Investment

3 of the best-known crypto trading firms are banding together on a new venture to bring crypto to the next level

Quick Take

  • 3 OTC desks — Cumberland, Genesis Trading, and Circle Trade, are providing data for a new bitcoin index
  • The index, MVIS Bitcoin US OTC Spot Index, will serve as a base for VanEck’s ETF and could be used by institutional investors to get a better sense of what the market looks like
  • VanEck’s bitcoin specialist Gabor Gurbacs says OTC data is more reliable than exchange data

A band of cryptocurrency trading desks is opening up their books to help institutions better understand the price of bitcoin — and they’re hoping the move will take the floundering market to the next level. 

Three major cryptocurrency over-the-counter traders — Genesis Trading, Cumberland, and Circle Trade — announced they would provide data for a new index, dubbed MVIS Bitcoin US OTC Spot Index. The new product, which is run by MVIS, a division of asset manager VanEck, is a standout given it draws data from OTC desks as opposed to exchanges, such as Coinbase and Kraken. “Transparency is coming to the over-the-counter market,” Gabor Gurbacs, head of digital asset strategy at VanEck said in an exclusive interview with The Block. “Before this no one would publish the price and it happened behind the scenes.”

Whereas most of the attention in crypto has been on large spot exchanges, most of the action happens on OTC desks where trades are executed in the shadows. Trading volumes across the crypto market have floated around $20 billion in recent days, but some estimates put OTC volumes significantly higher. “The big deals have to go OTC. A lot of the exchanges limit the order size, so you have to break up your orders, and that’s just fatal,” explained Monica Summerville, director of fintech research at Tabb Group, in an interview with Forbes.

The new feed has long been in the works, as per documents filed with the Securities and Exchange Commission. In August, VanEck said it planned to use pricing from over-the-counter trading desks as the basis for its own exchange-traded fund. Its request was denied earlier this year. The firm hopes this pricing index will remedy regulators’ concerns about manipulation in spot cryptocurrency markets. Since the firms providing pricing data for the new index are regulated by the Commodities Futures Trading Commission, manipulating it would be more difficult, says Gabor.

To address concerns respecting the potential for manipulation of bitcoin exchange prices, the bitcoin held by the Trust will be valued based on an index that tracks the price of bitcoin in the U.S. OTC market,” an SEC filing said. OTC desk prices are not subject to manipulation in the absence of misconduct by the trading desks themselves,” the filing added. 

A crypto ETF has long been viewed as a natural next step in the asset-class’ maturation process, but it has long evaded the market. Even JPMorgan in February described it as a holy grail. “Investors need wallets to trade the physical Bitcoins today, making it hard to access. ETFs are frequently traded and highly accessible via investors’ brokerage accounts.”

As for the feed, it could also be used by institutional investors to inform their own trading decisions. To be sure, firms such as Intercontinental Exchange have built their own crypto data feeds, based on exchange data, suited for institutions. “This is a very different pricing source,” Gurbacs said.

Still, skeptics contend that an OTC-based feed has its draw backs. Dave Weisberger, CEO of crypto data provider CoinRoutes, said self-reported data can reflect a firms position. “Using actionable, displayed quotes is much more transparent.”