding employees and opening offices in Asia and Europe, said global head of trading Bobby Cho. Cho previously worked at exchange itBit and SecondMarket, DCG’s Genesis’ predecessor. Most investors message traders directly, but are required by firms to undergo know-your-customer and anti-money laundering checks with their compliance departments, traders and investors said. Trades are settled bilaterally, generally by the firm’s back office.
“We needed a tool that was global and more or less free and Skype provided that,”
