CCData is delighted to announce the launch of its Crypto OTC Markets: Primer & Insights report, created in partnership with Finery Markets.
2023 was challenging for the industry, given the post-FTX landscape and ongoing regulatory struggles faced by numerous centralised exchanges. As a result, a considerable number of traders and institutions turned to the OTC market in search of a more stable and secure market structure.
This report offers vital insights into the structure of the digital asset OTC markets. Due to the private nature of most OTC trades, it can be difficult to procure data on crypto OTC trading, often resulting in limited available data. The report features data collected from interviews with key liquidity providers, offering perspectives on the OTC market’s performance and trends in a challenging environment.
OTC Crypto Desks Outpace Select Institutional Exchanges in 2023, Averaging 1800% More Volume Each Day
LMAX and ErisX are two centralised exchanges that maintain high entry requirements, as such, they can be used as proxies to measure institutional trading volumes. In 2023, LMAX and ErisX generated around $75 million in average daily spot trading volume.
The spot OTC market size, as reported from a limited yet significant set of responses, averages a substantial $1.44 billion in daily trading volume. Based on these results, observable differences are displayed, with OTC Desks averaging ~1800% more volume every day. This highlights the high level of preference shown to institutional OTC providers vs CEXs throughout 2023.
Factoring in full coverage of CEXs within the industry, OTC average daily volumes remain small in comparison, with average spot volume for CEXs being recorded at $23.4 billion per day. This suggests that spot volumes are still dominated by CEXs in general, due to their ease of accessibility and convenience to retail traders. However, it also shows the large capture that may be possible by OTC providers, as the space matures and more sophisticated players enter the market due to regulatory clarity and improved accessibility.
Majority of Crypto OTC Desks See Rising Number of Clients YoY
The client base in the OTC crypto markets appears to be expanding significantly, with 80% of the respondents reporting an increase in their client numbers in 2023 compared to 2022. This growth is indicative of a rising interest and engagement in the market, reflecting a positive trend in market participation.
Conversely, 13.33% of the organizations reported maintaining a similar client count, suggesting stability for a segment of the market, while a small fraction of 6.67% experienced a decline in their client base.
Overall, these figures collectively point towards a generally healthy and growing OTC crypto market, despite a few instances of stagnation or reduction in client numbers.
OTC Markets Provided More Resilient Trading During SVB Collapse
The significant volatility of the Silicon Valley Bank crisis in March 2023 highlighted the resilience of OTC markets, as they managed to maintain relatively consistent spreads while CEXs experienced significant spread variability - showcasing that during periods of high volatility, OTC markets can offer more stable and reliable environment for executing trades.
The results show significantly tighter spreads during the period on OTC, regardless of the trade size. In fact, both standard deviations were incredibly close, with just 0.1% difference between 1BTC and 10BTC executions. In comparison, Binance maintains a 10% standard deviation, with Poloniex seeing 78.5% and Binance US significantly worse off, with 130%. These stark differences highlight the consistency of OTC market execution regardless of size and volatility.
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