Coinbase, the Silicon Valley-backed cryptocurrency exchange, is taking a step towards increasing its appeal to institutional investors; by introducing Over-The-Counter (OTC) digital asset trading.
Coinbase to Offer ‘Block Trading’
According to a report on Business Insider on May 1, 2018, Coinbase will initiate the process of ‘block trading,’ that allows for investors and traders to place orders – usually in the magnitude of millions of dollars – by means of a special trading order book. Block trades wouldn’t be shown in the ‘normal’ trading book and prevents large orders from dramatically moving the market.
Similar to Ripple, Coinbase seeks out the corporate and institutional audience as its client demographic, while always maintaining a high standard of legal compliance and keeping away from regulatory controversy.
One of the present concerns in the cryptocurrency markets is its lack of function for institutional investors, who typically trade in the millions and choose regulated platforms. However, the current market is nascent for such trading activities, as a large order can cause instant price swings in the volatile market.
Also, in case an investor chooses to purchase “X” quantity of a thinly-traded ‘altcoin,’ there’s an off-chance that the order isn’t ‘filled,’ or, causes the characteristic “pump,” during which the price rises by a massive percentage over a very short timeframe.
To combat these issues, Coinbase’s block trading would ensure institutional orders are filled outside of the regular order-books, by selling to external markets and updating the transactions after a short delay; this would help prevent the enormous price swings to an extent.
Coinbase is shaking up its trading platform as well, by introducing new services to be as close to a reputed equity exchange. The exchange is in the process of recruiting a “Market Structure Head,” who would explore liquidity incentive programs, new order types, and other market safeguards.
As per Larry Tab, the developers would beef up liquidity on Coinbase, as well as appealing to institutional investors:
“Those are the things they need to be thinking about, how do we get Virtu, Citadel, DRW, Susquehanna to make markets. It’s going to be a combination of incentives, order types, connectivity, co-location, and pricing.”
Crypto-Exchanges Increasingly Adding Features to Attract Institutional Investors
Circle, wholly owned by Goldman Sachs, offers block trading as well, and recently announced its increase in minimum trading size for an order, setting it at $500,000 from the earlier $250,000.
Coinbase also offers its “Custody” service, which acts as a digital-vault for clients whose cryptocurrency holdings are valued at more than $10 million.
Furthermore, the San Francisco-based Coinbase will set-up a new office in Chicago for its block trading service, presumably to operate in the vicinity of Chicago’s top trading institutions, such as CME Group, the Chicago Stock Exchange, and Cboe Global Markets.