Some of Bitcoin’s Biggest Trades Happen Out of Sight

More than $1 billion worth of bitcoin changes hands every day on the major cryptocurrency exchanges, according to VanEck’s ETF (exchange-traded fund) proposal to the SEC.

But that figure vastly understates bitcoin’s trading volume. It’s actually much, much higher.

VanEck’s estimate is based on exchanges that follow anti-money-laundering (AML) and know-your-customer rules. Dozens of exchanges – some of them very large – were excluded.

According to CoinMarketCap, which includes many of those “unregulated” exchanges, bitcoin’s total daily volume ranged from $3.5 billion to $5.5 billion in the last week alone.

But even CoinMarketCap underestimates bitcoin’s true trading volume.

Volume Building Despite Tough Environment

Remember, these volumes were achieved while accompanied by occasional hacks, little regulatory guidance, bans and various government restrictions, and user-unfriendly exchanges. The number of hoops investors jump through in order to buy or sell cryptocurrencies on exchanges is unbelievable.

To say it’s been less than an ideal environment is an understatement.

What’s more, these volumes were also achieved without the participation of the vast majority of institutional investors.

This is pretty well known.

What’s not well known?

That a small, exclusive group of around 20 well-heeled investors have been making huge bets in bitcoin since last year.

While small in number, they’re responsible for billions of bitcoin being traded “behind closed doors” every month. VanEck estimates these whales trade between $250 million and $500 million in bitcoin every day.

Operating in the Shadows

These guys don’t use exchanges like Coinbase. And for good reason. As I mentioned earlier, these exchanges are cumbersome to use. They’re exposed to the prying eyes of government agencies. They’re subject to cyberattacks. And they’re far too public. More on this last point…

With an average deal size of $250,000, this exclusive group doesn’t want to move markets. So they do their trading in private via trading desks.

Some of these cryptocurrency desks handle more than $100 million a day, according to a recent report by Reuters.

Digital Currency Group’s Genesis Global Trading, for example, averages trades totaling $75 million to $80 million daily. Circle traded up to $4 billion a month over the past year.

Not all whales use private trading desks. For better or for worse, many of them use exchanges – especially those that allow margin trading. For better because these big trades add to the liquidity of bitcoin for all investors. And for worse because they can move and sometimes spook the market with big trades that are essentially debt-driven.

Some exchanges allow margin traders to leverage their principal up to 20 times. That’s way too much.

Coinbase, on the other hand, recently allowed margin trading up to a more reasonable three times. Other requirements include being a corporation with a net worth exceeding $1 million or having a minimum of $5 million invested on a discretionary basis.

Coinbase is one of the more responsible exchanges. As it gears up to serve institutional investors, it needs to remain compliant with the Commodity Futures Trading Commission. And that means operating within the rules of the Commodity Exchange Act.

Moving From the Pre-Bitcoin ETF Era to the Post-Bitcoin ETF Era

Until the first ETF is approved by the SEC, Coinbase will probably serve as a surrogate ETF for “large” investors purchasing bitcoin.

But the fun really begins when the first ETFs go live.

Even the bearish-on-bitcoin bank UBS says approval of a bitcoin ETF “is widely considered potential grounds for a seismic shift in sentiment.”

After all, 20 “large” investors making big bitcoin bets through private trading desks is a drop in the bucket compared to institutional money. There are around 245 crypto-focused funds right now, according to Autonomous Research, representing billions of dollars waiting to be invested in bitcoin (and, down the road, other cryptocurrencies).

My co-founder, Adam, has his eyes squarely on this coming seminal event and the wealth-generating opportunities that will follow. In fact, he’s researching the coins you need to invest in to take advantage of the flood of Wall Street money right now.

Things are about to change for the better. And Adam is getting ready to tell you exactly when and what you should do, so you can strike while the iron is hot.

Good investing,

Andy Gordon
Co-Founder, Early Investing