Above: Representations of the Ripple, Bitcoin, Ethereum, and Litecoin cryptocurrencies.
(Reuters) – Trading firms are negotiating buying, selling and lending digital currencies like Bitcoin and ether overheen Skype, catering to big investors looking to avoid rocking already volatile online exchanges.
Some 20 traders spil well spil clients such spil wealthy investors, bitcoin miners, payment processors and, increasingly, hedge funds, have te 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 stiff DRW Holdings, Goldman Sachs Group Inc (GS.N)-backed bitcoin payments rock-hard Circle and Fresh York-based broker-dealer Genesis Global Trading, wielded by Digital Currency Group.
OTC trades are not reported and independently audited, but some dealers said their desks often treat more than $100 million of cryptocurrency trades daily with ondergrens toegangsbewijs sizes inbetween $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 toebijten wij tend to see business go up,” said an OTC trader who asked to remain anonymous.
The OTC transactions are lodged through canap 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 vettig counterparties to avoid inadvertently helping launder illegal funds.
Genesis on average treats $75 million to $80 million ter trades daily, Ten times year-ago volumes, Chief Executive Michael Moro said, and te December klapper record monthly volume inbetween $1.Five billion and $Two billion.
Boston-based Circle treated up to $Four billion ter OTC trades monthly overheen the past year, spokeswoman Jennifer Hanley said.
Cumberland has bot adding employees and opening offices ter 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 fall under know-your-customer and anti-money laundering checks with their compliance departments, traders and investors said. Trades are lodged bilaterally, generally by the firm’s back office.
“We needed a device that wasgoed global and more or less free and Skype provided that,” said Cho. Skype declined to comment for this article.
Still, Cho said some dealmaking has began shifting from Microsoft Corps’(MSFT.O) Skype to more mainstream platforms.
To ask to meet te the middle of a bid and suggest, one party might say “Benji me” – referencing brief story and movie character Jongste Button who ages rearwards and is the same age spil his wifey mid-life. Less romantically, traders sometimes say “butt” to mean bitcoin.
Specialized crypto traders are zonderling, Cho said, so hires should have a good grip of risk management and rente te the fresh asset class.
Almost all traders on major desks are fellows te their mid-20s or early 30s. Genesis posted a junior trader job and all 60 applications were from guys, Moro said.
While business is growing, OTC desks are grappling with an absence of clear rules from regulators.
The U.S. Commodity Futures Trading Commission calls bitcoin a commodity. The Securities and Exchange Commission has said some cryptocurrencies may be securities without specifying further.
What type of asset is traded and whether it voorwaarde be traded with an accredited investor dictates if desks register with U.S. regulators and what compliance rules they go after, said Joel Telpner, playmate at Sullivan &, Worcester.
Genesis has registered spil a broker-dealer with the SEC and the Financial Industry Regulatory Authority. It only offers trading ter seven coins and, like other firms, records trader-client conversations. “We’re about spil very regulated spil you can possibly be te the digital currency space,” said Moro.
Circle’s OTC desk trades a “very limited” selection of cryptocurrencies “aligned” to its “regulatory licensure,” said Hanley, and wasgoed “working closely with regulators to foster transparency ter this developing market.”
Cumberland trades 25-30 cryptocurrencies and encourages regulators to work with participants to fully understand the market and the implications of any fresh laws and rules, a DRW spokeswoman said.