I’ve posted about this before but it bears repeating given recent events and lots of people asking why the price isn’t crashing instantly below $16,500
The crypto exchange volume and prices we see quoted are not real. They’re a fabrication of automated bots trading back and forth and flashy UI.
The vast majority of actual crypto trading volume occurs behind closed curtains, via OTC trading desks (https://finance.yahoo.com/news/otc-much-larger-bitcoin-exchange-212305761.html ). All of the big exchanges have OTC trading arms.
Say you want to sell 1000 bitcoin. You don’t log into your basic Coinbase account and dump it all with a spot trade….you’d tank the market and make way less than you wanted. Instead, you contact Coinbase’s OTC desk. They then “look around” their network of institutional investors and big money traders to find an interested buyer. The buyer (often a market maker firm) offers a single price they’re willing to pay for the entire lot of 1000, and if the seller accepts the trade is executed. Exchange takes a commission.
These OTC trades do not have any immediate impact on the spot price (unless the crypto buyer decides to dump their purchase on the open market).
When the market tanked throughout 2022 in the wake of Celsius, Terra, FTX etc, almost all real retail trade volume was essentially wiped out. So over the last couple months, the public exchange price isn’t moving much because all but the most die-hard cult members have mostly already sold. But there are still big players holding some huge bags of their magic money.
Given the extreme dip in demand, right now OTC trades are happening behind closed curtains likely at massive discounts. As these institutional crypto firms unwind and liquidate in the carnage, Bitcoin/other crypto could be changing hands for 20-30% less than spot and wed have no idea.
But here’s where it all gets dirty…
Within the US, almost all of this OTC trading is facilitated by 2 banks…Silvergate and Signature.
Silvergate’s main line of business is offering an inter-connected payment network for major crypto companies. They provide an on-ramp/off-ramp for fiat, and enable instant money transfers between the 1600 institutional crypto firms who are part of the network.
Their SEN payment network is what provides the fiat liquidity that enables these big OTC trades to happen.
But as we learned today, Silvergate’s crypto deposits have been decimated to the tune of $8 billion. This includes all the fiat money used as liquidity for OTC trading.
Without Silvergate and Signature, big money cannot move quickly, and the OTC trading cartel breaks.
If Silvergate goes down, whales looking to cash out big stacks quickly will need to either rely on the open market. Thats when you’ll see the price really tank.
TL;DR - Silvergate and Signature Bank are the glue enabling most of the off-market trading in the US. Without them, everything goes boom very fast
No comments:
Post a Comment