Bitcoin’s Price Action Is Partially Dictated by Over-the-Counter (”OTC”) Trading Desks

One underrated mechanism of the price action are the over-the-counter (”OTC”) trading desks that deal with large volumes of Bitcoin buys and sells

Over-the-counter (OTC) trading desks play a crucial role in facilitating large-volume trades of Bitcoin and other cryptocurrencies. These trades occur off-exchange and typically involve interactions with high-net-worth clients or institutions. While exchange activity is transparent and accessible to the public, OTC trading operates behind the scenes, making it less visible to external observers. However, despite this relative obscurity, the trends and patterns emerging from OTC trading can significantly influence Bitcoin's price movements.

In this article, we delve into the world of OTC trading, exploring its mechanisms, key players and geographical presence, and highlighting its impact on Bitcoin's price. We also uncover some interesting observations made by OTC trading desks regarding the demand for stablecoins and the varying premiums or discounts at which they trade.

The Hidden Forces Shaping Bitcoin's Price Action: A Look at OTC Trading Desks

Bitcoin’s price is always often speculated on. One underrated mechanism of the price action are the over-the-counter (”OTC”) trading desks that deal with large volumes of Bitcoin buys and sells off-exchange and with large private clients. This is especially the case in Asia, where large companies handle OTC trading across financial hubs like Hong Kong and Singapore.

Public spectators don’t have access into what really happens - the system is relatively opaque. And yet the trends of this trading behind the scenes plays an essential role in Bitcoin’s price. The OTC trading that happens around the world represent hidden data and factors.

Activity is moving to Bitcoin and Ethereum, and the stablecoins, while altcoin token volume is shrinking, with the US Bitcoin Spot ETF approval driving a lot of momentum

The CEO of Hashkey OTC, the OTC trading arm of Hashkey Group is Liang Li - though he prefers to go by Leo. Leo observes that he’s seen more interest in Bitcoin and Ethereum from traditional investors with the launch of spot ETF products related to them.

“For smaller tokens, it’s really not picking up very much,” he adds - tracking market performance overall. The ETF approval has drawn traditional eyes to Bitcoin and Ethereum trading - but there’s been a flight to safety among some OTC users as they look to shrink their exposure to more risky altcoins.

At Netcoins, a Canadian company, there was also “had a large increase in trading volume from Q4 ‘23 from US-driven momentum and a significant increase trending around the Bitcoin ETF approvals.”

USDT is trading at a premium in Asia, while USDC is trading at a discount

During price action that saw Bitcoin’s price descend to around the $50,000 range from highs of $73,000, Leo from Hashkey also observed that demand for Tether was very strong, with it trading at a premium compared to the US dollar. This might be explained by, among other things, people refusing to cash out into a domestic currency and trying to wait until the market for Bitcoin to stabilize.

On the other hand, USDC seldom trades at a premium - and at some points, like with the failure of Silicon Valley Bank, it actually trades at a loss. Netcoins observed the same thing in North America around the same time, though in North America, stablecoins tend to trend closely to the exact value in dollars - and that stablecoins are notably more popular in Asia.

More companies are accepting cryptocurrencies, which is creating more offramp activity for OTC desks - and which shows a new class of OTC client

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There’s been more acceptance of cryptocurrencies from payment companies and gaming companies according to Leo. This has led to OTC desks like HashKey being more active in helping offload cryptocurrencies to keep businesses running afloat in fiat.

On the one hand, this shows the movement towards integrating Bitcoin and other cryptocurrencies more closely when it comes to payments overall and making it more of a medium of exchange. On the other hand, as more large businesses integrate with Bitcoin, unless their payroll and other costs are also in Bitcoin or other cryptocurrencies, they will be a hidden sell factor - a quiet drip in the background that accounts for some of the price action down. Though, since these trades happen with OTC desks, it’s not as likely to affect prices as if they happened on an open exchange.

How does OTC trading work?

The intricacies of OTC trading are not known to many - the ritual of it, for example. I’ve written previously about how clients at a physical location at Genesis Block, a physical OTC trading space, were invited in and treated to tea in a ritual that probably wouldn’t be unfamiliar with those getting onboarded as high net worth individuals at banks like HSBC.

While exchanges have a process that can be seen online, OTC desks are a bit of a mystery - somewhat by design. Leo described Hash